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Recession means whatever you want it to mean. The GDP stabilization we have seen (in America) is the result of Ponzi financing by the Fed and Treasury, along w

Recession means whatever you want it to mean. The GDP stabilization we have seen (in America) is the result of Ponzi financing by the Fed and Treasury, along with continuing to turn a blind eye to financial fraud. If I were the usual Atlas Shrugged-thumping Reaganite wingnut this is where I would point out that Ponzi financing is unsustainable and the size of the government must be slashed. Fortunately I am saved from that embarrassment by the fact that Berkshire Hathaway can now borrow money more cheaply than the U.S. Treasury. The bubble has popped and the economy is taking the second leg down. You can see it in the grocery stores -- the deflationary decline is here. Wal-Mart tried heroically to raise prices for a while, but now they are back to cutting prices on basic necessities. The inventory rebuilding that stabilized GDP is finishing up. And then there is the health care "reform" plan that is about to rip the guts out of the economy. If people are having trouble buying groceries, it will break them to be forced to buy a gold-plated health plan that covers singing chiropractors. Nor can they afford the massive penalty tax in lieu of insurance. Nor can they afford to neglect diabetes and medical treatment because of the new health care supply taxes. And let's not even think about the energy rationing measures. The 2008-2009 leg of the recession was caused mainly by the spike in energy and metal prices. Cap-and-trade will spike energy prices just as badly, guaranteeing that the economy will plummet down again as much as it already has.

jbooth 17y ago
I appreciate the well-thought-out post, but you're contradicting yourself. If the fed and treasury are keeping rates too low and increasing the money supply too aggressively, we should be seeing <i>in</i>flation. But we're not. That indicates to me that interest rates should be kept low and quantitative easing should be pursued until the threat of deflation recedes. You can't raise the specter of deflation and then demand that the government stops borrowing or raises interest rates -- that's contradictory. Japan in the 90s/00s and the US in the 20s/30s had a deflationary cycle precisely because they attempted austerity measures too quickly. Also, I'm pretty sure singing chiropractors are not mentioned in the healthcare bill :). The rest of your points are similarly exaggerated or inaccurate. EDIT: Wait. Seriously. Did you say that the 2008-2009 collapse was primarily caused by commodity prices? You never heard of a little industry called "housing"?
- jswinghammer 17y ago
  Money is created in a fractional reserve system by lending and defaults cause money to exit the system. The fact that the inflation that the government is generating is less than the deflationary effect of defaults explains what you're describing. We should be seeing more deflation and we need more deflation because we need bad debt to be written off as quickly as possible. All the attempts by the government to prop up shaky interests will only delay our pain and it make that much worse. Japan has the largest Debt to GDP ratio in the G7. They have built every bridge to nowhere they can build. The only reason they haven't collapsed is because their culture encourages savings. Right now that country is a portrait of why Keynes was terribly mistaken about virtually everything written in his "General Theory". I'm not sure what the Keynesians would have them do now-where else can they go? I've read they've considered banning cash. I'm not sure this will have the effect they want. Eventually they will need to pay off their debt, let those banks fail, and roll back their government programs. One day they will have no choice in the matter.
  - jbooth 17y ago
    More deflation increases the value of debt, making it harder to write off, no? Also, almost everything I've ever read about Japan (not an expert) has blamed the high savings rate for the deflationary spiral there. As far as the general idea of keynesians being wrong, they have 29-32, 32-37, 37 double dip and the Japanese situation at the turn of the century as data points in their favor.
- Daniel_Newby 17y ago
  The other reply from jswinghammer is spot-on about central policy. $1 of marginal new borrowing is creating less than $1 of marginal economic activity. The borrowers have gone on strike. Trying to fix this with more lending (low rates, quantitative easing) is like putting a band-aid on an elephant that has been chainsawed in half. The proper solution would have been to forcibly default the bad debt, and simply give away money to busted depositors and certain investors until inflation kicked in. Unfortunately we adopted a policy of pretending there are no defaults, so the deflation will probably continue for decades (or until a great war intervenes). Singing chiropractors: the singing part is an exaggeration, but not a big one. They are defining a mandatory minimum of "good" health care benefits. The specialists and pressure groups will rapidly purchase legislation requiring their favorite services be covered: the fanciest available birth control, massage, 30 therapist visits a year, and so forth. Give everything to everybody! Most people cannot afford this and will be fined harshly; many uninsured and self-insured will be much worse off. Housing construction, manufacturing, furniture, etc. would have caused a sharp turn in the business cycle in 2008. However it was Chinese demand for energy and metals that spiked prices. Only a tiny fraction of families were in housing and affiliated industries, but every family paid thousands more a year for gasoline, heating oil, airfare, etc. That's what sent the broad economy into free fall. If we get cap-and-trade (an actual austerity measure), we will get a repeat of 2008.

