[quote=briansd1][quote=Allan from Fallbrook][quote=briansd1][quote=UCGal]
I read something a few weeks ago that made sense to me. With the fed doing the massive QE – which in theory should have an inflationary effect, why haven’t we seen massive inflation. The explanation I read was that the fed wasn’t *adding* to the currency, it was replacing the currency represented by the collapsed assets.
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Yes, back during the boom, people were essentially monetizing their own assets by pledging them as collateral to obtain loans and spending the money into the economy.[/quote]

Brian: Which makes my point perfectly, thank you. Completely absent from this conversation is the topic of asset value, which the Fed, the ECB and the ruling cadre of the Communist Party of China would all like you to ignore, please and thank you.[/quote]

Well, Allan, you do make a good point.

However, central banks have unlimited wherewithal. When they hold assets long enough to maturity, they will not lose money. They will make money, at least in nominal terms.

And if that helps stabilize the economy, generate growth and provide goods and services for people to enjoy life, then why not?

I really don’t see the point of going into recession and deprivation like some economic purists argue that we should.[/quote]

Brian: Except that central banks do not have unlimited wherewithal and therein lies the rub. Most of the fear surrounding a double- or triple-dip recession (or worse) is that the Fed has expended its energies fighting the first one and now lacks the tools and depth to fend off another. The ECB is in similar straits. The utterly absurd notion that we can simply print our way out of this is one of the most idiotic notions floated. At some point, the bills come due.

Look at China. You’d think, since they are an autocratic system run by a select group of technocrats, that they’d be able to make their own rules and without any fear of repercussion. However, you note that the wheels are coming off the RE wagon there quickly and the Chinese Communist Party and central bank have been virtually helpless while this happens.

I’m not advocating for recession and deprivation, far from it. But I’m also not advocating for mendaciously stupid solutions to the problem, either.

Anyone with a passing understanding of finance and economics gets this. You cannot throw money at worthless assets ad infinitum and magically “grow” a recovery. Unless you’re Paul Krugman, of course. Since he’s like the Chuck Norris of economics, he can do anything.