I normally shy away from talking about monetary policy. To me it's self-explanatory that falling/rising prices are either caused naturally and innocuously by the market or forced up/down by the government's intentional/unintentional detrimental manipulation of the market.
To me, that's where the subject ends. Obviously, most economists these days have a different view. Modern economic theory states that prices fall during recessions and thinks therefore falling prices <i>cause</i> recessions. It's akin to saying people with the flu have fever, therefore the fever must cause the flu. Fever can cause its own problems, but your body does it for a reason.
<img src="http://latewire.com/images/fekken_random/chinese_finger_trap_creation.jpg" align="right" style="margin-left:10px" />The "exit strategy" talk is spawned by the economic enigma I call the "Chinese Finger Trap". Essentially, the Fed is printing tons of money to stimulate the economy as it's both fun and entertaining (similar to sticking your fingers in the finger trap). However, if they keep doing that, eventually life's going to really suck (due to inflation, speculation on inflation, and all manner of evil). Therefore, at some point, they have to take their fingers out.
The problem is, of course, the deeper they get themselves into the trap, the harder it is to pull out without doing some damage. In the event Bernanke stops printing money, those pitiful, beleaguered financial institutions will have no source of funds for their poor investments, demand (and therefore prices) for those investments will fall, and the balance sheets for these companies will look like Bernanke's afterbirth.
The "Exit Strategy" is a myth--that somehow there's a way out of the trap other than tearing your own fingers off. Of course the metaphor ends there, as the toy is fairly harmless, <a href="http://iaftowned.ytmnd.com/">this game is not</a>.
This video specifically attacks the myth and pretty well beats this dead horse until tender and delicious. It's also a meager 25 minutes long, which is pretty amazing considering it totally eviscerates modern pop-econ.
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I normally shy away from talking about monetary policy. To me it's self-explanatory that falling/rising prices are either caused naturally and innocuously by the market or forced up/down by the government's intentional/unintentional detrimental manipulation of the market.
To me, that's where the subject ends. Obviously, most economists these days have a different view. Modern economic theory states that prices fall during recessions and thinks therefore falling prices <i>cause</i> recessions. It's akin to saying people with the flu have fever, therefore the fever must cause the flu. Fever can cause its own problems, but your body does it for a reason.
<img src="http://latewire.com/images/fekken_random/chinese_finger_trap_creation.jpg" align="right" style="margin-left:10px" />The "exit strategy" talk is spawned by the economic enigma I call the "Chinese Finger Trap". Essentially, the Fed is printing tons of money to stimulate the economy as it's both fun and entertaining (similar to sticking your fingers in the finger trap). However, if they keep doing that, eventually life's going to really suck (due to inflation, speculation on inflation, and all manner of evil). Therefore, at some point, they have to take their fingers out.
The problem is, of course, the deeper they get themselves into the trap, the harder it is to pull out without doing some damage. In the event Bernanke stops printing money, those pitiful, beleaguered financial institutions will have no source of funds for their poor investments, demand (and therefore prices) for those investments will fall, and the balance sheets for these companies will look like Bernanke's afterbirth.
The "Exit Strategy" is a myth--that somehow there's a way out of the trap other than tearing your own fingers off. Of course the metaphor ends there, as the toy is fairly harmless, <a href="http://iaftowned.ytmnd.com/">this game is not</a>.
This video specifically attacks the myth and pretty well beats this dead horse until tender and delicious. It's also a meager 25 minutes long, which is pretty amazing considering it totally eviscerates modern pop-econ.
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(Advanced)
