Or even worse if widespread deflation became a serious problem. People who can afford their mortgages can suck it up when their houses are coming down in price because they know that they'll be there for 20/30 years if necessary and they'll have a roof over their heads and (eventually) a nice little nest egg in equity. But when deflation becomes widespread it's not worth buying a new fridge freezer because it'll be cheaper next year, and business won't upgrade their infrastructure until it's absolutely necessary. If everybody comes to that conclusion about all goods then the economy stops, feeding deflation on itself. The World managed to absorb the downturn during Japan's problems but if the same happened in the US the global economy couldn't cope, and all those bright little emerging economies would go backwards by decades. And after they came to the conclusion capitalism wasn't for them who would be there, smiling? With power comes responsibility.
"Inflation is going to be stopped" one way or another. Either voluntarily by The Powers, or involuntarily by the bankruptcy of nearly all US citizens...
Correct. It's also known as "wringing-out phony excesses and restoring value"... a necessary and healthy component of a capitalistic economy. In case you haven't figured it out for yourself already... economic contraction, recession, depression are ALL healthy in the long run for the financially prudent.
These will happen regardless of whether the FED dropped rates as quickly as it did or not. The dual busts in housing and credit are seeing to that - higher interest rates would have only compounded the situation further. Roubini is predicting this recession will be the worst since the Great Depression, there's no need to over egg the pudding.
As Dr. Phil would say, "you couldn't be more wrong if you cut your own head off". There is MUCH more to the mess than whether the Fed raised or lowered rates... There is a fair chance Roubini is right.
The other thing to keep in mind is how long it takes to get rid of a deflationary mindset when rates are already at historic lows. In 2003 Japan had thought it finally recognized that "deflation" was their problem and they were going to appoint a BOJ governor that would go ahead and flip the inflation switch. Five years later, here we are and Japan is hoping that this year will be the year of inflation, despite the fact that their "Fed rate" has been at 0-0.5% for years. All the while it is not the central bank causing the problem, it is their protectionist policies and the fact that they are producing goods that the public simply doesn't want to comsume. The point is that the "FED" doesn't have nearly as much control as most people imply. Ultimately the consumer is in control. In the US we have demostrated that we are willing to buy the goods. Now the g-ment and FED policies need to eliminate the possiblity of deflation. Consumers will prevent a depression if they aren't given a reason to delay purchases.
It will take "as long as it takes to restore value".. not by any phony thing determined by Gummint. The reason "rates are low" in the US is because the Fed and Gummint have been feeding us BS, manipulating data, and lying about damned near everything so that we don't fully understand the inflation phenomenon. If we did, we'd all be demanding much higher rates on bonds and savings... Gummint wouldn't like that.
I disagree. You could explain the "reality" of it to every citizen in the country and then have a popular vote. I'd put money on the fact that people would chose for the g-ment to act similarly to what it is now.
Yes, in the sense of "sticking a finger in the dike to prevent a breech today"... what about chronic, destructive, self-serving policies which CREATED THE VERY PROBLEMS THEY ARE NOW TRYING TO COMBAT??? You can't laude the fire bug who extinguishes the fire he created, you know.
I don't disagree with you there, but that is past and the situation is what it is. The question is in prescribing the proper solution. You are suggesting that we call a spade a spade, and allow for an overnight reversion to the mean. Again, every citizen could be completely informed of the entire truth behind the situation, and a majority vote would still have the FED and g-ment practicing a similar policy to what they are now. America has experienced a relatively long period of immense prosperity and even now the majority of Americans aren't feeling much of a pinch. It is a hard case to prove to the majority of citizens that we should've been doing something drastically different.