from The Daily Reckoning ,re Gillian Tett
"I met with Alan Greenspan and Paul Volcker in Washington last week", she began.
It must have been interesting, we thought. A real contrast. An honest, stand-up guy and a snivelly schmuck together in the same room.
"The real issue on everyone's mind is the same. How can you get back to normalcy? Debt levels will have to go down. It will have to happen someday. But how?
"The good news is that it can happen without a major calamity. It's already been done once – after WWII. Then, average sovereign debt-to-GDP levels were nearly 100%.
"What happened then was also a form of repression… but it was barely noticed. Inflation rates rose while bond yields remained low and the economy grew.
"This had the effect of reducing the real value of debt without triggering an economic shutdown. This was not the intentional, or expressed goal of central bankers at the time. But the result was that much of the war debt was inflated away. Debt levels went to normal levels after a few years. And then, interest rates could rise."
How about that, we thought to ourselves; the Fed was successful by accident. Probably the only way it is ever successful. Gillian went on…
"The calculations I have seen suggest that the same thing could happen now. But it will take at least seven years to achieve this sort of 'soft landing'.
"The trouble is, landing a plane over a seven year period is a very difficult thing to do. There are two presidential election campaigns in that period. It is hard to imagine that the economy, the markets, the Fed, and the federal government will be able to keep themselves headed in the right direction for that long. It would be nice to think this soft-landing could happen. But I don't think it is very realistic."
Gillian didn't mention it. But the 'soft landing' she described could only happen if the pilot were willing… and able. In fact, Ben Bernanke and team are neither. As we pointed out in our talk, the last time the Fed voluntarily achieved a landing of any sort was when Paul Volcker was at the controls. And Volcker was an exceptionally confident and courageous Fed chief. And Ronald Reagan had his back. Even so, it was a close run. The economy went into the worst recession since WWII. So great was the pain… and the furor against Volcker that he was burned in effigy in Washington.
Mr Bernanke, had he the brains and cojones to 'pull a Volcker', would probably be burned in New York.
"I met with Alan Greenspan and Paul Volcker in Washington last week", she began.
It must have been interesting, we thought. A real contrast. An honest, stand-up guy and a snivelly schmuck together in the same room.
"The real issue on everyone's mind is the same. How can you get back to normalcy? Debt levels will have to go down. It will have to happen someday. But how?
"The good news is that it can happen without a major calamity. It's already been done once – after WWII. Then, average sovereign debt-to-GDP levels were nearly 100%.
"What happened then was also a form of repression… but it was barely noticed. Inflation rates rose while bond yields remained low and the economy grew.
"This had the effect of reducing the real value of debt without triggering an economic shutdown. This was not the intentional, or expressed goal of central bankers at the time. But the result was that much of the war debt was inflated away. Debt levels went to normal levels after a few years. And then, interest rates could rise."
How about that, we thought to ourselves; the Fed was successful by accident. Probably the only way it is ever successful. Gillian went on…
"The calculations I have seen suggest that the same thing could happen now. But it will take at least seven years to achieve this sort of 'soft landing'.
"The trouble is, landing a plane over a seven year period is a very difficult thing to do. There are two presidential election campaigns in that period. It is hard to imagine that the economy, the markets, the Fed, and the federal government will be able to keep themselves headed in the right direction for that long. It would be nice to think this soft-landing could happen. But I don't think it is very realistic."
Gillian didn't mention it. But the 'soft landing' she described could only happen if the pilot were willing… and able. In fact, Ben Bernanke and team are neither. As we pointed out in our talk, the last time the Fed voluntarily achieved a landing of any sort was when Paul Volcker was at the controls. And Volcker was an exceptionally confident and courageous Fed chief. And Ronald Reagan had his back. Even so, it was a close run. The economy went into the worst recession since WWII. So great was the pain… and the furor against Volcker that he was burned in effigy in Washington.
Mr Bernanke, had he the brains and cojones to 'pull a Volcker', would probably be burned in New York.
No comments:
Post a Comment