You Can Spend Your Way Out of a Recession 74 comments
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“You can’t spend your way out of recession” is a sound bite heard almost every day on financial TV. Recently a guest commentator combined that sound bite with this one: “You can’t borrow your way out of debt.” Perhaps the second one was intended to divert our attention from the first one. Clever. Perhaps too clever by half.
Of course you can spend your way out of recession, almost by definition. A recession can be defined as a shrinkage of spending and income. More spending is needed to generate more income. Therefore, more spending will do the job.
I think the problem is that spending your way out of a recession is the message of Keynes’s “General Theory of Employment Interest and Money, and people don’t want to be labeled a “Keynesian.” But surely one can cling to his classical economic principles while acknowledging that Keynes had a point, especially during recessions.
In a recession, income declines because spending declines, and spending declines because income declines. It’s a vicious circle that needs to be broken. One option might be tax cuts to increase business spending. Another might be lower interest rates to stimulate spending. Another is to have government spending make up the slack. That will work if it has monetary policy support, i.e. if the government spends newly created money so it doesn’t crowd out private spending.
I don’t necessarily want to be labeled a Keynesian either, but I see no reason to fear acknowledging that he had a point. To say that we can’t spend our way out of a recession may make a good sound bite, but it has no credibility.
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This article has 74 comments:
"He was the one really great man I ever knew"
Friedrich Hayek
In sad contrast, coerced spending by Big Govt, in deliberately twisted and distorted markets accompanied by rising taxes, onerous regulations and rising social overhead has a negative multiplier. This kind of spending will both prolong and deepen a recession.
Who does the spending matters profoundly.
The Regime and its camp followers always choose the latter kind of spending because it increases their income and status at the expense of ordinary people.
Ordinary American choose the former kind of spending because by logic, intuition and experience they know it works.
The more the Regime controls resource allocation the worse it is for income, job and wealth creation for ordinary Americans.
> Who does the spending matters profoundly.
Exactly. When government takes money (or purchasing power) from some and re-distributes it to politically-favored constituencies, that in no way creates growth. It merely re-distributes wealth and creates regime uncertainty, which further depresses long-term growth.
Our problem here in America is more acute inasmuch as we do not have the money to spend even if we really wanted to. Our households are leveraged to the gills at 100% of GDP. Our government owes a collective $71 TRILLION (debt+unfunded SS/Medicare/Rx obligations), or nearly 550% of GDP. Even if one could spend one's way to prosperity, the capacity to do so in America is non-existent.
On Sep 25 10:45 AM chap08 wrote:
> "He {Keynes} was the one really great man I ever knew"
> Friedrich Hayek
---
Some other quotes from Hayek on Keynes and Keynesianism:
hayekcenter.org/?p=38
Hayek on Keynes as an economist:
* “[H]is aim was always to influence current policy, and economic theory was for him simply a tool for this purpose.” (Collected Works, Vol. 9. p. 248)
* “Keynes was not a highly trained or a very sophisticated economic theorist.” (Collected Works, Vol. 9. p. 242)
* “his knowledge of nineteenth-century history and even of the economic literature of that period was somewhat meager.” (Collected Works, Vol. 9. p. 228)
* “John Stuart Mill’s profound insight that demand for commodities is not demand for labour, which Leslie Stephen could in 1878 still describe as the doctrine whose “complete apprehension is, perhaps, the best test of a sound economist”, remained for Keynes an incomprehensible absurdity.” (Collected Works, Vol. 9. p. 249)
* “[Keynes] was neither a highly trained economist nor even centrally concerned with the development of economics as a science.” (Collected Works, Vol. 9. p. 248)
Hayek on the nature of Keynes’ economics:
* “[Keynes] based his own argument on what may be called the assumption of full unemployment, i.e. the assumption that there normally exists unused reserves of all factors and commodities .. But the assumption that all goods and factors are available in excess makes the whole price system redundant, undetermined and unintelligible.” (Collected Works, Vol. 9. p. 243)
* “[Keynes started from] the naive assumption of a direct dependence of investment on final demand.” (Collected Works, Vol. 9. p. 249)
* “the determinants of employment other than final demand are the factors which Keynesian macroeconomics so fatally neglects.” (Collected Works, Vol. 9. p. 250)
* “This constant reallocation of resources is wholly concealed by the analysis Keynes chose to adopt.” (Collected Works, Vol. 9. p. 251)
Hayek on the Keynesians:
* “It was [Keynes'] revival of this underconsumptionist approach [long preached by cranks and radicals] which made his theories so attractive to the Left.” (Collected Works, Vol. 9. p. 249)
* “some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.” (Collected Works, Vol. 9. p. 243)
* “the community of economists [has] forgotten much that had been fairly well understood before the “Keynesian revolution”. (Collected Works, Vol. 9. p. 247)
On Sep 25 01:00 PM Michael Clark wrote:
> You CAN spend your way out of a Recession. You CAN'T spend your
> way out of a Depression. A Recession is a supply-demand imbalance.
> A Depression is an implosion of solvency. A Recession is a common
> cold. A Depression is a cancerous growth.
-- John Maynard Keynes
No wonder our politicians love Keynes. Taxes without consequences - Priceless!
The US can only afford 30T of the 60T in debt it has accumulated. The Fed would like to inflate the US out of the 30T by running a 4% inflation over the next 17 years. SInce the CPI will hide a good portion of this inflation and tax increases or can make up a portion, policy makers are hoping to hide this from the world by implementing over a long period. The wild cards? Asian acceptance of this game, no unexpected economic or political events, controlled Congressional spending, and dramatically reduced energy imports.
Good luck on that list...
Why was it, again, that we decided to let bankers take control of our country and government?
On Sep 25 01:17 PM GotLife wrote:
> "By a continuing process of inflation, governments can confiscate,
> secretly and unobserved, an important part of the wealth of their
> citizens. There is no subtler, no surer means of overturning the
> existing basis of society than to debauch the currency. The process
> engages all the hidden forces of economic law on the side of destruction,
> and does it in a manner which not one man in a million is able to
> diagnose."
>
> -- John Maynard Keynes
>
> No wonder our politicians love Keynes. Taxes without consequences
> - Priceless!
