Lately there has been a lot of noise about the need for more economic stimulus, especially for Europe.

This is in spite of the fact that the asset price bubble that triggered the economic dislocations of the last five years was at root a monetary policy issue, namely the willingness of central banks to make unlimited quantities of money available, which is what happens when a central bank sets interest rates at zero.

Money is free at a zero or almost zero discount rate, and so investors can carry that money somewhere, first to real estate, hence the bubble, as interest rates were set super low in response to the NASDAQ bubble, itself in its final phases a response to Fed intervention after the LTCM debacle, and then to precious metals when the bubble bursts.

Does anyone remember the rules versus discretion argument back in the day? If you do, this isn't a surprise, and, there are some fairly easy solutions, to which to be fair, Benjamin Bernanke correctly pointed to, as to first and foremost, a budget that doesn't violate certain mathematical properties, namely that in the long run, it must be the case that the growth rate of the economy, say 2.5 per cent over a lifetime, must be at least as large as the deficit, or debt grows without bound and bond prices and currency prices go to zero, i.e. a hyperinflation, which is in Sergeant's Unpleasant Monetarist... etc.

Doesn't have to be instantly, but has to happen over time, and for credibility, you can't keep saying, "We'll do that next year.... ."

finis