This crisis has broken a lot of economic taboos, with central banks buying up assets and expanding their balance sheets in a desperate effort to reflate a debt-laden private sector. The goal is to maintain economic growth, even at the risk of releveraging within the private sector to make up for a loss of private income-based demand. I think things can go a lot further.
For the time being, ideas like debt forgiveness and fostering increased savings rates to reduce private sector debt burdens are off the table. The emphasis now in policy circles is reflation. And that means higher asset prices to minimize the impact of deleveraging in the hopes that income-based demand can replace credit-based demand as a driver of the economy as the Fed's reflation buys time. My view is that this policy ...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.