>
> The US can only afford 30T of the 60T in debt it has accumulated.
> The Fed would like to inflate the US out of the 30T by running a
> 4% inflation over the next 17 years. SInce the CPI will hide a good
> portion of this inflation and tax increases or can make up a portion,
> policy makers are hoping to hide this from the world by implementing
> over a long period. The wild cards? Asian acceptance of this game,
> no unexpected economic or political events, controlled Congressional
> spending, and dramatically reduced energy imports.
>
> Good luck on that list...
Our world operates on confidence and trust. And not just because we have fiat currencies. The level of trade and mutual give-and-take will be greatly reduced if we turned away from such systems. And if we doubt the solvency of the system, no one benefits. Bernanke's monetary lubrication to restore confidence in the solvency of the entire system was well warranted.
Even fiscal stimulus that keeps people productive and out of bankruptcy is welcome. However, we should realize that fiscal stimulus takes a much longer time to work and we should rely less on stimulus checks, _unworkable_ mortgage modifications, continued transfers (why should only certain states benefit from extended unemployment?) that spend massive amounts of future earnings and try to provide an immediate boost.
Ultimately, people over the medium term, do realize that that money spent today that they do not have (either by government or via their own borrowing) must be paid back in one form or another. For governments, it means either via inflation or higher taxation (or via growth). Perhaps some people think that it will only be the rich that will be taxed but thats a fallacy (there simply arent enough of them and they have great incentive and resources to hide taxable wealth). And Inflation is actually a regressive tax. We will get both -- actually also accompanied by spending cuts and higher deadweight losses as politicians try to wiggle their way out of this mess.
So my view is that while we can use a defibrillator to shock the patients heart into beating, there is only so long we can continue to administer that same treatment. There is no way to avoid diet and exercise. We need to spend in areas that generate jobs and also recognize that there will be unemployment pain in the near term. That will generate growth and lessen the pain of both higher taxes, social spending cuts and higher inflation that is to come.
On Sep 25 02:06 PM ryanclarke wrote:
> I tried to get a small business loan from a bank to develop a project
> outlined in patent 7499155... a waste of time ... at all four banks
> I visited the answer was the same. Go talk to the SBA. In turn, the
> SBA told me to go to a bank. Bernake is spending. The money is going
> to the existing structure of the current economy. Old growth business
> which has been around for a long time as well as the banks who support
> the old line businesses. The existing power structure in the United
> States is not interested in trying something different. Keep things
> the same ... that's where the money is going.
Arguably one reality is that many intelligent and economically savvy people in the English speaking world are having difficulty recalibrating their thinking to account for truly mindboggling shifts in the topography or environment of recent global economic activity, not only because of the rapidity and magnitude of these shifts themselves, but also because of the hold of dogmatism on economic thinking across the political spectrum. The economic ground shifts beneath us and then shifts again shortly thereafter and we cling to our old models and metaphors, not because they continue to serve us as well as in the past, but because we can see no better ones and don’t want to concede that those in another school of thought might offer something better. While I personally find the renewed interest in the work of Minsky and the contemporary work of Shiller, Leibenstein, Akerloff and their like to offer useful ways (besides breaking our of comforting past complacency) to confront the fact that we individually live with intrinsic future uncertainty and collectively deal with future uncertainty in interesting ways, this isn’t the focus for my comments.
Arguably it is important that we all reflect on how truly changed the world now appears for this is the first step, I suggest, in rethinking our economic assumptions. Each of us will have our own list and the following is meant only to convey a measure of how the topography or environment has changed:
1. North America has understood since WW II that the centre of economic/political gravity was shifting decisively away from Europe but does not fully appreciate or accept that the apparent shift to North America would be transitory as the broader shift was to East and South Asia.
2. This shift is already marked by unprecedented shifts of technology, trade balances and debt to Asia.
3. This last shift has been masked over the past decade or more by the creation of massive derivative and secularized debt by the New York, London and Swiss investment banks but the threatened collapse of this market last year exposed the hollowness of this ‘solution’.
4. The most recent crisis in the banking and financial sectors last year is simply the most recent and, by far, the deepest of manic/depressive swings over the past 20 or so years in the business cycle, swings that are becoming ever more amplified and of shorter duration.
5. All this is against a backdrop of rising global urban standards of living but ecological threat, nuclear proliferation but, perhaps, increased co-operation by current world powers to contain this treat and military buildup countered by growing sophistication of asymmetrical war strategies.
This is not to suggest that North America is doomed to recede into insignificance, that the global and national economies are fated to suffer horrendous declines or that we must find some new perfect economic model; only that the challenges are not simply the ones we are accustomed to consider.
>>>On Sep 25 12:36 PM Carlos Lam wrote:
Exactly. When government takes money (or purchasing power) from some and re-distributes it to politically-favored constituencies, that in no way creates growth. It merely re-distributes wealth and creates regime uncertainty, which further depresses long-term growth.<<<
I agree generally with what you say but with a couple of further observations:
1. The G8 governments implemented a coordinated and massive fiscal and monetary stimulus program because the alternative, cascading banking, financial and then general economic collapse in quick succession was too horrendous to seriously entertain. That alternative would have resulted in much more than ‘creative destruction’ of the inefficient and excessive elements in the economy.
2. We are not yet beyond the possibility of sliding back into that collapse scenario and it follows that sufficient stimulus must continue. Your analogy of the ‘defibrillator’ is apt but we must not take from it that stimulus must be time limited regardless of the state of the recovery.
3. While the current risk remains deflationary implosion, it is true that inflation and even hyperinflation are longer term risks. The unfortunate fact is that, given the nature and complexity of the crisis, the timing of reduction and elimination of stimulus can not be fine-tuned. The best approach is to stay the stimulus course and endure a bit of inflation as things truly improve; then take moderate but necessary steps to forestall hyperinflation.
4. In short, the road out of crisis will be bumpy and this can’t be avoided.
> You mean like how George W. Bush took the wealth of the poor and
> middle class and gave it to the wealthy? (Trillion-dollar tax cut,
> anyone? How about two wars in eight years that primarily benefited
> KBR and Halliburton?)
