Debt, Drugs And A Missed Opportunity For 'Good' Deflation?

Recessions, depressions, deflation and downturns are reckoned to be bad things by economists and central bankers. So bad, in fact, that they are willing to do just about anything to avoid them. To fend off these demons central bankers around the world have been providing "monetary morphine" in all shapes and forms. From the low interest rates and QEs by the United State's Federal Reserve, to the LTROs of the European Central Bank, to the unlimited loans provided by Chinese state owned banks. The question is whether all of this monetary largess comes at a price?

By Simon Johnson

JEAN-CLAUDE TRICHET, President of the European Central Bank, has come out swinging in the second round of Europe’s crisis of both politics and finance. Yields on the sovereign debts of peripheral euro zone countries stabilised yesterday after Mr Trichet argued that investors are “under-estimating the determination of [euro zone] governments...and indeed the 27 member council”, providing some respite to beleaguered members.

Patrick Chovanec is an associate professor at Tsinghua University’s School of Economics and Management in Beijing. Prior to that, he worked for several private equity funds focused on China, and continues to serve as a fund adviser. He's also got a blog. An edited transcript of our conversation about China's economy follows. This is part two of a two-part interview. Part 1 is here.

By CFA Institute: By Usman Hayat, CFA

By Simon Johnson The finance ministers and central bank governors of the world gathered this weekend in Washington for the annual meeting of countries that are shareholders in the International Monetary Fund.  As financial turmoil continues unabated around the world and with the IMF’s newly lowered growth forecasts to concentrate the mind, perhaps this is a good time for the Fund – or someone – to save the world.

The Bank of Japan Wednesday said it would extend emergency steps launched last year to boost the economy by doubling short-term loans available to banks to 20 trillion yen (220 billion dollars).The BoJ decided to add more funds to the 10-trillion-yen facility that lends money to financial institutions at a rock-bottom 0.1 percent rate, introduced in December to tackle stubborn deflation that has sapped private demand.The central bank maintained the duration of its loans at three months under the new operation.