Edward Harrison

Spare a Dollar? Why We Need a New Monetary System Now

I am not advocating it. I am pointing out this is where policy makers are focused. Yes, this is a direct transfer of income from savers to debtors and yes it does mean that the standard of living in the U.S. is lower relative to other countries.

Do I think this is the right way forward? It's hard to say because we are in a policy cul-de-sac. America has too much debt. This debt can be eliminated by repudiating it through private bankruptcies, but this reduces credit in the system and is deflationary. One can pay it off over the long haul, but this means slow growth for some time to come. Or one can inflate it away, but this creates moral hazard for debtors and reduces relative standards of living.

Any other options I missed?

On Oct 15 09:01 AM Carlos Lam wrote:

> Great article, Edward, but I have to disagree in part with the following:
>
>
> The U.S. wants – it needs a lower dollar to avoid deflation. Quantitative
> easing is not solving the deflation question.
>
> The average, middle-class Americans with dollar-denominated savings
> do NOT need a "lower dollar" which will decrease their purchasing
> power. The elite banking and financial interests, who are leveraged
> to the hilt, WANT a lower dollar because they wish to repay their
> debt with "cheaper" dollars. In essence, you are advocating a shift
> of purchasing power from the savers to those who took on more debt.
> As a matter of public policy, I find such a move abhorrent.
>
> An alternative is to cleanse the system. The dollar should be protected,
> not debased. The Fed should raise rates, not keep them at zero.
> This will cause overburdened financial institutions to go bust, which
> will eliminate a lot of the debt on the books. Moreover, it will
> reward savers with greater purchasing power. If there is going to
> be a shift in purchasing power, let it favor those who were prudent
> and saved rather than those who became overleveraged.
>
> Before others decry the massive depression that this would cause,
> I will admit that the pain will be significant. If I were a policymaker,
> however, I would rather take the "bitter pill" now, have debts wiped
> out, and rebuild. The alternative is a long-term period of consistently
> lower living standards for the American people.

European Finance Now Under Attack

I am playing this by staying well clear of financial services until they have put in a bottom. No one knows how things will play out, so calling a bottom is more gambling and less investing -- unless, of course, you can get a sweetheart deal like JPM on the WaMu acquisition or like Warren Buffett at Goldmans.