Commentaries

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from Rolfe Winkler:

Defining the “extended period”

Another tidbit from Rosenberg, who offers guidance on what the Fed means when it says it will keep rates low for an "extended period"...

FED CAN'T RAISE RATES UNTIL AFTER 2011

The reason — there is a wave of mortgage refinancings coming in the housing market for one, and not only that, but in the commercial space, there are $2.7 trillion of debt coming due through 2011 and another $1.5 trillion of leveraged loans....In other words, the default rate is going to rise even further and the Fed tightening policy would only aggravate that situation. In other words, the Fed is simply immobile for at least the next two years.

I've argued in this space many times that the Fed is trapped. Our monetary system, which is fueled by credit expansion, simply doesn't work in reverse. To avoid deflation, credit must always be expanding in the aggregate. If the private sector won't borrow, the public sector must....and vice versa. If they de-lever in tandem, we get deflation.

We're told to be panicked by the prospect of deflation and yet the solution we've been given -- unprecedented public credit expansion + inflation of new asset bubble -- leaves us worse off than when we started.

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