2012-08-04 | Filed Under SteveG's Posts |
I just have to post a link to the blog post Why Are Small Countries Better at Economics? by Ryan Louis Cooper.
My liking of the post started with a great statement about famed physicist Richard Feynman.
Yet today the Fed announced that though not only are they missing their employment target and their inflation target, they’re still not going to do anything. It’s as if we put Richard Feynman in charge of NASA, and he started talking about creationism and homeopathy. Barring mental illness, clearly something else is at work.
The point of the blog post is:
This rough inverse correlation between size of economic unit and quality of outcome (USA, Eurozone = failures; Sweden, Australia, Canada, Israel = successes) suggests that this is about power and money. In smaller countries, where banks don’t have the kind of money and sheer size to command the complete attention of the world media when they get in trouble, the power gap between them and the regulators is small.
But, he finally gets to the heart of the matter as to why this is true:
All incumbent creditors will act to keep inflation as low as possible, it seems. If that means years of depression, so be it.
All the troubles with underwater mortgages and foreclosures would be helped by a little inflation that would slowly get the value of the houses to be greater than the money owed on them. That would save the home owners. Of course, if the home owners repaid their loans with money that was lower in value, that would eat into the profits of the banks.
So it is not a question of whether or not it is possible to get the economy going again. It is a question of how we share the pain. If we put all the burden on the borrowers and none of it on the lenders, then we are in for a long slog. Even the lenders could go under, too, trying to protect the value of their loans, but they would rather take their chances that they might not. Are the banks being realistic to ever think they will get all of their principle back in uninflated dollars? Can you get blood out of a stone?