How Fed ‘Stimulus’ Strengthens Deflation

by Rick Ackerman

[The following was posted in the Rick’s Picks forum on Wednesday by a regular contributor who goes by the handle ‘None’. I am republishing it below because it deserves a wider audience. RA]

While doubts are rising about central banks actions, there is still residual complacency, lack of awareness of the potential dangers of the current policy path and, more importantly, not enough efforts to articulate a more promising alternative. Central banks purchases of public and private debt titles were certainly justified as an emergency measure to backstop the imploding global credit system at the depth of the panic end 2008 – early 2009, the culmination of 35 years of consistently rising debt loads.

The mistake was to pursue these credit easing policies once the emergency had passed to make them structural and still lasting eight years later. At the Fed, Bernanke took the opportunity to demonstrate the validity of his theory expressed in his famous November 2002 speech “deflation, making sure it doesn’t happen here”.

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