Quote from makloda:
I like Rogers myself. What he fails to address IMO is how it benefits the US economy if the banking system were to go into a systemic tailspin with a couple of big institutions (e.g. C, WM etc.) going out of business overnight and defaulting on their debt. LIBOR would likely soar to 15% and credit markets freeze up completely as institutions hoard cash, maybe for years to come. How will "the market take care of it all" in that case is a mystery to me.
If it's a mystery, then why not educate yourself? Read some works by respected economists. Go back through newspaper archives and economic journals and study every recession and depression from the last 100 years. Why did Sweden recover from the Great Depression far quicker than the US? Why did the Asia meltdown of 1997-98 not turn into a depression? Why did Brazil recover from its meltdown in 2001-02 far better than Argentina? Why did America recover so quickly from the 1907 banking crisis, and not the 1929 crash? Why did the bursting of the 2000 bubble result in a mild 2 quarter recession rather than another depression? Do some homework and you will get your answers. There is a consistent pattern of quicker recoveries occuring when a recession is left to occur without heavy government intervention, versus depressions resulting when the government tries as hard as possible to stave off recession. The US Hoover and FDR administrations, and the Japan government in the 1990s, both had amongst the most heavily interventionist policies in the face of recession - they both had huge and lasting depressions. Some of the quickest recoveries from recession came when a reasonably laissez-faire approach was followed, such as Sweden in the 1930s, Germany post WWII, Brazil 2003 onwards (especially compared to Argentina's much more interventionist response) etc. It is a pretty strong and convincing body of evidence. Theory too provides compelling reasons to think that a relatively hands-off approach, allowing a recession to deflate overpriced assets and speculative excess, results in a quicker adjustment and subsequent recovery. When centuries of theory and practise both say the same thing, that is pretty compelling evidence.
Recessions cause markets to clear. Cleared markets allow new investment at equilibrium prices, which creates economic growth and value-added activity based on reasonably efficient, rational risk premia. Recovery then occurs. It happens the same every time markets are left broadly to their own devices. Yet each time, ignorant people think an economy can't possibly recover by itself.
There is nothing wrong with being ignorant about economics. There is a lot wrong with being ignorant about economics, and then offering strong opinions on the subject, such as that notion that economies cannot recover from recession without government internvention. People should learn to hold their tongue when the discussion moves to subjects about which they know little. I would not butt in on a discussion about neurosurgery to lecture people on the right way to conduct an operation. Yet lots of people with little or no training, education, or qualifications in economics seem to think they have the right to hold forth on the subject. This is a dangerous combination of ignorance and arrogance. If you don't have the desire or time to educate yourself on economic matters, leave the discussion to those who do.