Hank Jestor

The Fed is Deflating: 10 Reasons Why

Stanley,

You are correct. The Fed is attempting to Inflate, but the money is being blocked by the banks and being shifted to cover their losses.
The Fed is following the correct policy, its just to bad its the wrong country. They obviously have an American-centric view of the world. Instead of looking at how we could have avoided the 1930's depression from a U.S. perspective they should be looking at what the German and British could have done to prevent the depression in the thirties.
The Chinese model the role of the U.S. in the 1920's. They have the savings accounts to enable the inflationary policy that is needed to stimulate our economy.
To prevent a total worldwide collapse the Chinese should:
1. Open their markets to U.S. goods and encourage their purchase with tax breaks. This will cause the creation of jobs in the U.S. and provide a stable base of manufacturing in the U.S.

2. Lower interest rates by 2 points in China.
3. Re-peg their currency to the U.S. dollar.
4. Increase export taxes on Chinese goods.

This will cause a lot of pain in China and I doubt if they will see the long term benefits of having a stable U.S. economy. Their culture is not the same as in the U.S. No other country will ever be able to replace U.S. consumption and our ability to drive the world economy. Its a very cultural phenomenon.

I don't see the Chinese doing this at this point. They will continue down the road the U.S. went down in the late twenties.