It depends what you mean by taking the "the wealth of the poor and
middle class" and giving "it to the wealthy." Cutting marginal tax rates and capital gains taxes is always a good idea because it allows capital to remain in the private sector. If you mean Pres. Bush's TARP, Big-3 Bailout, takeover of AIG, and backstop for Freddie and Fannie, then I wholeheartedly agree. His actions essentially handed taxpayer money (and Americans' purchasing power) to the politically connected. Likewise, the wars in Afghanistan and Iraq have added to the fiscal insanity. Of course, Pres. Obama is following in Pres. Bush's footsteps in terms of bailouts and wars without hesitation.
> odin -
>
> I agree generally with what you say but with a couple of further
> observations:
> 1. The G8 governments implemented a coordinated and massive fiscal
> and monetary stimulus program because the alternative, cascading
> banking, financial and then general economic collapse in quick succession
> was too horrendous to seriously entertain. That alternative would
> have resulted in much more than ‘creative destruction’ of the inefficient
> and excessive elements in the economy.
How can you prove that the alternative was "too horrendous?" It may have been "too horrendous" for the politically connected financials. Essentially, the private losses that should have been suffered by those connected few will now be visited on all Americans via taxes or dollar debasement or both.
> 2. We are not yet beyond the possibility of sliding back into that
> collapse scenario and it follows that sufficient stimulus must continue.
> Your analogy of the ‘defibrillator’ is apt but we must not take from
> it that stimulus must be time limited regardless of the state of
> the recovery.
Again, have you not thought of the possibility that the "stimulus" will create unintended consequences that will cause lasting and deep damage to ordinary Americans?
> 3. While the current risk remains deflationary implosion, it is true
> that inflation and even hyperinflation are longer term risks. The
> unfortunate fact is that, given the nature and complexity of the
> crisis, the timing of reduction and elimination of stimulus can not
> be fine-tuned. The best approach is to stay the stimulus course
> and endure a bit of inflation as things truly improve; then take
> moderate but necessary steps to forestall hyperinflation.
Do you have such faith in Ben Bernanke? Do you honestly think that the man who said that the crisis was contained to sub-prime, who praised the virtues of the printing press will forestall hyperinflation? I have more confidence in my preschooler running monetary policy than Ben Bernanke.
> 4. In short, the road out of crisis will be bumpy and this can’t
> be avoided.
It cannot be avoided, but we should have taken our medicine when the crisis started, avoided printing dollars like there was no tomorrow, stopped the issuance of federal debt, and suffer through a deep but cleansing depression. Before we can truly recover debt MUST be wiped out and the inefficient MUST be liquidated. Otherwise, we face a combination of high structural unemployment and a currency that continues to fall in purchasing power at an increasing rate.
I can not agree with you for two reasons:
1. The investment banking crisis of last fall could not be limited to those banks and their senior executives that caused the imbalance that precipitated that crisis. That crisis, unattended, would have consumed the global financial system and then the general economy. While mild recessions can have the focused creative destructive effect you envision, a general collapse is indiscriminative destructive. Further, in the resulting chaos, government debt compounds, currencies are devalued, trading networks are destroyed and the very bases for recovery are undercut.
2. There is an implicit assumption in your comments that there are underlying true values for currencies, debt and businesses that economic crises are caused when these true values are distorted and that it is the function of such crises to return these to their true values thereby ending the state of crisis. As suggested above in my first point, a deep deflationary depression drives values well below the optimum point and causes the economy to fall and remain for some time well below its optimum level. In fact, it is difficult to define what such underlying true values might really be.
While I would be the first to approve if the crisis could function in the surgical fashion you describe, unfortunately it will not unaided.
I recommend the following article on Minsky - who melded the Keynsian and Austrian Schools of economic thought.
www.boston.com/bostong...
Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.
This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.
Unfortunately the stimulus as designed misses the point, and has been politicized. Initial 10% injected into the economy was used to provide additional social service support, this is not stimulative unless it causes recipients to buy things other then necessities . Shovel ready jobs have yet to materialize in any substantial way because of slow process, restrictions, union requirements all delaying implementation until 2010. Small business initiatives are virtually nonexistent. Tax relief for all business and all consumers was not considered a priority so neither have participated in the economy beyond basic requirements to survive.
So whether an economy in recession can or cannot spend its way to stabilization will depend on the priorities of the stimulus, stimulus without specific and strict economic intentions is counter productive.
Current stimulus was designed primarily for political rather then for economic reasons, which I believe was done knowing that the economy would stabilize on its own, as it appears to be, thus allowing the admin to claim success, having there cake and eating it to. With 90% of stimulus still not in the economy, will the Admin return the unused stimulus to the treasury to reduce our debt or use it for further political gain. Since politicians feel money approved but not spend is wasteful one can assume the unused money will be spent to further their political agenda.
The downside to this thinking is if the economy doesnt recover as anticipated the Admin would have caused bigger problems for the economy by incurring debt that
Most people spend it and then borrow against future revenue, just like our government.
It is ironic that the majority of the populace criticize the government for doing the same thing they do?
lol How would we react if we had the ability to produce unlimited money?
But in 2009 the question is, "Can the government afford to spend its way out of this recession?" How much does it have to spend to offset the existing deflationary forces?
I believe you understand that our country simply can't borrow a $ trillion a year for the next decade so that we can dig ourselves out of this hole. While spending 10 trillion might work it would also destroy whatever future we have left.
You are in a position to influence the outcome of the choices we face. You did us all no favors with this piece. It should have been titled:
"We Can Spend Our Way out of Recession, But the Cost will be too High".
America needs straight talk from people like you. Do us all a favor and tell the truth about our capacity to spend our way out of this one.
How many people have lost jobs in the last 5-6 years and have had to take a lesser-paying job? I know many that have lost good jobs in technology, finance and other industries and have had to take pay cuts from 50%-70%. (If they are lucky) And these are people with degrees and advanced degrees, not minimal skilled people.
Unemployment figures are meaningless - UNDEREMPLOYMENT which is not tracked or measured is the real statistic to follow.
If those of you that think the consumer is going to get us out of this economic bog, you are sadly mistaken.
Outsourcing to cheap labor has cut deeply into the well-educated middle-class and it does not seem like there is going to be any turnaround.
