OldLimey

Economic Themes for 2009

Patio: blame the width of the Atlantic, but when I load a comment on SA the preceding comment does not always show until afterwards. In other words, I didn't have access to your first comment until after I'd posted mine.

Regarding your second comment, the questions are absolutely on point. Answers come down to a matter of opinion. You'll notice that I hedged the velocity issue with the words 'assuming it can be' because I have no more idea than anybody else whether consumers and corporates can be forced to drink even once the Government has led them to the well. (Probably one metaphor too many!) I tend to the view that there are a lot of people - particularly amongst those under 40 - who are keen to believe that there's a quick fix, are susceptible to being convinced there is, and will open their wallets accordingly. I know the response to this is that houshold debt is so high in both the US and the UK that this won't happen, and that could of course be correct. However, there's another article on today's SA (Promod Radhakrishnan) painting a slightly less gloomy picture of consumers' resilience in one part of the US; here in the UK retailers are dropping like flies, but I still come across folks on a daily basis who reckon the whole thing's just being stirred by the media. For all the horrific rise in unemployment, there are still a lot of people who have their jobs and as soon as they feel it's safe to go out and spend they will probably be at it again. Final metaphor - the gun is cocked, but whether or not consumers have strength left to pull the trigger remains to be seen.

Regarding currency relativities, the true scale of our respective bailouts, asset purchases, nationalisations, and stimuli as a percentage of national economies generally and money supplies in particular are so murky (and will probably remain so murky) that I think initially it's going to be a matter of confidence as to which country is managing most responsibly. That then becomes a matter of personal and national perspective. Personally, I think authorities in both the US and the UK have been acting rashly whilst the ECB has tended to be more responsible. This is a minority view in the Anglo-American world, where 'aggressive' action seems to be prized over slower consideration of unfolding circumstances (aka being 'behind the curve'). Time will tell.

Economic Themes for 2009

Gtarras: I assume the author is thinking of a figure well in excess of the $1 trillion you mention. Not only are there the bailouts and the Obama stimulus to consider, but also whatever the Fed pumps out into the economy via asset purchases.

In addition to the size of the numbers, an important and now widely discussed issue is how soon and to what extent the velocity of circulation will take off. I assume this is what the author is referring to when he says "When and if the spigots are opened and these new dollars cascade into the real economy...." To extend the analogy, I personally reckon the spiggots are already open but flow is being held back by an 'air lock'; once that is cleared, assuming that it can be, it will be up to the central banks to edge the spiggots closed. Unfortunately, I'm not convinced that machine analogies truly reflect the complications involved in attempting to fine-tune an economy. I think the author's warning in his last two paragraphs is on the mark.