We did that. It's called a near zero discount rate, QE1 and QE2, and the fed clearly communicating to the entire market that we're not raising rates. In terms of monetary policy that's pretty much all of the bullets Bernanke could fire at deflation.

And we've nearly had deflation despite that. That's the crucial difference between us and Japan... They failed to avoid deflation and lost a decade+ and we're already starting to see a mild economic recovery.

I'm deeply unhappy about the fact that we've bailed out the banks without forcing structural reform that could hopefully prevent this whole disaster from repeating... But all of the policy that has led to goldbugs screaming about how we're going to enter hyperinflation has been designed to intentionally fill the massive hole that got blown in the monetary system by watching a couple of trillion dollars worth of value on paper disappear.

I can describe the massive disaster that comes from allowing deflation though. Look at any decent economic chart from 1929-1939. If you can understand what the data says it's a very compelling and tragic portrait of what deflationary monetary policy brings in a crisis.

And LOL the housing bubble went as far as it could have been extended by policy. Eventually those teaser rates were going to rise and the chain reaction was going to start.

There's a strong case to be made that the fed has caused directly or indirectly every recession of the last 30 years. Unfortunately it's impossible to argue that a gold standard along with the requisite deflation would be better. A huge part of that 'last 30 years' line is that Greenspan will go down in history as the least competent fed chief in American history.

I meant housing prices specifically, which obviously haven't been anywhere near peak for years. I think we can agree that whatever could have accomplished that (beyond fed action, massive refundable tax credits on mortgages, etc) would have been a clear complete disaster by now. Housing was so far out of whack that it basically couldn't be defended at that level. And if we'd tried, it would have been a huge mistake- clearly worse than just letting it go when we did (or earlier).

Sure. But it's far from clear to me that we aren't making the mistake on a much bigger scale right now. There's still plenty of deflationary pressure running around the developed world.

I totally agree. If it had been possible to prop up housing prices we shouldn't have. At a certain point you just have to take your lumps. One of the reasons why I can easily say 'the fed is responsible for every recession of the last 30 years' is that the fed has intentionally blown up bubbles and then popped them repeatedly.

If you picture the World economy as a balloon there's a giant hole that is just gushing air labelled 'Europe'. Potentially there's another one labelled 'Japan'.

Monetarists AND Keynesians would agree that the extreme austerity in Europe is really really bad.

There is nothing wrong with Japan 4% unemployment, they build more skyscrapers per capita than US, they are increasing lifespan to 84 years, they are aging and still growing in gdp, despite the fraud of the government. No inflation is good it allows the population to plan, save, and invest.

The housing market bubble was aided mainly by the banking system that actually gave no income no down no asset loans to people. People took the loans, and the bankers used other peoples money to supply them. Deflation is good, it cleans out the system. BTW, debt to m1 or m2 shuld be about equal. There is far too much debt in the system. Without the massive fractional reverves ratios, deflation would never occur. Thus it is congresses fault for allowing the debt to occur. The FHA could be elininated. Section 8 housing payments stopped. People have the right to a free vacant land lease, not free rent.

Debt cannot ever be paid off in a fractional reserve banking system run for profit. And lets not forget the imminent student loan bubble coming.....you think people didnt pay for their homes....what gets pushed aside more than college loans? Now the US government guarantees every loan. So there is another couple trillion they will have to print to give to banks. On and on it goes. Bankers are the bain of this planet and should be exterminated for man kinds survival. Too bad they own all the governments and weapons. Next idea?

This is a lie told to Americans so we would think it was our fault, and not get upset at the open robbery of 870 billion of our kids future. It had nothing to do with the collapse of the market and the trillions wiped out....it was Wall St that decided to wrap these junk mortgages with some ok ones and some good ones, and sell it to the world as a great deal...then they bet those same derivatives would fail, like they knew they would and make tens of billions coming and going.
This video gives a pretty accurate visual of how it happened.
http://www.youtube.com/watch?v=Q0zEXdDO5JU

American student loan debt hit 1T in April of this year. It's in no danger of being 'another couple of trillion'. This thread already has one stupid troll. That's way more than we needed already. Please go back to wherever you came from.

Yes, because everything is so nice and neat, cookie cutter, and simplistic. If anything, blanket statements wrapped in pseudo-intellectual dismissive tones is more akin to trolling than others posting. But as far as deflation, saying that deflation is the problem and bad is similar to someone jumping off a highrise building and then blaming gravity for their death. Not all deflation is the same, and the kind you're talking about and thinking of isn't the deflation we experienced during most of the 19th century.

Yes it is. In the 1870's we experienced nearly an exact replica of the Great Depression complete with deflation. There were quite a few other similar situations. That doesn't even cover the nightmarish disaster that was a global gold standard regime in 1914. The entire system locked up and collapsed.

Seriously if you don't know the history, then you aren't qualified to dispute the conventional wisdom. Stop believing everything you hear. Just because someone is being contrary doesn't make them some super wise contrarian. Their opinion on deflation is actually a terrific way to tell if they're a crackpot or not.

I just watched part 1 and have to say it is complete garbage. It has the conclusion the banks forced people to buy CDOs. The people wanted to buy CDOs as a choice to get more interest. It was their fault for buying them. The reality is no one should trust AAA or any rating, most investors don't. The history of housing shows that it always goes in cycles. It always has and always will. Only bad investors thought housing would always rise and they should lose by buying CDOs.

The only true crime is that banks are allowed to loan other peoples money. Most people put money in the bank as a safe haven. Fractional reserve lending should end and full reserve banking should occur.

We are repeating the great depression not because of deflation but because of government involvement. The government should issue programs to lower the cost of housing, end the FHA, end Fannie Mae, End Freddie Mac, end mortgage deduction (basically forces renters to buy other peoples homes), end home capital gains benefits, and most importantly end fractional reserve lending.

Rather than be allowed to declare bankrupcy, maybe we should let the mafia start collecting and people get their arm broken if they don't repay. The gold standard did not cause the system to collapse, getting off the gold standard caused Weimer Germany, WWI, WWII, and the great depression. Soon to be Weimer United States and Euro and WWIII.

The reality is currency is a medium of exchange. You don't let people have access to the medium for free, by printing for example. You don't let people loan other peoples money.

http://www.youtube.com/watch?v=iYhDk...re=fvwrel&NR=1

I just watched part II, the purchasers of a CDO should not lose everything. Many of these REITs have posted over 15% annual returns since 2000. Furthermore, when a home gets foreclosed, the homes value is still about 50%. Thus, the REIT can keep the mortgage and rent the homes, or sell them and take a 50% loss. The government should put a penalty on people that get their homes foreclosed on. You should not invest in a reit younger than 10 years.

You need to allow people to take losses that bought at the top of the market. You need to take away the power of allowing people to loan other peoples money.

These policies would lower the cost of housing for the 10% of people who would be homeowners under this scenario (this doesnt include you Steelhouse, just FYI, unless you inherited wealth somewhere). For everyone else, not so much with the lower cost

The price of housing would go down. The interest rates would rise. It does not matter that I could not afford to buy the house either way. What matters is that it is fair to people with a bank account, renters, and hope to owns. For every benefit you give to someone, you take away from someone else. The home mortgage deduction is just a massive tax on renters to buy house for someone else. The business health care deduction is just a tax on people without jobs, to pay for someone else's health care. Inherited wealth is the same as earning the money yourself, your grandfather just saved for your future instead of buying a boat.

All credits and deductions should be removed from the tax code. The earned income credit is just forcing a tax on a single guy to pay for someone else's kid.