tag:blogger.com,1999:blog-53246864840716464.post8764158151575447205..comments2024-02-29T00:46:38.800-08:00Comments on Washingtons Blog: China: Caution May Be Warranted | Japan: Real TroublesUnknownnoreply@blogger.comBlogger1125tag:blogger.com,1999:blog-53246864840716464.post-87740264332600701812009-11-02T12:47:57.859-08:002009-11-02T12:47:57.859-08:00We are a long way from the edge of the woods yet i...We are a long way from the edge of the woods yet in the unwinding of this credit cycle. The Fed and US government are (rightly) congratulating themselves on avoiding financial Armageddon last year when the credit system froze. But since then, very little delevering has taken place and other bubbles have been blown in high risk areas owing to moral hazard. Regular explosions are still detonating in the financial sector, with bank failures rising every Friday without an end in sight and big players are still blowing up (CIT).<br /><br />The question is, what and where is the next Lehman? It's not necessarily going to be in the US and Japan is a good candidate. Many people are also looking to Eastern Europe as the likely implosion point, threatening EU finances.<br /><br />A real problem lies in the neoliberal meme of "fiscal responsibility." Governments and CB's are under pressure to end stimulus and raise rates to "prevent inflation from developing" when the world is still facing debt deflation, real economies are stagnant, the global output gap huge, and social unrest is stirring. Tightening anytime soon would be fatal. This is going to test the EU's Economic and Monetary Union (EMU), for example.<br /><br />All its going to take is one butterfly flapping its wings to set the process in motion again.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.com