As all major financial markets – stocks, currencies, commodities, and bonds – continue to be highly volatile and risk averse, investors’ mood, and even that of real economy players, is getting nervous and gloomy. Both the masters of the universe at Davos and corporate CEOs have an uncharacteristically subdued outlook for the upcoming year.…
What should trouble commentators and analysts most, and this is implicit in the market upheaval, is that the officialdom, most importantly central bankers, who have developed the bad tendency to assign themselves the role of economic first responders (when they would in cases have been better served to sit on their hands and force governments to step to the plate to do more spending) have no idea what to do now.…
Deflation is the worst possible place to be in an economy with heavy debt levels. Economists have managed to forget the most basic lesson of the Great Depression, and tell themselves the bizarre story that putting money even more on sale will lead people to borrow and spend. Earth to central bankers: they won’t if they are worried about their future. What is needed is more demand, which means more fiscal spending and better incomes for workers, which means more labor bargaining power. Yet orthodox policymakers are deeply allergic to both ideas.…
