Free Money
Posted in Economics on December 18th, 2008 by ДмитрийForget saving - be an American and borrow! borrow! borrow!
The Fed is comparing their experiment with quantitative easing to the (subjectively unsuccessful) actions of Japan for the past 20 years. But Japan had a positive trade balance and a positive savings rate when it began its zero-interest-rate journey. It managed to maintain social stability and a viable currency in a zero-return, zero-growth environment for the past two decades because its easy lending was qualified with a people who didn’t have much appetite for debt and who chose to save their money anyway. It’s also a people that still produce lots of valuable hard and soft goods for export and that a wide variety of societies can use regardless of their stage of development (machine tools, furniture, etc).
America is trying this with none of these safeguards in place. What’s the likely effect of free borrowing on a currency backed by a society addicted to debt, with no savings (negative savings after netting out borrowing) and an economy that exports mostly intellectual property geared toward petroleum-dependent industrial economies that has been importing almost all its durable goods for over a decade?