Sustained variants of D and I are always and everywhere monetary phenomenons. I have this theory that what we have seen recently (95-08) in terms of market growth, was largely the result of monetary expansion showing up as asset inflation. Growth can be mistaken with asset inflation in fact.
And if the process is in reverse will we in fact see strongly negative growth following monetary levels or is there a magic floor at 0%? In that light some commentary in mainstream press goes as far as saying that stagnation, a la Japan, would be a best case scenario. Maintaining nominal zero would be an achievement.
This morning the FT argues that the governments will be able to balance inflation and deflation. A positive scenario.
But remember that most of the leverage was in the financial industry, is there enough room in real industry, for the government to inject that kind of money into the economy through public works. War economy follows the same logic although I would hardly call it public works.
The cover of Newsweek is about the green revolution going on in politics. A revolution, not only to save the planet but in fact our economies. Our economies need the investment from the government to in fact make that transition. The article explains why VC's time horizon are not compatible with energy research time lines.
We could also see a dramatic improvement in roads, infrastructure etc. In fact the government will be looking for any excuse to throw money at its economies.
Remember that the last time around (1930's) the problems were addressed and solved with fascism and a massive world war. Here is to hoping we do better this time.
Let's get going people.