[lbo-talk] Doug cited in this week's Barron's

Seth Ackerman sethackerman1 at verizon.net
Sun Jul 6 13:53:17 PDT 2008


Doug Henwood wrote:
>
> On Jul 6, 2008, at 11:00 AM, Marvin Gandall wrote:
>
>> But how would raising interest rates - which the BIS, worrying more
>> about inflation rather than deflation, appears to emphasize - not
>> affect the working class as well as shaking out the weaker banks and
>> corps?
>
> It would, but they're also talking about the long-term importance of
> stopping asset bubbles. The very idea of central banks targeting asset
> prices is pretty heretical. Most of Wall Street hates the idea, since
> they make a lot of money on them, and then stick the public sector
> with the task (and expense) of cleaning up the mess. Sure, such a
> policy might keep the unemployment rate higher than it would otherwise
> be. But it would also deprive the FIRE sector of a good bit of revenue.
>

I think this misses the key point. The Fed, unlike the ECB, is unwilling to countenance a single quarter of negative GDP more because of its ideological ramifications than because of the effect on the balance sheet. Don't you know that the US and UK solved the economic problem in the 80's? Flexible labor markets, competitive product markets - voila! Nirvana! The Great Moderation! Goldilocks! This is the story that the elites have been telling for 20 years and prolonged, visible economic pain now would fuck it up.

Seth



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