Biotech Values

[zipjet]

Your assumption regarding helping repair people's balance sheet is correct

Sorry guys but it is not correct.

Exclude for the moment growth in GDP and assets.

The contraction of private balance sheets (paying down debt) necessarily comes at the "expense" of other balance sheets expanding. This is a zero sum game. (Remember I excluded growth.)

Once this is properly understood, the much-lauded Clinton budget surplus years can be seen for what it really was, a shifting of debt to the private sector. The private sector is less able to handle the debt during monetary constriction. The Fed provided the constriction, starting the recent avalanche we call the credit crisis. The Fed's policy error has come at enormous cost - the cost of high unemployment - the waste of human capital and lost production. Without a return of animal spirits, and higher debt leverage, it will be a long time (10+ years) before we again reach low unemployment.

Following this line, the Federal government (including the Fed, to the extent they are overpaying for assets) by running large deficits is taking the debt back on its balance sheet.

So in the long run, you're holding interest rates down to benefit a homeowner while at the same time you're shackling millions and millions of people to accept zero income on their investments.

Superficially that is happening. But it misses the seriousness of the situation. Without some means of raising/restoring aggregate demand there will be no significant return on capital. Without aggregate demand there is little need for capital. Businesses do not need it, they have excess capacity, they are throwing off excess cash flow. People hunkering down and reducing their life styles do not need it. Absent demand for money the interest rate is properly zero.

As far as devaluing our currency goes, it'll help for one inventory cycle like usual.

If the "strong money" advocates take power and bring to fruition their flawed understanding then you may be right and 10% unemployment will prove the low.

But if the US is to return to something close to a trade balance, then the dollar must go down and stay there until we can put our workers back to work.

I commend to everyone who is interested in this subject the reading of:

Hyman Minsky's, Stabilizing an Unstable Economy.

http://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997/ref=sr_1_1?s=books&ie=UTF8&qid=1287322450&sr=1-1

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