Seven Faces Of "the Peril" Re-Released 29Th July 2010

[AvidFan]

Seven Faces of "The Peril"

James Bullard

Federal Reserve Bank of St. Louis Review

September-October Issue

SevenFacesFinalJul28.pdf

From the conclusion:

The global economy continues to recover fromthe very sharp recession of 2008 and 2009. During the recovery, the U.S. economy is susceptible to negative shocks which may dampen ination expectations. This could possibly push the economy into an unintended, low nominal interest rate steady state. Escape from such an outcome is problematic.

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Indeed. Deflation is a very bad thing. Where's RB when you need him?

SevenFacesFinalJul28.pdf

[AvidFan]

Last paragraph:

To avoid this outcome for the U.S., policymakers can react differently to negative shocks going forward. Under current policy in the U.S., the reaction to a negative shock is perceived to be a promise to stay low for longer, which may be counterproductive because it may encourage a permanent, low nominal interest rate outcome. A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities."

Bingo.

[Minderbinder]

He's suggesting the BoE's QE program as the best route away from deflation so for; a better approach than US, Japan etc efforts at QE.

It'll be interesting to see if he can reverse Hull's deflationary spiral when the season starts.

[lowrentyieldmakessense(honest!)]

fools