Doug wrote:
>>But we didn't have that for more than 20 years. The Fed was able both
>>to keep inflation down and engage in regular bailouts. The
>>disinflationary/deflationary effects came mainly from the real sector
>>after Volcker left - weak labor and stronger product market
>>competition. Most of the inflation came in asset prices. But after
>>China stopped being a deflationary force and shifted towards pushing
>>commodity prices higher - this is not the wage-driven inflation of
>>the 1970s - that all changed. This is the first time I remember
>>central bank credibility being an issue since the 1980s. Poor Bailout
>>Ben has a full plate.
Yeah, I guess my point is that it's interesting that this dilemma has returned, though in a weak form so far. It's maybe more apparent in countries where inflation really is much more a clear and present danger to the authorities than recession, yet they have these credit market problems to deal with.
There's not much on post-Volcker in Minsky's book. During the Volcker shock in 1980 (in "The Fed Between a Rock and a Hard Place", Challenge) he argued that it was doomed to fail because the Fed would not be able to abide the consequences. He was right in the medium term that monetary targeting was doomed, but obviously not that a deep recession was impossible, even desired by policymakers to restore discipline and clear out dead wood.
Could this dynamic Minsky is talking about with regard to product prices apply just as well to asset prices? That is, assuming the rescue is successful and things stabilise eventually, asset prices just start marching back up? What are the limits?
Cheers, Mike Beggs Scandalum.wordpress.com