The only solution to offset deflation, besides consumer incentives to borrow, is replacing private debt with public debt. I doubt that can go on too long before we reach absurdity, if were not there yet. Still, wages and employment are DEFLATING. So we have more debt to service and less ability to do it.
QE for treasuries has pissed off our creditors and prompted them to set up bilateral trade agreements so they don’t have to use the USD. QE has a shelf life as well.
Elizabeth Warren was on the news the other day speaking about the banks and said the tweek in mark to market accounting rules has causes us to slip into “denial” and the banks, including europe are in the same shape they were in a year ago. So nothing has been fixed. Interesting the contrast in listening to her vice Geithner.
Wall Street is being propped up by the purchase of overvalued MBSs that there is little private market for. That private market is not coming back anytime soon, if ever. This also has a shelf life. This is the “hidden” bailout. I wonder how much they are getting paid in fees for this?
The Fed is in a corner with no out and the inflation/deflation debate does not cover the structural problems. Printing can’t bring back the MBS market, create jobs or erase debt from consumers.
“You can’t stop what’s coming. It ain’t waiting on you. That’s just vanity”
