Tuesday, November 04, 2008
balance sheet recession
The presentation contains a wealth of interesting graphs which tease out comparisons between the current financial crisis and Japan’s “lost decade” over the 1990s - which was seen as a balance sheet recession. The one thing that is repeatedly clear is that in balance sheet recessions, monetary policy is rendered largely useless.
Indeed, the only point, it seems, of government intervention is to avert utter catastrophe and keep deleveraging banks solvent.
the fed's most recent survey of loan officers would seem to back up the concept of a broken link between monetary policy and credit on offer. and the retraction of credit supply is being met with an even more frightening lack of demand, seen in the survey and relayed anecdotally by the wall street journal through paul kedrosky.
the result? among other things, the worst auto sales month of the postwar era, a collapse in manufacturing.