Xiaonian: Federal Reserve monetary policy committed a serious mistake, which is recognized by everyone. Since 2001, monetary policy is too loose wide departure from the Taylor rule, long-term benchmark interest rates remain low, capital is too low to encourage borrowing, U.S. households, businesses and financial institutions over-indebtedness. Crisis, Americans have to reduce debt, this is what we talk about “deleveraging” process. In the “deleveraging” before the completion of the recovery brought the fiscal stimulus is temporary, and can not be sustained, once the Government to stop burning money, the economy has fallen.
“South Wind”: If the Keynesian solve the problem, why the moment it is still very popular then?
Xiaonian: present situation and of the last century of 20 to 30 years the “Great Depression” is very similar to the “Great Depression” of the early days, people are in panic state, the Wall Street crash, and can save the situation and are looking only the government. The days when western intellectuals with the same mentality today that the market itself as a problem and needs government intervention. Some people in despair while the Soviet Union as the hope and role models, because the Soviet economy under the planning system to avoid “Great Depression.” Some people go further, and even preached to the study of Nazi Germany, because in a totalitarian government’s strong intervention of the German economy quickly recovered. In response to this trend, Hayek wrote “The Road to Serfdom,” in which he warned the world, for the immediate emergency and give up the principle of market economy is dangerous. Germans soon learned to their actual actions of Western countries and the intelligentsia, the people discovered that Hayek was right, an unconstrained strong government meant war and slavery, but the harm is in the Keynesian contributed Government’s strong.