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January 27, 2009

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Yair

Dear Dave Cohen
I am delighted to find your blog, I always enjoy reading your pieces, they're sharp and illuminating, and help to make sense of quite complicated issues.

You may be familiar with ex-TOD writers Stoneleigh and Ilargi's predictions, as set out in their Automatic Earth blog. In a nutshell, they say: bank losses on derivaties will be too big to recapitalise; their "assets" are worth close to nothing, and will be worth even less as house prices continue to plummet; deflation will take hold, and will have to run its course for some years before inflation returns, and in the meantime the price to the economy and society will be a major "discontinuity" (this is my term, not theirs). The Automatic Earth has a good track record on predicting this crisis, although past performance is no indication of future returns....

The fact is that as you say, these FED measures have not been tried before. What if they fail? That is, what if the psychological spiral-down effect is much stronger than attempts to monetise debt? So far the Fed and government (or here in the UK government+Bank of England) have been behind the curve. Yet you seem to believe that a full blown depression can be averted with high likelihood. Is this correct?
YW

Rob

This was an excellent article.

Thanks for writing it up. I'm just learning about all this stuff, and your article definitely pointed to some valuable resources.

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Dear Dave Cohen
I am delighted to find your blog, I always enjoy reading your pieces, theyre sharp and illuminating, and help to make sense of quite complicated issues.

You may be familiar with ex-TOD writers Stoneleigh and Ilargis predictions, as set out in their Automatic Earth blog. In a nutshell, they say: bank losses on derivaties will be too big to recapitalise; their assets are worth close to nothing, and will be worth even less as house prices continue to plummet; deflation will take hold, and will have to run its course for some years before inflation returns, and in the meantime the price to the economy and society will be a major discontinuity (this is my term, not theirs). The Automatic Earth has a good track record on predicting this crisis, although past performance is no indication of future returns....

The fact is that as you say, these FED measures have not been tried before. What if they fail? That is, what if the psychological spiral-down effect is much stronger than attempts to monetise debt? So far the Fed and government (or here in the UK government+Bank of England) have been behind the curve. Yet you seem to believe that a full blown depression can be averted with high likelihood. Is this correct?
YW

+1

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