Real jobs - and not make work jobs - are key. And the whole idea of "shovel-ready" projects misses the segment of the workforce that is needing jobs.
Politicians are stuck in the 1930s world if they think construction jobs are going to help those who have lost jobs in the IT, communications, and financial industries. There is NO correlation.
Keyboard-ready or network-ready (new infrastructure) projects are what are needed to get a lot of good people back to work. Then we can spend our way out of this deep recession.
We also need an immediate revenue sharing distribution to the states of 150 billion on a per capita basis to see them through.
These measures will begin immediately to restore aggregate demand.
The vicious circle we are living now is not a shortage of consumption. The vicious circle is massive overspending by the U.S. government. There is no shortage of consumption in the U.S. There is a shortage of saving and investment.
"Fed Up" may also have been intended. I once had a tee shirt made with that on it.
Bob McTeer
On Sep 25 03:15 PM Michael Clark wrote:
> Did you guys read about the suicide in Kentucky who hanged himself
> and had 'FED' carved in his chest?
>
> Coroner: 'Fed' written in pen on US Census worker
> By JEFFREY McMURRAY and ALLEN G. BREED (Associated Press Writers)
>
> From Associated Press
> September 25, 2009 2:21 PM EDT
> BIG CREEK, Kentucky - Authorities said a U.S. Census worker died
> by asphyxiation but were releasing few other details about the mysterious
> case nearly two weeks after his body - with the word "fed" scrawled
> on the chest - was found hanging from a tree near a family cemetery
> secluded by forest in rural Kentucky.
>
> The word appeared to have been written with a felt-tip pen on the
> body of Bill Sparkman, Clay County Coroner Jim Trosper said Friday.
> He did not elaborate.
...although, I would agree with giving tax cuts a shot so people had more to spend of the current money supply while freezing government spending and printing of money.
Stupidity is what got us here. Low interest rates, printing money at nearly the speed of newsprint in days past, telling people not only to not save but engaging in monetary policy designed to DISCOURAGE saving. No matter what school of thought you are from, telling a people that saving is pointless, bad for the economy, and then implementing policies designed to make the point is at best foolish and at worst malignant, evil, and treasonous.
I think maybe Americans are now looking at the 8 inch forehead, overly lettered fellows who think they are sooooooo much smarter than the fellow who builds a string of companies that actually make things, provide services, and create jobs as well as at the fruit of their labors and saying they are no smart after all.
I find it amazing that those who are prepared to consider themselves neo-Keynesian fail to acknowledge that at the time Keynes came up with his theories the role of government spending in the economy was much much smaller than it currently is. Economic policy in the developed world has been in a Keynesian mode for the better part of 75 years. Consequently for there to have been a 1929 style depression there would have had to be decline in private activity twice the order of 1929. That simply wasn't going to happen.
The Jump Start theory always comes with the lovely diagram of the "bucket". The bucket represents demand. The bucket's content is household, business, and government demand for goods and services. A recession is a bucket that is not full to the brim. The bucket is no longer full as the demand components of households and businesses has shrunk and hence its the government's responsibility to increase its expenditures (increase its component of the bucket) in order to bring the bucket back to full.
Seems like common sense. However, the increased Government Expenditures that attempt to fill the bucket is really draining the bucket simultaneously. Its counterintuitive. As the government increases spending, Private Capital Formation leaks out of the bucket. Hence you try and try to fill the bucket but it remains below the brim.
Once you stop filling the bucket with Government Deficit Spending, you now must pay for the Deficit Spending. Hence Keynesians raise taxes. The taxes then create another leak in the bucket. Hence the bucket goes right back to the level that you began with before you started this wasted exercise.
Keynesians should wear the bucket over their heads.
Thanks to "enuff said" for the link on the article about Minsky, and to others for the Keyseian Quotes.
I offer some quotes of my own from Peter Lynch. "If you spend 13 minutes a year trying to predict the economy, you have wasted 10 minutes." and this one from his "20 Golden Rules" - "Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested."
None of us can change what the government is going to do or is doing. We can make money from it though by focusing on what we can actually do and that is to invest in good companies that pay rising dividends over at least 5 years (10 or longer is better). Even at this time in the economy - there is still over 80 companies that are still doing just that. Find the ones that work for you - re-invest the dividends if you can afford to - and put more money in them monthly. During the Depression, if you had done this, starting in 1929, you broke even in 4 years as opposed to the 25 years it took everyone else. Learn from history - the lessons are there. Think about it.
The bubble has burst and we are left with both hard, soft and paper assets that have, at this time no certain value. Why did we buy them in the first place? The answer may be the way out.
"What is the cause of high unemployment? Quite simply, and unequivocally, it is caused by paying ourselves more than the value of what we produce. There are no scapegoats. That is as true in a mixed economy under a Labour government as it is under capitalism or communism. It is an absolute fact of life, which no government, be it left or right, can alter. We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all candour, that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war, by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation, followed by higher unemployment; we have just escaped from the highest rate of inflation this century has known; we have not yet escaped from the consequences, high unemployment. That is the history of the last 20 years."
Bitain got a loan from the IMF that year and the US and Germany used the IMF loan as a means to force Britain to make major domestic policy changes:
yalepress.yale.edu/boo...
On Sep 26 08:44 AM JAMES CARLINI wrote:
> Outsourcing to cheap labor has cut deeply into the well-educated
> middle-class and it does not seem like there is going to be any turnaround.
>
> Real jobs - and not make work jobs - are key. And the whole idea
> of "shovel-ready" projects misses the segment of the workforce
>that is needing jobs.
>
> Politicians are stuck in the 1930s world if they think construction
> jobs are going to help those who have lost jobs......"
I strongly favor free markets and small governments, often giving a "thumbs up" to comments by Carlos Lam. But in this debate, I am with Bob Adamson. If we had allowed, on the watch of an ostensibly pro-capitalist Republican administration (never mind that the collapse was rooted in "progressive" principles espoused most strongly over the years by Democratic politicians), the type of "cleansing" collapse favored by Mr. Lam, Obama's path to the type of fascist/socialist nation he desires would have been so much easier. An economic collapse in 2008 would have given even greater power to those who believe that an elite group of statists can bring prosperity where "capitalism has failed."
