As mentioned in our intro to 2013's "Bracing for the Next U.S. Recession":
From The Telegraph:The big fear for policymakers is a recession happening before they have stopped fighting the last war.With interest rates at the zero-lower-bound a deflationary depression would leave them with only one real option-print money. A buyers strike on U.S. debt would force the full Monty of monetization.
Back in 2008 when things were at their bleakest we linked to a couple Federal Reserve papers that laid out the "unconventional" measures. More after the jump....
The world authorities have run out of ammunition as rates remain stuck at zero. They have no margin for error as economy falters
The world economy is disturbingly close to stall speed. The United Nations has cut its global growth forecast for this year to 2.8pc, the latest of the multinational bodies to retreat.
We are not yet in the danger zone but this pace is only slightly above the 2.5pc rate that used to be regarded as a recession for the international system as a whole.
It leaves a thin safety buffer against any economic shock - most potently if China abandons its crawling dollar peg and resorts to 'beggar-thy-neighbour' policies, transmitting a further deflationary shock across the global economy.The longer this soggy patch drags on, the greater the risk that the six-year old global recovery will sputter out. While expansions do not die of old age, they do become more vulnerable to all kinds of pathologies.A sweep of historic data by Warwick University found compelling evidence that economies are more likely to stall as they age, what is known as "positive duration dependence". The business cycle becomes stretched. Inventories build up and companies defer spending, tipping over at a certain point into a self-feeding downturn.
Stephen King from HSCB warns that the global authorities have alarmingly few tools to combat the next crunch, given that interest rates are already zero across most of the developed world, debts levels are at or near record highs, and there is little scope for fiscal stimulus.
"The world economy is sailing across the ocean without any lifeboats to use in case of emergency," he said.
In a grim report - "The World Economy's Titanic Problem" - he says the US Federal Reserve has had to cut rates by over 500 basis points to right the ship in each of the recessions since the early 1970s. "That kind of traditional stimulus is now completely ruled out. Meanwhile, budget deficits are still uncomfortably large," he said....MORE