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I said the market is a complex system influenced by economics and politics. An influence does not mean that politics will prevail in preventing a recession at a particular time.
Politics can include formal structures or informal. Political actions that have been taken include cutting tax on dividends, tax breaks for companies repatriating overseas earnings, not too mention cutting interest rates to below the inflation level. Although the last was a FED action it would be naiive to say this was not influenced by political considerations.
One could also look at the Plunge Protection Team. Bernanke when asked about its workings evaded answering and referred to it as a loose collaboration with major bankers and brokers.
On a wider basis one might look at collaboration between central banks.
Japan seems to have trouble raising interest rates because of Government interference, indeed it is also trying to keep the yen down to maintain exports. Other countries are expanding their money supply rapidly in in effect competitive devaluation.
One way of avoiding recession is to expand government spending. Some say a war helps. One can also run a large deficit, fail to fund impending social security obligations, lower tax rates, and not discourage excessive gas consumption via taxes.
All those are political decisions. As such unpopular and difficult ones may not be taken.
The appointment of key financial figures is also political.
Turning to the present situation which the German banking President called a financial crisis, the presenting issue is that the complexity of modern financial machinations has led to a situation where the tide is outgoing and there is uncertainty as to who is swimming naked. Pouring money in doesn't seem to have helped with confidence between banks, nor the repricing of risk.
Increasing liquidity when the precipitant was excessive liquidity may not work but may well be seen as politically desirable. Indeed the decision as to whether to seek short term gain at the expense of longer term pain may indeed be political albeit not decided in congress.
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