jbooth 17y ago

I appreciate the well-thought-out post, but you're contradicting yourself. If the fed and treasury are keeping rates too low and increasing the money supply too aggressively, we should be seeing <i>in</i>flation. But we're not. That indicates to me that interest rates should be kept low and quantitative easing should be pursued until the threat of deflation recedes. You can't raise the specter of deflation and then demand that the government stops borrowing or raises interest rates -- that's contradictory. Japan in the 90s/00s and the US in the 20s/30s had a deflationary cycle precisely because they attempted austerity measures too quickly. Also, I'm pretty sure singing chiropractors are not mentioned in the healthcare bill :). The rest of your points are similarly exaggerated or inaccurate. EDIT: Wait. Seriously. Did you say that the 2008-2009 collapse was primarily caused by commodity prices? You never heard of a little industry called "housing"?

jswinghammer 17y ago
Money is created in a fractional reserve system by lending and defaults cause money to exit the system. The fact that the inflation that the government is generating is less than the deflationary effect of defaults explains what you're describing. We should be seeing more deflation and we need more deflation because we need bad debt to be written off as quickly as possible. All the attempts by the government to prop up shaky interests will only delay our pain and it make that much worse. Japan has the largest Debt to GDP ratio in the G7. They have built every bridge to nowhere they can build. The only reason they haven't collapsed is because their culture encourages savings. Right now that country is a portrait of why Keynes was terribly mistaken about virtually everything written in his "General Theory". I'm not sure what the Keynesians would have them do now-where else can they go? I've read they've considered banning cash. I'm not sure this will have the effect they want. Eventually they will need to pay off their debt, let those banks fail, and roll back their government programs. One day they will have no choice in the matter.
- jbooth 17y ago
  More deflation increases the value of debt, making it harder to write off, no? Also, almost everything I've ever read about Japan (not an expert) has blamed the high savings rate for the deflationary spiral there. As far as the general idea of keynesians being wrong, they have 29-32, 32-37, 37 double dip and the Japanese situation at the turn of the century as data points in their favor.
Daniel_Newby 17y ago
The other reply from jswinghammer is spot-on about central policy. $1 of marginal new borrowing is creating less than $1 of marginal economic activity. The borrowers have gone on strike. Trying to fix this with more lending (low rates, quantitative easing) is like putting a band-aid on an elephant that has been chainsawed in half. The proper solution would have been to forcibly default the bad debt, and simply give away money to busted depositors and certain investors until inflation kicked in. Unfortunately we adopted a policy of pretending there are no defaults, so the deflation will probably continue for decades (or until a great war intervenes). Singing chiropractors: the singing part is an exaggeration, but not a big one. They are defining a mandatory minimum of "good" health care benefits. The specialists and pressure groups will rapidly purchase legislation requiring their favorite services be covered: the fanciest available birth control, massage, 30 therapist visits a year, and so forth. Give everything to everybody! Most people cannot afford this and will be fined harshly; many uninsured and self-insured will be much worse off. Housing construction, manufacturing, furniture, etc. would have caused a sharp turn in the business cycle in 2008. However it was Chinese demand for energy and metals that spiked prices. Only a tiny fraction of families were in housing and affiliated industries, but every family paid thousands more a year for gasoline, heating oil, airfare, etc. That's what sent the broad economy into free fall. If we get cap-and-trade (an actual austerity measure), we will get a repeat of 2008.