Blood Transfusions Can Get Messy
Posted by Larry Doyle on April 30, 2009 3:00 PM |
Friends of mine have asked me to explain some of the dynamics involved in the government rescuing of our banking system, equity markets, and economy as a whole. Allow me to share with you the following analogy I gave them.
A patient in distress enters surgery and badly needs a blood transfusion. The blood in our economy is transferred via massive increases in deficit spending funded from borrowing in the government bond market. The same sort of operations are occurring in every major country and region literally around the world. The overall blood donor supply is not limitless. In withdrawing the blood from the government bond market, other patients (consumers, corporations) have found blood to be in very short supply and they have suffered as a result.
We all know that blood can regenerate. Are the “green shoots” in our economy a result of “blood doping,” in which the patient regenerates his own blood even in the midst of the transfusion? Blood doping is a very dangerous procedure. When should the patient become a blood donor rather than a blood recipient?
Are our surgeons talented enough to know when and how to precisely withdraw the blood? Does the patient run the risk of another much more serious condition from excessive blood flow? No doubt.
Who on our staff is practiced in the art of withdrawing blood? Paul Volcker was chair of the Fed in the early 1980s when inflation ran rampant. He increased the heart rate monitor known as the Fed Funds rate to near 20% in order to choke off the inflation monster.
Without referencing a specific target Fed Funds rate, Volcker remarked yesterday that an overheated patient this go round may also require similar treatment.