We commented at the session devoted to the crisis with Professor Tamames that massive and coordinated implementation of public policies to cushion the effects of the crisis in 2008 and 2009 has contributed to prevent the collapse of the system. Led by the United States the major world governments have developed an unprecedented policy stimulus in history.
The patient was about to die by overdose death has been avoided but has not solved the problem of drug dependence.
The drug has been on the verge of ending a patient's life is money. The easy money era began in early 2000 with the policies of Alan Greenspan after the dotcom crisis and slowing U.S. economy after the September 11th attacks, it generated an addiction to money that led to the widespread borrowing hundreds of millions business and individuals in all world. Easy money and plenty for everyone.
drug effects have wanted to solve with drugs. Central banks have injected large doses of money to avoid collapse. Governments have not wanted the addict suffers withdrawal symptoms, instead of dizziness, vomiting, and "monkey" has been chosen intravenously inject more money, hoping that after seeing "the ears of the wolf" the patient recognize their excesses and abandon their addiction.
But sooner or later we will have to confront the problem, the first step in solving an addiction is recognizing it. No doubt you have removed the drug from the market (Money), given the excessive borrowing and careless investments made by many in the era of easy money have created deflationary process if it is larger than we have suffered (falling prices of all assets) through a widespread deleveraging for fear that prices of these assets continue to fall.
Public money has avoided the massive deleveraging and falling prices. But has solved the problem? The bad assets do not regenerate easily, bad investments will continue to be yesterday morning. Sooner or later the disinflationary process will, for the excesses committed no solution. Another money dose the patient has calmed down, but not eliminated the problem. Sooner or later they will recognize that he has committed excesses and be aware that he has to pay for it.
yesterday, the New York University professor Nouriel Roubini (one of the first economists who warned that we came up because of subprime mortgages) has reminded us that we are living in "a bubble in all asset classes" . The industrial overcapacity that easy money has led threatens to generate a major deflationary forces. The price of many assets held by public policy, but the underlying problem is still there: the toxic assets still toxic (the housing market is still not tight, there is now talk of a new wave of subprime with falling prices of non-residential real estate, offices, industrial buildings ...) on automakers, appliance ... The risk of deflation is very present.
problems
Fed
Other prestigious economists, such as Philipp Bagus and Markus Schiml, talk about the complex dilemmas facing the Federal Reserve, monetary policy as aggressive, keep the patient alive, but may end with the doctor's life. Even the Fed itself could become insolvent. The
"Quality" of the balance sheet of the U.S. central bank has deteriorated sharply with the policies implemented to prevent the collapse (the rescue of the banking system). It has also increased the "quantity" of the Fed balance sheet, with the massive purchase of toxic assets of banks (the famous mortgage-backed securities or mortgage-backed securities).
These policies have worked in the short term, but to really be effective, these assets are to "detoxify", because otherwise the only thing is we managed to shift the risks of private banking system to the large central public bank. If not fix the problem background (the value of toxic assets) they simply postponed the problem, avoiding the collapse today, but hopeless for tomorrow. Aggravated by the fact that now the "bad banks" (bad bank) are public.
But back to the "drug" (the money shot). Central banks (European Central Bank among them) and advised us to let us go thinking about a scenario in which it will gradually withdrawing stimulus measures exceptional. It is logical, because the money is not an unlimited resource. Many people still think that public support is no end: that the Plan E is continually renewed, to be renewed plans for multiple sectors, which will continue giving aid to the purchase of vehicles, the State will save the banks that have problems ....
I encourage everyone to go thinking about the next stage. A scenario in which the stimuli are disappearing.
What can the Fed?
On the one hand, it could, says Bagus, "restore the strength of the central bank's balance sheet." This involves reducing the size and improve the quality of its balance sheet. But how do so without the reversal of those policies again expose the financial system into chaos? As stated above, the problem of fund has not been solved, just postponed.
measures central banks have not solved the problem: they have simply delayed the inevitable. Bagus
defends the brave act to reach the bottom model case: return to the situation before the crisis, ie to return to private banks' toxic assets and bankrupt financial institutions have to fail. "
is very difficult for a drug addict and their environment to recognize the reality, your problem. When this happens the pain is intense. It may be necessary that the system suffers in order to solve the problem definitively. Bagus therefore intends to solve the crisis with liberal measures and proposes measures as the market recapitalization, nationalization or restructuring of the ownership of the banks through the direct conversion of creditors into shareholders.
green shoots
One thing is clear: we have not learned any lesson. Just look at the stock market to realize what has grown since March. That yes, many seem to ignore that this growth is due in part to the stream of global liquidity injected by central banks policies and incentive policies.
not remember who said when he started talking about the only green shoots green shoot that saw the government was that of who had smoked marijuana to say that the economy was emerging from the crisis.
Perhaps he was right. Green shoots have emerged of marijuana have a material effect on who are the smokers. There is much "in place" to live in a party (investors in the stock market, dealers car sales held in October, the chairmen of the big English banks announcing results, the finance ministers presenting prospects for 2010 ...). But the party may end soon. Enjoy your spree a few months. Disappear when the effects of green buds of marijuana (the effects of monetary policies and incentive programs) back to reality. Enrique de
la Rica, School of Business ESEUNE (http://www.eseune.edu) Evolutionary Blog (http://eseune.blogspot.com) 
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