Has Debt-Deflation Begun?

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Damnthematrix's picture
Damnthematrix
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Joined: Aug 10 2008
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Has Debt-Deflation Begun?
gyrogearloose's picture
gyrogearloose
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Joined: Sep 8 2008
Posts: 545
Re: Has Debt-Deflation Begun?
Damnthematrix wrote:

Read Glenn Stevens's comment. Picked out the folowing bits

Glenn Stevens wrote:

In the area of capital, the lessons from
earlier crises have been heeded, chief among which is that when a country faces
a system-wide question of solvency, the only source of sufficient new capital
may be the public purse

 

This has culminated, through co-operative
swap lines between many of the central banks, in the provision of virtually
unlimited amounts of US dollar cash, …… no quantitative limit has been set
by the US Federal Reserve. As a result of this, and the expansion of other
facilities, the Fed’s balance sheet assets have more than doubled in the space
of a few months.

Am I right in reading the first bit as saying that in a crisis he says the govt should pump more capital into the system ( even though the government is broke) ?. And does the second paragraph imply that to do so the fed is "printing money"

From watching Peter Schiff I would believe that he would say that is a bad idea.

Glenn Stevens wrote:

So, in addition to monetary policy easing,
fiscal policy adjustments are being made or contemplated in a number of
countries. The question is how much scope the relevant governments have for
such actions, before encountering the
potential limits to credibility
of their own balance sheets
 

The comment in bold (emphasis mine)  looks like he recognises that
there is only so much money they can print before the people think he is
taking economic lessons from Mugabe.

You quoted him a saying “could have a more conservative attitude to debt build-up” which I read as 'lots of debt is bad'. But the above part of his speech seems to imply that the solution to to much debt is to make borrowing cheaper, encouraging more debt. He followed that up with this.

Glenn Stevens wrote:

Given this outlook,
the Reserve Bank has been lowering the cash rate. We have chosen to do so quite
quickly

That sure looks like making debt cheaper. The US did this years ago which, as I understand it, helped fuel the present crisis .

My area is engineering with the associated straight thrust accounting I was taught along side, but I find now that I need some understanding of what I consider the weird accounting ideas of governments.

I read what he said as showing he has not learnt at all from past crisis ( lets repeat what the USA did and lower interest rates to counter the effects of too much debt ) I just don't get it.Undecided

Hamish

 

 

 

 

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