Well, that did not happen. It didn't happen because the wealth, the money flow, was just that easy cash from inflation, namely the price of real estate. Maybe a lot of economic problems could be solved, if a devaluation was attached to cash got from inflated assets. Instead the reverse seems to happen.
The example of Japan is the pointlessness of trying to reflate assets with interest rates. The currency markets have essentially ignored the BOJs valuation of Yen. There are signs that the Fed valuations of $ are being ignored as well (what I alluded to in terms of the conduit unwinding).
So perhaps do not continue down this path. Believe in a recovery, perhaps even the cold economic fact that sunken assets in the US and Japan are correctly valued it is why they will not reflate.
Logically a bubble is not a true valuation and when it bursts, it is on a journey to find a true valuation. There is the systemic analogy that deflated assets find a value that is too low and need be encouraged by financial engineering to move up. Japan seems to have proved that this is not the case.
Complex valuation systems like the market are finding complex valuations in complex ways. This can mean for example, that behavior one sees in forex, where a currency bases then spurts up, may be paralleled in an economy.
That is, unexpectedly, house prices start bursting up again. But it does not seem something you can control with interest rates. This is one argument which could absolve the Fed of causing the housing bubble and crash. It had its own complex momentum and Fed input while it was a factor was essentially a parallel activity. Such are complex valuation systems.
Raise interest rates and you raise the value of $. That is the market at work and it casts a cold eye on the past. Meaning, this does not reflate sunken assets, unless there is a belief they are undervalued, because it is real money on the line, not money made artificially cheap to borrow. But it is so much more efficient. The core of the US economy is sound, there is something there for the market to value up and up.
© 2010 Guy Barry - All Rights Reserved.
