[quote=FlyerInHi]In hindsight, it only seems self-evident that deleveraging would lead to lower demand. Some economists were actually quite right at predicting very little, if any inflation following the 2008 financial crisis.[/quote]
I honestly don’t think there’s anything the fed or government entities can do to prevent the deleveraging. They can probably impact how it unfolds but the thing of value in a debt scenario isn’t the 1’s or 0’s it’s the future productivity that is promised. So if you reduce those future promises via raising the minimum wage to $50/hr and helicopter drop money or by refusing to honor those future promises the net result is the same for the creditors. You aren’t getting what was promised.
Historically major deleveraging events have resulted in roaring economies once the deleveraging event is over. Ever hear about the 1920-1921 depression and the roaring 20’s. It’s the attempt to prevent that deleveraging from happening that results in stagnant economies with low growth. We’re in this phase where we’re desperate to get companies and people to borrow more to fuel consumption but the demographics are against us, the interest rates are against us, etc.
This current fed sponsored bubble with low rates isn’t doing much for the real economy because nobody is using those low interest to actually invest in the real economy. It’s all stock buybacks and financial engineering. The one place where there’s some real economy impact is sub prime loans in the auto industry but how long does that last before it blows up.
