Saturday, November 07, 2009

The Economic Recovery Process

You would have to double click on the NaviMap above to see a larger picture.

A few interesting features here.

Box 1 and Box 8
No free hand for the Americans to print money. It is difficult trying to strike a balance. If they could have push even more money into the economy, they can quickly reverse the rising rate of unemployment. This is too risky as foreigners might give up on the dollar. Krugman seems to have ignored this point.

Box 9, 10 and 12
This reinforcing loop on first look does not make sense. USD should in theory strengthen (box 9). The USD doesn't behave according to theory because it is a currency of safety. The USD is the worst reserve currency except for the rest as Soros pointed out.

Hopefully with more of Box 3 and Box 5 at a critical point, when the expected returns from USD assets become attractive again, the USD will strengthen (box 12)

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