Quantitative easing by the Federal Reserve has bought us time to "get it right." We won't get it right, of course, but at least much of the unavoidable pain will accrue during the reign of the statists. Obama and his ilk are already starting to be blamed for a failure to create jobs and otherwise deliver on campaign promises. The fiscal stimulus program is a horrible mis-allocation of capital to politically favored interests. A massive reduction in taxes would have been so much more effective in promoting both quick gains in spending along with the savings that must inevitably occur as consumers de-leverage their balance sheets from imprudent debt levels. Private spending on drill-ready projects instead of federal spending on not-quite-shovel-ready projects would have made so much more sense in the short run and the longer run.
I'm quite pessimistic about the long-term outlook for the US on many levels, but I continue to hope for a political revolution of the type envisioned by Glenn Beck that will bring this mis-educated country closer to the principles and the vision espoused by our forefathers.
Now the Republicans are scrambling trying to be relevant again. Their pro-business, low-tax message is not going to be welcome for a long time now. This is especially true in that business will be remembered by Americans for two things in the last decade: 1) exporting jobs to Mexico and Asia; 2) sinking the economy, imploding the financial structure and 'stealing' billions or even trillions of tax payer money from the government and then paying billions in bonuses to their cronies on Wall Street.
There is a time for the Republicans: when we are climbing out of the Dark Age. There is a time for Democrats: when we are climbing into the Dark Age.
Glenn Beck. HIs message is getting weaker, along with Lou Dobbs' message....he is an anachronism now, as we climb down into the belly of the Dark Age.
On Sep 25 10:17 PM Carlos Lam wrote:
> On Sep 25 07:01 PM bob adamson wrote:
I even remember when the USA exported products and had trade credits with other countries and when the USA was the largest Creditor Nation in the World.
Now we export jobs and factories as we once did products and now we are the biggest Debtor Nation in the World.
Spend our way out of a recession now? You must be joking or taking drugs and dreaming of the good 'ol days.
The free-market spirit of the Republicans can lift us out of the Black Hole, but only after we have finished a long process of deleveraging which was how the free-market Republicans lifted us out of the Black Hole of Depression. 18 years of inflation under Republicans (inflation, as in inflation of the bubble, inflation of debt) and 18 years of deflation under Democrats.
I'm a believer that both sides of the political coin have a role to play in this process. Expansion (the current Republican role) lifts us up and throws us down; contraction (the current Democratic role) comforts us while we are resting and can't get up.
War? War seems to be built in to the system. It's too bad it is. It's a horrible way to have to wake up. Maybe this time it will be different; maybe not.
I agree with you about the future generation. The sins of the Father. Taking on a debt that your grandchildren will have to pay so that you can buy toys that you really don't need....now that is a sin that really shouldn't be forgiven by our grandchildren.
On Sep 26 10:31 AM Jimbo wrote:
> As an individual who lived through the Great Depression as a schoolboy,
> permit me an observation. Although the U.S. had begun gearing up
> as the "Arsenal of Democracy" in 1938-39, the unemployment rate on
> the Friday before Pearl Harbor was hovering about in our current
> range. We ended up fielding armed forces totaling ten million out
> of a population of only 130 million. This will certainly take care
> of unemployment problems! Alone among the major combatants, our cities
> and industrial areas were not destroyed. When the war finally ended,
> we stood alone with the industrial capacity to rebuild the world.
> This was the source of our recovery from the Great Depression, NOT
> Rooseveltian Socialism. I was the right age for the Korean War but
> was lucky to serve without any personal consequences. I have eight
> grandchildren and am in fear and trepidation for their future. I
> hope and pray there will be no war in their future but wonder how
> they will deal with this crushing debt we are bequeathing all our
> progeny.
That is what we have now: a comatose patient we are keeping alive by pouring our grandchildren's money into this patient's IV.
It cannot be avoided, but we should have taken our medicine when the crisis started, avoided printing dollars like there was no tomorrow, stopped the issuance of federal debt, and suffer through a deep but cleansing depression. Before we can truly recover debt MUST be wiped out and the inefficient MUST be liquidated. Otherwise, we face a combination of high structural unemployment and a currency that continues to fall in purchasing power at an increasing rate.
The best items to invest in these days are:
a) workforce management
b) digital strategy
c) innovation strategy - with a focus on creating a new customer value proposition
On one hand, monetary and fiscal policy is designed for effects of a downturn in the business cycle, i.e., the government steps in to make up for falling PCE and CAPEX temporarily, until the economy picks up. This is the solution of Keynes. Keynes proposed the solution not so much economically as politically. Popular perception that the government is doing nothing in an economic downturn leads to social unrest. Keynes was a conservative trying to forestall populist revolt, such as is now brewing with a lot of people hurting bad.
On the other hand, in a financial crisis, the bad debt must be wound down without severely disrupting the system and causing a deflationary spiral. The way to do this is through bank resolution, as in the S&L crisis. Among other things, this means breaking up the institutions that are "too big to fail" through reorganization.
Instead, the Fed and Treasury are attempting to reflate asset prices and otherwise protect the big banks through "fudging," in order to reduce their bad debt and restore solvency without addressing the effect of consumer indebtedness.
Reflation is resulting in dollar depreciation and long-term inflation, although the present danger to the economy is deflation, since consumer indebtedness is a huge drag on PCE. In addition, the excess liquidity that the Fed is crating is not only reflating asset prices. It is also leading to bubbles in other areas like commodities and creating a dollar carry trade.
The proper way to proceed would be to liquidate bad debt in such a way as not to sink the entire world economy. The authorities may have determined that this is not possible. Or they may have determined that this was politically not feasible given the clout of the oligarchs. I think that both are operative. This is crisis that is decades building and powerful forces are behind maintaining the status quo.
Some government intervention is required to prevent total collapse (although that may be impossible), but without reform addressing systemic risk, moral hazard and financial "innovation" that doesn't benefit the economy substantially, if this crisis doesn't blow us up, the next one will.
But for the rest of the country, the future is much more important than today. Its really unhelpful to give any kind of academic cover to the kind of short term populist thinking that Keynesians espouse.
