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22/03/2014, 23:20
... increasehasbeennotable,
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Thisisnottodenysuccessfuleffortsbyanumber of countries,includingChina,toexpandmarketsinother
EME’s. Of coursethisstillleaves the broaderquestion of the robustness of the totality of thosemarketsin the
event of aseriousdownturnin the AME’s.
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ThisproblemisanalogoustothatfacedbyJapanesecorporationsin the 1990’s,aftermanyyears of debt
financedinvestmentwhichprovedunprofitable.Koo(2003)stronglycontendsthat the weakness of investment
spendinginJapanin the 1990’swasduetothis“balancesheeteffect”,andwasnotdueto
ashortage of loans
causedbyaweakenedbankingsystem.
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SeeBIS(2012)p29forafullerdocumentation.AlsoseeMcKinsey(2010)whoidentify the householdsectorin
five of the fourteencountriestheyconsiderashavingahighprobability of futuredeleveraging.TheyidentifySpain,
the US, the UK,CanadaandKorea.While the householdsectorsinBrazil,Russia,
ChinaandIndiawerenotjudged
tobeoverleveraged,notethat the dataconsideredextendedonlyto2009.Thus the reportmissed the recent
sharpincreasesinhouseholddebtlevelsinthosecountries.
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TettG(2012)“Sizecanbedeadlyinalowrateworld”FinancialTimes17May
TurnerP.(2011)“Is the long‐terminterestrateapolicyvictim,apolicyvariableorapolicylodestar”–BIS
WorkingPaper367,Basel,December
WaldropM.M.(1992)“Complexity”–LemonandSchuster
Paperbacks–NewYork
WedelJR.(2009)“ShadowElite”–BasicBooks,NewYork
WhiteW.R(2004)“ArechangesinFinancialStructureExtendingSafetyNets?”–BISWorkingPaper250,
Basel
WhiteW.R(2006a)“IsPriceStabilityEnough?”–BISWorkingPaper205,April
White ... is
importanttonotethatKeyneshimselfwasnotconvinced of the effectiveness of easymoneyin
restoring real growth in the face of a Deep Slump. This is one of the principal insights of the
GeneralTheory.
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Incurrentcircumstances,twoquestions ... term
expectedcosts.Undoubtedlythiswouldbeverypainful,but(bydefinition)lesspainfulthan the
alternative of notdoingso.JohnKennethGalbraithtoucheduponasimilarpracticalconundrum
someyearsagowhenhesaid
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“Politicsisnot the art of the possible.
Itischoosingbetween the unpalatableand the disastrous”.
Thismightwellbewhere the centralbanks of the AME’sarenowheaded,absent the vigorous
pursuitbygovernments of the alternativepoliciessuggestedabove.
B....