No one denies the obvious which Scott Sumner points out. And those nominal shocks have immediate effects, over the domain in which they occur.
What does he mean by nominal?
Scott means sudden debt expansion in big finance, which is concentrated at the point where nominal shocks occur. QE2 had real effects, it caused Wall Street to temporarily park cash, emerging market to raise interest rates, and China to hurry is progress toward a liquid currency. It made Keynesians sit up and take notice of the oil shortage and it brought about the Tea Party, and put the Congressional debt problem up front.
The process of crashing is a process of rearranging the pipes. So the spread of real effects operate over a smaller domain after the contraction. . Ben created this little echo machine that tests the limits of Dollar expansion, and the economy learns that the Dollar domain is a lot smaller after the crash. Ben knew that already, he was there when the crash happened, he knew he was going to hit a constrained system.
The bad effect was to confuse the measuring sysem so we got ever larger GDP revisions, but we are now fixing that. The good effect from the experience was hurrying the restructuring process along.
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