Free Money
Forget 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?
Two scenarios: hyperinflation or massive, persistent reductions in living standards. Either one will force us, one way or another, into what is in my opinion a better future: more savings, less debt, more domestically produced goods and a ’shop local’ perspective, combined with a less energy-intensive growth outlook, where we save more than we consume and consume more of what we produce ourselves.
But the harder the Fed tries to reinflate the economy to somehow resemble the failed bubble model of the Dubya years, the harder the and more abrupt the transition will be.
I’m reminded of just how silly the bubble economy and our energy-intensive lifestyles are as I walk though Hills Plaza and see them meticulously tending to the flower pots, pulling dead leaves and replanting weak plants every chilly winter morning. It feels like the latter days of Silvanesti, and it makes the flowers seem ugly.
