Jay Currie

Ian Welsh and I disagree about a lot of things but he is still one of the most astute big picture analysts I have run into on the web. He has an interesting take on the hype and the reality of the current fiscal/debt/bailout/bank/deflation crisis over at FireDogLake. Well worth reading.

Targeted actions would have fixed the short term problems, and the balance sheets are a lie, and everyone knows they’re a lie. We don’t know how large the hole is, and until we know how large the hole is, we can’t fix it. The Fed needs to promulgate real rules for valuing assets. They need to be clear and fair, rather than “just ignore mark to market so we can all pretend the banks are fine”. The current path is exactly the path Japan took, of allowing banks to pretend their assets were good, when they weren’t, with the end result being zombie banks and an entire generation lost from the economy. Those of us who are old enough remember when Japan was the future, with an amazingly dynamic economy, eating everyone’s lunch. You don’t hear that anymore, because they had a huge bubble and then completely bungled their response to it. So far the US is doing essentially what Japan did. ian welsh

(For the longest time Ian foretold doom for the American financial system – which he was right on – and speculated that Europe would somehow rise to become a dominant world financial player through the strength of the Euro – which he is wrong on at the moment but that may well change. It is amusing to see him both blaming Bush and creating a scenario for hope.)