Sunday, July 26, 2009

Competitive devaluation

Bernanke still a speed demon

This article makes some interesting points and argues that major economies have resorted to a defence against a devaluation policy pursued by the US, in particular the Euro appreciated 88% against the dollar between 2000 and 2008. This resulted in the asset bubble. Bernanke is blamed particularly for not realising the bed debt consequences of an easy money policy also " his theory, inflation was related only to the output gap. " . The output gap is criticised for being arbitary and meaningless in cases where " current account deficit is large, an economy has no slack resources " i.e.(presumably) were the output gap to be filled it would out of debt driven necessity be appropriated by government, Zimbabwe as example. Argues against zero interest rates.

Posted by stillthinking @ 01:21 AM (785 views)
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3 thoughts on “Competitive devaluation

  • Lots of good points. The following looked insightful:
    “Zero interest rates are purely distortive, fuel speculation, and destroy savings and capital. Zero interest rates do not necessarily increase investment. Firms rely heavily on their internal funds from profits or equity shares for investment. Zero interest rates do not necessarily induce firms to invest if firms predict no profits from expansion. US banks sit on $1 trillion in excess reserves for which they find no safe or profitable use at zero interest rates. The ultimate effect of unorthodox fiscal and money policy will be a runaway inflation in the years ahead that will depress real activity”.

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  • Clockslinger says:

    At otally lucid and concise article. Now I’m wondering wtf to invest in to hedge against massive inevitable inflation! Any suggestions anyone?

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  • paranoia blue says:

    Gold!

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