Some of the posts on here are entertaining to read. They say stuff like "Keynes had some good ideas, Hayek had some good ones, maybe they're both right, nobody knows..." They should just say "I don't understand this stuff, but wanted to waste people's time." Sorry, Hayek was right, and Keynes was a homersexual political aye-hole.
The really insidious thing is that the longer the postpone the necessary correction, the larger the disruption will be when it finally happens, so the greater the effort is made to postpone it. Eventually the imbalance becomes so large, even coordinated government intervention can't stop it. These things should have been allowed to correct on their own, but back then when the imbalances were small, it was all to easy to prevent their correction. But no it won't be the end of the world when some of these long over due institutions finally die, because from their ashes, comes the resources to nourish new life.
With all this talk of doom and gloom I'm sure it will surprise you to learn that internet spending increased by a massive 19% from January 2009 to July 209 and is expected to continue to rise by a further 10.7% per year for the next 4 years.
The United States is currently the world's number 1 big spenders when it comes to online purchasing, spending almost $40 billion dollars annually, although China are expected to overtake the United States by the year 2010 when worldwide internet spending is expected to reach $600 billion per year.
With all this money being spent online it would only take a foolish business man (or woman) to not see the benefits of including the internet in their business' sales. Some companies, like Amazon, only trade online and have done for many years and Amazon are now a muliti-billion dollar company.
What is needed is for the Government to stop spending like a drunken sailor.
America is a mess.Only thing that would help is a stiff broom to clean out Washington cess pool :^/
But it seems like when all anyone has is debt, and forever pays interest on that debt instead of putting that money into their local economy, then it has the effect of all the money going instead to the holders of the debt-the ruling class. Credit cards now make it effectively much like the old 'company towns' where the mine, mill, etc. owners built a town around the mine, everyone worked there, the company ran the store, and you pretty much died in debt to the company you worked for. Now it's the bank instead, but you get shiny trinkets out of the deal.
Personally, the only way out of this is to work hard and pay that mortgage off a decade early. Maybe the rest of the country is being herded, one way or another, into doing the same. It's important to pay off your debts, but once again, the money all goes right up to the top, and folks, it ain't tricklin' back down.
At least with the taxes I get roads, schools, fire departments, etc. That 30 percent APR credit card debt money will never do me any good. I sure can't get a small business loan for my bike shop.
Take healthcare. Apparently it costs 7500 per person per year in the USA. So for a family of 4 that is 30,000 per year. And the average household income is 50,000. So after paying the families healthcare cost you have left 20,000 to live on. Yet this government cannot even address the healthcare issue. I am sorry but America is done, finished, kaput. And no one is addressing it.
You’re quite right that while the banking crisis precipitated the financial crisis (when the US, UK and Swiss banks were in crisis, banks generally stopped extending credit needed by the general economy for day to day operation) but that the solutions to each of these two crises differ (as you well describe). The deflationary crisis which ensued could have been similarly discussed as well. I would only add two points:
1. There are also several pre-crisis structural problems that predisposed the economy to generate the credit bubble, trade imbalance etc. that made the banks, financial system and general economy fragile and waiting for some trigger event to cascade into crisis.
2. The banking, financial and deflationary crises and the pre-existing structural problems are each troubling and must be dealt with. We can not, however, deal with all these issues decisively at the same time. The array is just too complex, the corrective measures for several conflict and some are more urgent than others.
In short, it is going to take years to work through all these issues and the measures central bankers and governments should take will change significantly as the focus moves from issue to issue. For example, stimulus action by central bankers and governments have moved us back from the edge in the banking and economic crisis and it was right to defer action to restructure the investment banks and the banking system in which they function until some stability returned. Stability must not, however, be confused with real recovery and, it follows that further measures other than stimulus will be needed to move the investment banking sector and the economy to real sustainable recovery. I’m not trying to map out the various stages and measures at each stage that will be needed to address the array of issues the global economy faces (nor do I suggest that I have some unique insight to impart); merely to illustrate that staging, timing and the complexity of the interrelationships between issues must be appreciated so that we don’t become too impatient or overly critical of those that must take the lead at each stage as we travel through this labyrinth.
The BULK of the tax cuts were for the middle class (couples making $40k a year got a $4k reduction) AND your employers.
They were NOT for the "rich."
I can't wait until 2011 when the truth comes out. Not to mention the article I just read that figures your health insurance will cost 140% more within 5 years.
On Sep 25 06:03 PM Liz wrote:
> You mean like how George W. Bush took the wealth of the poor and
> middle class and gave it to the wealthy? (Trillion-dollar tax cut,
> anyone? How about two wars in eight years that primarily benefited
> KBR and Halliburton?)
>
50% of our population has an IQ less than 90.
We need jobs for the MASSES, which will create demand for higher thought/tech jobs.
Sending the jobs for our masses to the third world screwed it for us all. Faking educations and lowering standards (which is exactly what the government is doing now) will NOT help us at all.
On Sep 26 08:44 AM JAMES CARLINI wrote:
> Sure you can spend your way out of a recession - if you have money
> to spend!
>
> How many people have lost jobs in the last 5-6 years and have had
> to take a lesser-paying job? I know many that have lost good jobs
> in technology, finance and other industries and have had to take
> pay cuts from 50%-70%. (If they are lucky) And these are people
> with degrees and advanced degrees, not minimal skilled people.<br/>
>
> Unemployment figures are meaningless - UNDEREMPLOYMENT which is not
> tracked or measured is the real statistic to follow.
>
> If those of you that think the consumer is going to get us out of
> this economic bog, you are sadly mistaken.
>
> Outsourcing to cheap labor has cut deeply into the well-educated
> middle-class and it does not seem like there is going to be any turnaround.
>
>
> Real jobs - and not make work jobs - are key. And the whole idea
> of "shovel-ready" projects misses the segment of the workforce that
> is needing jobs.
>
> Politicians are stuck in the 1930s world if they think construction
> jobs are going to help those who have lost jobs in the IT, communications,
> and financial industries. There is NO correlation.
>
> Keyboard-ready or network-ready (new infrastructure) projects are
> what are needed to get a lot of good people back to work. Then we
> can spend our way out of this deep recession.
