Friday, September 14, 2012

In the short term, deflation is the main concern.

While the bulls  are cheering now, bears think as long as central bankers keep printing money, volatility will continually  be suppressed , I however remain skeptical. And I thought the historical lessons we learnt about government intervention is Japan, not Zimbabwe. Government kept propping up zombie banks while private credit continues contracting. While the debt grows bigger, the whole economy slips into balance sheet recession, which is very different from a currency collapse/region change scenario, deflation pressure dominants as dependency ratio rises.

Austrian economics also teaches us government intervention always have unintended consequences, the longer volatility is suppressed by government, the more violent it becomes when next time it spikes.

Central bank balance sheet as percent of nominal GDP. ECB,FED,BOE,BOJ
monetary base (that is, currency outstanding plus bank reserves) relative to GDP for four countries.

M2/Monetary Base
US 10 cities /Japan, Tokyo

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