“The Federal Reserve Board is and continues to do everything possible to inflate money-credit and GDP over the next several years, fighting the market system’s natural drive to reduce asset prices (primarily housing, but also stocks [Stock Market Crash in Fall 2008] and soon enough commercial real estate) and write-off the associated debt [See bailouts of AIG, Citigroup, etc. via TARP.”
“They did this with surprising effectiveness beginning in 2000, but at that time they had a balanced budget and a housing sector not yet maxed out in terms of debt and asset prices. Now they are in a desperate situation, far worse than the 2000 scenario and about all they have left in their conventional policy arsenal is to maintain massive budget deficits that are monetized by the Federal Reserve (i.e., the Fed buying new treasury securities to fund the deficits as a way to automatically create new money and thereby inflate GDP via excessive government spending).”
In language you and I can understand, the Fed prints money on paper backed by nothing. It is called “fiat” money, meaning paper currency that can not convert into coin or specie of equivalent value. Government easily can manipulate it and it “privatizes benefits”. The Federal Reserve is a private bank and the benefits are privatized. "There are trillions of dollars looking for a home because governments of the world are printing trillions in counterfeit money, aka fiat currency."
“If they were to spend money on domestic infrastructure and clean technology [Obama's Fiscal Infrastructure Stimulus], rather than weapons that are destroyed in their use to destroy other people’s capital structure, then the deficits might not be nearly so bad for the economy.”
“The Fed can be expected to start systematically buying Treasury securities on the open market as a way to lower long-term interest rates through their secret accounts on Wall Street in order to preclude a crash.”
This is hard-ball economics. From the Feds perspective another 4 years of deficits is not a problem, but a key part of the short-term solution to a bigger problem than they will ever admit publicly.
Joan, given that black swans cannot be predicted, one solution (espoused by several by especially here: http://www.fooledbyrandomness.com/), is to build resilience (also called robustness and more recently antifragility) into all sectors of society, and especially the economy given its effect in so many place and ways. This is well understood for engineered systems, such as aircraft, which often have 3 or 4 redundant systems to sustain critical functionality during emergencies.
My goodness, I am way over my head with his math explanation of fragility, however, I think I understand the role of chaos in bringing about cosmos. Being under stress by unknown, unknowable, uncontrollable and unpredictable events, "antifragility" is a process of gaining strength through chaos to flourishing. By building resilience in economic matters, by redundancy perhaps, one is strengthened and empowered.
Am I understanding what Taleb says?
Yes, the news about the economy doesn't seem to be getting much better.
When will this "recession" end?