Except when the pump is broken. Like now.
"TARP Profit: The Lies Get Bigger and Bigger
Tim Cavanaugh | September 2, 2009, 8:24pm
Cherry-picked news doesn't come much cherrier than the tale of the TARP profits. If you believe The New York Times, the eight strongest banks covered in the Troubled Asset Relief Program (that's the $700 billion bailout approved last October) have paid back taxpayer money with interest. To stretch the slight return on investment from a very tiny part of the program into "profit," Timesman Zachery Kouwe engages in some mighty opaque language:
The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.
These early returns are by no means a full accounting of the huge financial rescue undertaken by the federal government last year to stabilize teetering banks and other companies.
"By no means a full accounting" is putting it mildly. In Matt Taibbi's description, this figure is "sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up." Profit is what you make on top of your initial investment, so if you're talking about $4 billion on a $700 billion outlay, that's a little more than 0.5% -- more than Wells Fargo pays its depositors in interest, but nothing to write home about. In the event, the $700 billion is nowhere near to being recouped, and big chunks of it are tied up in losers like Bank of America, Wells Fargo, Citibank, and others.
The really disturbing thing is not that the case for TARP profits is so forced and hard to believe, but that it's being made at all. FDIC Chairwoman Sheila Bair believes 500 banks are in danger of failing; other estimates have put the figure closer to 1,000, and the list of problem banks keeps growing. If the government were even pretending the TARP was designed to shore up the banking system there would be no talk of profit because every penny the big banks paid back would be going back out to reward some other collection of incompetent losers.
If the Treasury really wanted to make the case for TARP it would make clear that none of that money should ever come back, because it was all a handful of dust in a vast sinkhole that has swallowed about $15 trillion in national net worth since the return to economic reality began in 2007. (That vast figure also helps explain why the Treasury and the Fed haven't been able to inflate salaries, consumer prices, producer prices, or anything else except the number of dollars in currency markets.)
Other reactions to the TARP profit story include Taibbi's:
Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven't retired their obligations yet, it's crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyze TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.
The other reason for that is that it's only a tiny sliver of the whole bailout picture. The real burden carried by the government and the Fed comes from the various anonymous bailout facilities - the TALF, the PPIP, the Maiden Lanes, and so on. The losses from the Fed's purchase of distressed/crap Bear Stearns assets (Maiden Lane I) and AIG assets (MaidenLanes II and III) alone were as recently as late July calculated in the $8.6 billion range, and even that number is very conservative. Then there's the trillion or so dollars that the Fed used on buying up mortgage-backed securities and Treasuries; we don't know what their market value is now. And there are untold trillions more the Fed has loaned out in the last 18 months and which we are not likely to find out much about, unless the recent court ruling green-lighting Bloomberg's FOIA request for those records actually goes through.
Rolfe Winkler at Reuters:
A very dangerous misconception is taking root in the press, that in addition to saving the world financial system, the bank bailout is making taxpayers money...
The trouble is the popular view that TARP was the bailout. That very unpopular $700 billion program got all the attention because it was an easy story to tell a general audience. It had a big ugly price tag; it was debated very publicly in Congress; and, most important, the list of recipients and their take was made public all at once...
But the bailout was much larger than TARP. There is FDIC's debt guarantee program, which still backs over $300 billion worth of financial sector debt; there are the Federal Reserve's emerging lending facilities, which have showered hundreds of billions of cash on banks in exchange for, well, we don't know what. There was the AIG bailout, which gave the company tens of billions more. There were changes in fair value accounting rules, which permitted banks to hide losses, and there is stupendous support for the housing market, which has rescued banks from huge write-offs.
All of these and more make up the implicit too-big-to-fail guarantee that the biggest financials have all received. The total cost won't be known for years, and the price tag is likely to be enormous.
Former Treasury Secretary Hank Paulson, in a typical meltdown of grammar and sense quoted by the Times' DealBook blog (and dig the supremely loaded language in the first paragraph):
Of course, the government's chief priority was to stabilize the teetering financial system, not necessarily to maximize profit. Now, the worst of the crisis is past, and the rewards from avoiding a widespread financial meltdown are incalculable.
"You do not stop a financial panic by putting capital and offering capital at the banks on the terms - the only terms that is available in the middle of a crisis," former Treasury Secretary Henry M. Paulson Jr. said at a Congressional hearing in July.
The Atlantic Business Channel:
I'm with Yglesias. TARP might not have been perfect, but it provided clutch funds for teetering banks during the darkest hours of the recession, and its early returns are positive. Not bad for a ongoing government working through the most complicated financial crisis we've ever seen.
And back with the grownups, Barry Ritholtz:
My definition of an investment profit is simple: You take the money you have invested, and if adds up to more that what you began with, well, then, you have a profit.
Let's say on the other hand, you own 20+30 positions; 5 of them are higher than where you purchased them, and all the rest deeply in the red. Net net, your portfolio is down immensely. Most rational investors would hardly call that investment a "profit."
Looking just at early TARP repayments means that we are ignoring a) the rest of the TARP; and b) the majority of other expenses, guarantees, loans capital injections, and outright spending that has taken place...
The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages."
What this is more appropriately described as is a return of capital; to call this a profit is to ignore trillions of dollars in taxpayer monies that have been spent, lent, guaranteed, drawn against and otherwise consumed in what will likely be the greatest transfer of wealth in the planet's history."
reason.com/blog/show/1...
Cited above:
Friday, September 25, 2009
Problem Bank List (Unofficial) Sept 25, 2009
by CalculatedRisk on 9/25/2009 07:36:00 PM
This is an unofficial list of Problem Banks.
Changes and comments from surferdude808:
Another week with significant changes to the Unofficial Problem Bank List as the FDIC released its enforcement actions for August. We will not get another release from the FDIC until the end of October.
The Unofficial Problem Bank List grew by 23 institutions to 459 and aggregate assets total $297.2 billion, up from $294 billion last week. During the week, we added 25 institutions to the list while we removed 2 because of failure. The failures were Irwin Union Bank and Trust Company ($2.8 billion) and Irwin Union Bank, F.S.B. ($518 million).
