[blam]

"I confess I do not understand what is going on. But I do have an understanding that what is happening could be terribly, terribly important for our own economy."

You're not alone.

In a morning note to clients, Deutsche Bank's Jim Reid wrote of the volatile market environment: "One of the biggest problems we face is that there is no historical template for current global market conditions so we’re all flying blind to a large degree. Never before have so many of the most important countries in the world printed so much money and left base rates at near zero for so long. Also never before has the largest economy in the world tried to start a slow process of reversing said extraordinary policy."

[nathanbedford]

Never before have so many of the most important countries in the world printed so much money and left base rates at near zero for so long.

I have been confounded by this phenomenon for years. I am sure you recall the debates about the initial rescue under Bush and the subsequent $800 billion stimulus package under Obama, about the risk they would cause of runaway inflation. Since then the Fed has dumped trillions into the market and we have seen precious little inflation.

Do you put your money in gold? That has not prospered as an anecdote to inflation when inflation is negligible. The eternal question is with all of this instability is the world teetering on the cusp of prolonged deflation or prolonged inflation? Does one buy real property, gold, currency? So far, the power of the Fed has proved that the best alternative is the artificial market, the stock market, created by the Fed.

For a model answer we have Japan which tells us that somehow there exists a black hole which absorbs money and causes very little change in the economy, especially not the degree of inflation history tells should have occurred. Is the world going to be like Japan for the next decades?

I have no answer to the black hole question and neither, apparently, does Deutsche Bank and to their credit they admit it. One thing is really hard to admit and that is that the Paul Krugman's side of the debate says we must shove more fiat money into the economy and there is nothing on the scene now, or in the story of Japan for that matter, which says he is wrong.