Unintended Consequences, Part 1: Easy Money = Overcapacity = Deflation

Jon Banking, Blogosphere, Economy, Fiscal Policies, Government, Market Commentary

Somewhere back in the depths of time the world got the idea that easy money – that is, low interest rates and high levels of government spending – would produce sustainable growth with modest but positive inflation. And for a while it seemed to work.
But that was an illusion. What actually happened was textbook, long-term, surreally-vast misallocation of capital in which individuals, companies and governments were fooled into thinking that adding new factories, stores and infrastructure at a rate several times that of population growth would somehow work out for the best.
China, as with so many other things, was the epicenter of this delusion. In response to the 2008-2009 financial crisis it borrowed more money than any other country ever, and spent most of the proceeds on infrastructure and basic industry. It’s steel-making capacity, already huge by 2008, kept growing right through the Great Recession, and now dwarfs that of any other country.

This post was published at DollarCollapse on MAY 19, 2016.