Alan Bollard has just dropped the Reserve Bank's cash rate by a full percentage point. One whole percentage point. Think about that while you think about these comments, from Mike Shedlock's Global Economic Trend Analysis:
We are in this mess because the pool of real savings has been depleted and it is time to stop spending and replenish savings.
And these comments from Frank Shostak's article 'Good and Bad Credit':
Neither the Fed nor the Treasury is a wealth generator: they cannot generate real savings. This in turn means that all the pumping that the Fed has been doing recently cannot increase lending unless the pool of real savings is expanding. On the contrary, the more money the Fed and other central banks are pushing, the more they are diluting the pool of real savings.
We suggest that decades of reckless monetary policies by the Fed have severely depleted the pool of real savings. More of these same loose policies cannot make the current situation better. On the contrary, such policies only further delay the economic recovery.
By impoverishing wealth generators, the current policies of the government and the Fed run the risk of converting a short recession into a prolonged and severe slump.
So now you've read those comments, and you've had a chance to think them through, and keeping in mind Henry Hazlitt's "one lesson" -- i.e., that "the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups" -- here's a few questions for you to consider:
- What Should Alan Bollard Have Done (WSABHD)?
- And what, in your view, will be the effect of what he has just done on the pool of real savings?
- What will that do to our chances of real economic recovery?
- What's the single best way to "unfreeze" the flow of credit (NB: you can cheat on your answer by reading Shostak's answer two-thirds of the way down here).
- Have central bankers like Alan Bollard and Ben Bernanke learned the correct lesson from the Great Depression?
- When will they admit they've failed and resign?