The peremptory cleansing effects of a recession seem most useful to the finance industry itself. Everywhere else, the requirement that one’s revenue consist of payments for *something* limits how uselessly unproductive a given company can be. Even if demand for pet rocks is inflated by cheap credit, or prices driven low by overinvestment in production, there are only so many pet rocks one person will want. Marginal demand eventually always reaches zero.
But money, there’s no limit to demand for money. Any number of elaborate Ponzi schemes fed with zero-interest lending can exist, and in fact the more the better because that makes it harder for the SEC to investigate. Zero rates mean you can promise quite ordinary returns - 5% say - which makes it much easier to string people along for years.
Of course this finance area also includes negative-profit startups. Generally those are a small part of the economy, though.
I don't see any intrinsic reason that the Fed can't do stuff (e.g. create money) as fast as firms are trying to reduce costs. Central banks should be judged against perfection. Sure they will in fact make mistakes but full employment inflation and less than full employment deflation just should not happen.
The peremptory cleansing effects of a recession seem most useful to the finance industry itself. Everywhere else, the requirement that one’s revenue consist of payments for *something* limits how uselessly unproductive a given company can be. Even if demand for pet rocks is inflated by cheap credit, or prices driven low by overinvestment in production, there are only so many pet rocks one person will want. Marginal demand eventually always reaches zero.
But money, there’s no limit to demand for money. Any number of elaborate Ponzi schemes fed with zero-interest lending can exist, and in fact the more the better because that makes it harder for the SEC to investigate. Zero rates mean you can promise quite ordinary returns - 5% say - which makes it much easier to string people along for years.
Of course this finance area also includes negative-profit startups. Generally those are a small part of the economy, though.
I don't see any intrinsic reason that the Fed can't do stuff (e.g. create money) as fast as firms are trying to reduce costs. Central banks should be judged against perfection. Sure they will in fact make mistakes but full employment inflation and less than full employment deflation just should not happen.
I’m a fan of Jason’s, my guess is he’ll appreciate your well reasoned argument.