Sometime last summer a few economists pointed out the failures of the CEI during Zero Interest Rate POlicy (ZIRP) periods, using Japan post-1991 through the two failed recoveries in the 1990’s as an example.
Richard Koo:
Powerpoint for presentation:
http://ineteconomics.org/sites/inet.civicactions.net/files/INETOS-KooPresentation.pdf
Video of presentation:
http://www.youtube.com/watch?v=YuoFMwydQFs&feature=player_embedded
Put them side by side in the screen and you can follow along, and see why the CEI is going to fail to properly model the US economy for the coming years.
The CEI’s big components disregard income from transfer payments - so all the leeches out there, waiting by the mailbox from Uncle Sugar to send them a check - they’re not seen. In that manner, I agree the CEI doesn’t model the economy well in a socialist economy - the CEI does, IMO, have some use in modeling the “real economy” - ie, the economist situation less government transfer payments and other nonsense.
The prezo by Koo reflects my thinking in most aspects. Look at Japan’s economy going forward - their debt:GDP ratio is exploding, they’re now *deliberately* devaluing the yen to boost exports, they still have a banking sector that is a shambles, etc.
This is where we’re going unless and until we break up the banks and we start demanding real accounting - starting with mark-to-market instead of mark-to-mythology. Until we have a financial sector that operates properly again, we’re walking down Japan’s road - and if anything now, the next financial sector stumble will be a whopper.
All we’ve done is take “too big to fail” and turned it into “way bigger than too big to fail.” Dodd’s “financial reform” legislation is all about making “bigger than too big to fail” a permanent fixture of American finance.