Thursday, 22 September 2011

The Sell-Off

Friends who are watching in horror the "sell-off" in global equity markets will recall that we predicted this only a few days ago if the Fed came up with anything less than full-blown QE3 - and that is what is happening even as we write. We also told PIMCO's Bill Gross that his advice to sell greenbacks was totally foolish - and we were right again, as you can see!

But monetary policy will not suffice unless central banks can threaten "investors" with rising inflation, because then and only then will they realise that placing capital in treasuries will not save them and debtors will be encouraged to invest and spend again.

These are not decisions that can be left to "private investors" for the simple reason that only action by "the collective capitalist" (the State) will prove that "we have nothing to fear but fear itself". That (!) is "Rooseveltian Resolve"! Of course, the other leg of such US government and central-bank activism would be to lower the dollar and pressure the Chinese dictatorship into abandoning support for its State-Owned Enterprises and expand domestic demand through higher wages and higher exchange rate for the yuan. See this Stratfor link:

3 comments:

  1. Joseph, monetary policy not sufficing has been something completely lost in the cacophony that is orthodox neoclassical thought. The opprobrium delivered to anyone advocating government involvement in economic affairs is symptomatic of how far free market fundamentalism has dominated discourse. I think that austerity will beget a depression if policy makers do not come to their senses. You have (understandably) been very critical of the mandarins in Beijing and their crackdowns on political and societal freedom. It will be interesting to see how China's financial sector deals with the non performing loans on its books. Thanks for the Stratfor link.

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  2. Economics could be useful as a tool to shape reality. Unfortunately, it has become a fantasy landscape, entertaining the minds of so many refugees fleeing reality.

    What's needed is a sound monetary policy. The implication is that the dollar must lose value when in fact that is impossible because the dollar is the reserve currency. We've gone full circle.

    The remedy is think outside the box. For example, the chinese people should get a credit card so they can max it out. Also, land reform is way over do.

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  3. If you don't mind, this proves what I've always been saying:

    Link

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