“In the short run, it would help if the authorities would say they refuse to provide publicly funded money for the payoffs of derivatives,” he said. “This is like using public funds to support your local casino. It is difficult to see how this is good for society in the long run.”
Walker F. Todd, a research fellow at the American Institute for Economic Research and a former official at the Federal Reserve Bank of Cleveland, cited in the New York Times article on French and Belgian governments making all creditors of Dexia whole. One bad act (bailing out all AIG creditors) begets another.
Yellen said the view is “erroneous” that the Fed’s expansion of its balance sheet through additional bank reserves will fuel inflation because the central bank can raise the interest rate paid on reserves. The Fed eventually plans to shrink its assets once it judges inflation is a risk, Yellen said.
Yaah, right. Inflation at 4.0% is not a risk and real short rates at -4.0% is not a risk, already.
The record of the last 20 years shows that the Chinese monetary and banking authorities have a habit of taking an ostrich approach to the informal financial sector, pretending that they are regulating the sector until serious problems emerge. This approach cannot last forever, and changing it means acknowledging the backwardness of the formal financial sector and taking remedial action. An immediate step that the authorities should take, as many economists have argued for years, is to allow the saving rate to reflect the cost of investment. [Full article here]
Quite. Coming from a Chinese economist based on China, it is something. He has hit the nail on the head.
Despite the current negative environment for Brazil as discussed above, the country remains one of the best emerging market destinations on the planet, relatively speaking, of course. Brazil can boast of solid demographics, huge commodity resources and more flexibility with their monetary and fiscal policies than almost any other economy of comparable size. The domestic story may have slowed but it’s far from dead. In fact, over the long haul, Brazil’s population of 200 million consumers will keep demanding a better diet, higher quality education and better housing. With this in mind, investors would be well-served to use these downturns to scoop up bargains in the domestic sector.
Perhaps that buying opportunity isn’t today, we’re still a long way away from the Great Reset. But in a world where fiat currencies are devalued and consumers over-leveraged, it’s going to be commodity rich Brazil and their young population that will do the best on a relative basis.
Amen to that. The full article on Brazil in the global context is here.