Greenspan and the Next Five Years
It has been a while between posts but today's has a worthy link.
Please see the link above to the article from Bloomberg which was reposted in today's Australian Financial Review. The article discusses Dr. Greenspan's 'legac'y and his view that the consequences of unregulated lending and expansive asset bubbles could not be forseen. Furthermore Dr. Greenspan a.k.a. the Maestro, a.k.a. Easy Al argues that lax monetary policy did not contribute to The Great Recession. Sigh. Fortunately it is no longer the sole duty of this blogger to defend a rational interpretation of economic management. The denial of responsibility for the worst economic mismanagement in recent history is perhaps predictable, but it is also now futile.
Where we will need magic in the next fives years is in extricating ourselves from the "monetary accomodation" and concommitant indebtedness that is characteristic of so many major global economies. There has been much discussion recently of Greece's precarious economic position and that of its fellow "PIGS": Portugal, Ireland, and Spain. Much larger economies are also mired in severe indebtedness such as Great Britain, Japan, and the United States. There appears at this stage of The Great Recession only one path open to work through this situation. Namely, that is to run inflation in the mid- to high- teens for a period of years to devalue the level of global indebtedness and effectively default on their obligations.
Any talk of "green shoots" or recovery in this environment is nonsensical. The first signs of reflation is asset prices is likely to be driven by a tide of inflation. Nominal prices may be rising while real prices stagnate or decline. There will be no return to the false prosperity of last boom until a decade has past, and global economies have deleveraged (probably by constructive default).
Sadly the worst of this is still to come.
Please see the link above to the article from Bloomberg which was reposted in today's Australian Financial Review. The article discusses Dr. Greenspan's 'legac'y and his view that the consequences of unregulated lending and expansive asset bubbles could not be forseen. Furthermore Dr. Greenspan a.k.a. the Maestro, a.k.a. Easy Al argues that lax monetary policy did not contribute to The Great Recession. Sigh. Fortunately it is no longer the sole duty of this blogger to defend a rational interpretation of economic management. The denial of responsibility for the worst economic mismanagement in recent history is perhaps predictable, but it is also now futile.
Where we will need magic in the next fives years is in extricating ourselves from the "monetary accomodation" and concommitant indebtedness that is characteristic of so many major global economies. There has been much discussion recently of Greece's precarious economic position and that of its fellow "PIGS": Portugal, Ireland, and Spain. Much larger economies are also mired in severe indebtedness such as Great Britain, Japan, and the United States. There appears at this stage of The Great Recession only one path open to work through this situation. Namely, that is to run inflation in the mid- to high- teens for a period of years to devalue the level of global indebtedness and effectively default on their obligations.
Any talk of "green shoots" or recovery in this environment is nonsensical. The first signs of reflation is asset prices is likely to be driven by a tide of inflation. Nominal prices may be rising while real prices stagnate or decline. There will be no return to the false prosperity of last boom until a decade has past, and global economies have deleveraged (probably by constructive default).
Sadly the worst of this is still to come.
posted by Peter at 9:08 am
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