The largest asset additions include First Mariner Bank ($1.3 billion), Baltimore, MD; Anchor Mutual Savings Bank ($657 million), Aberdeen, WA; and NexBank ($560 million), Dallas, TX.
For the other 23 additions, the average asset size is $178 million. The additions are concentrated in handful of states including Minnesota (5), California (4), Washington (4), and Georgia (3), which all continue to see banks with large CRE or C&D lending concentrations come under enforcement action.
The list includes 2 new Prompt Corrective Action orders the FDIC issued against American United Bank ($112 million), Lawrenceville, GA; and Bank 1st ($109 million), Albuquerque, NM. It is long overdue for the agencies to start issuing more PCA orders.
One other interesting item this week is that the FDIC issued a Cease & Desist order on August 31st against Georgian Bank ($2.2 billion), Atlanta, GA, which was closed today. We typically remove failures from the subsequent week’s list but, in this case, we did not add Georgian Bank otherwise aggregate assets would have been $299.4 billion.
The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.
See description below table for Class and Cert (and a link to FDIC ID system).
For a full screen version of the table click here.
The table is wide - use scroll bars to see all information!
Go here and you can see the list of bank that are unofficially on the bad list. Estimates of upwards of 1000 banks.
www.calculatedriskblog.../
The FDIC is looking at tapping a line of credit with the Treasury. Wonder if they have a mileage plan with that line?:
www.bloomberg.com/apps...
Hold on to your seats, we are at the top of the biggest did yet.
Hold on to your seats, we are at the top of the biggest dip yet.
Problem is, we have been doing it for 30 years and it is now time to pay the piper. The credit Ponzi is bust and there is no reflating it because the social mood regarding having a bunch of debt and no savings has changed. This is the new reality.
Where does the wealth come from with which to spend? Of course, it come from previous production. Nobody can consume any wealth that has not been produced by someone, period, end of story. Government cannot spend anything that it has not stolen from someone who has produced it. Inflation and debt accumulation are just different ways of redistribuiting wealth that someone has produced. Your line of reasoning is so backward, you could almost qualify as a presidential economic advisor.
There is a good reason why most people don't want to be labeled a Keynesian - because he was/is profoundly and dangerously wrong.
"More spending is needed to generate more income. Therefore
more spending will do the job". Where is the money for all this
spending going to come from, the public that has been the driving
force of this economy by 70% or so as unemployment continues
to rise? Production, the result of job growth has been the only
remedy for recessions and only after toxic elements in the system
economically have been flushed out. Have you any data that
confirms any society that has recovered from a recession by
any means other than job creation? I haven't! What will you do
when your money runs out and you have no more to 'spend'?
Shed some 'Teers'?
By the way, I know that the author of this article did not quote the
comment Hayek supposedly made alleging Keyne's 'greatness',
so I went to the website (hayekcenter.org) to veryify for myself and agree with the listed commentary made earlier by another web visitor. Not one of the 13 or so comments I observed attributed anything to Keyne's comming from Hayek that amounts to a compliment of even so much as Keyne's having barely more than a rather primitive understanding of economics or that much of an interest in the study of it either!
Strange how the thinking of a segment of the population can be
so skewed. But that no doubt explains why the leadership which
foster and intensify these needless economic fiascos get to hold
office in the first place. They get elected and re-elected by those
folks who unfortunately constitute the voting American majority!
Strange how a nation founded upon the word Independence seems
to have such a problem electing "Independent" candidates to office!
Whenever I view the voting tallies in congress and the senate on ESPN, I see Republican and Democratic votes, but none for any
Independents!
How sad for what should be an advanced democratic system
and a model to the world of societal and fiscal excellence. How
sad indeed! Yet again on second thought, perhaps the old saw
still lives "you have to give the people what they want" and these
'people' love their popularity contest winning pathalogical liars who promise what hey can never deliver in order to get elected and proceed to screw the taxpayer who is paying for all of this, just in case you hadn't noticed!
Erick Tippett
Chicago, Illinois
> Mr. Lam,
>
> I can not agree with you for two reasons:
> 1. The investment banking crisis of last fall could not be limited
> to those banks and their senior executives that caused the imbalance
> that precipitated that crisis. That crisis, unattended, would have
> consumed the global financial system and then the general economy.
> While mild recessions can have the focused creative destructive effect
> you envision, a general collapse is indiscriminative destructive.
> Further, in the resulting chaos, government debt compounds, currencies
> are devalued, trading networks are destroyed and the very bases for
> recovery are undercut.
Your claim is rather speculative; you have no way to prove that a "general collapse" would've occurred. Certainly, Pres. Bush and Sec'y Paulson claimed that a collapse would've occurred, but their credibility is highly dubious. You are correct that several financial firms would've been wiped out, but any claim that ALL would be destroyed is ludicrous; the smart, nimble companies would survive to pick up the pieces.
> 2. There is an implicit assumption in your comments that there are
> underlying true values for currencies, debt and businesses that economic
> crises are caused when these true values are distorted and that it
> is the function of such crises to return these to their true values
> thereby ending the state of crisis. As suggested above in my first
> point, a deep deflationary depression drives values well below the
> optimum point and causes the economy to fall and remain for some
> time well below its optimum level. In fact, it is difficult to define
> what such underlying true values might really be.
In your comments there is an implicit assumption that the state has either the right or obligation to restore equity values to their optimum value. I question this assumption: throughout history, government seems to get it wrong (i.e. CRA, ultra-low Greenspan interest rates, intelligence re: Iraqi WMDs).
If it was a case, why did not the Weimar Republic, Zimbabwe, etc., become most prosperous countries in the world?
And if an economist want's fame and glory, do you think they will agree with government intervention or go against it?
I have been a big fan, both on this blog, on TV (seen you on Kudlow a few times). I do agree that government spending is just as stimulative as private spending, the key question is if private spending joins the party at some point early enough so that the debt burden that Govt. undertakes in priming the pump is sustainable beyond the recovery.
China was able to prime the pump because of the excess reserves they have accumulated. Japan is priming inspite >100% Govt Debt/GDP, should they be doing it.
Can the US debt get beyond a point where the debt burden exceeds the stimulative effect?