Quote from libertad:
Angrycat
The only way to reflate this entire mess is for government to step in and lend money in place of private lenders. But government will be borrowing from foreigners to do it and it will be borrowing against future production. Remember - the bubble burst because we suddenly realized we couldn't produce enough to pay for the consumption that has already occurred. While government doesn't actually create wealth, it is following the pattern of the Great Depression by directly competing with private industry as well as lending to mostly zombie businesses which clearly know how to do only one thing well - destroy wealth. Where do you suppose the money to repay lenders to the U.S. government will come from?
All solid points. Which is why the printing press will be used. We are now (or most likely will be) buying fannie maes and 30 yr t-bonds with printed money, not borrowed money. (heheh, borrowing money (selling 30 yr bonds) to buy 30 yr bonds is kind of pointless, eh?) That is the fed lending with new currency it just created.
Everything you say is right. If we borrow too much and destroy our future viability with too huge a future debt burden, there is a breaking point somewhere where yields must rise (exponentially). Furthermore, borrowing from the world's savings to finance the future will eventually crowd out investment and capex, so that will not produce the desired result in the long run.
It appears to me printing and doing aggressive investment-spending oriented stimulus (direct checks to citizens with caveats to discourage hoarding) is the only way to get economic activity back.
Printing doesn't create more debt, and better yet a weakening currency stimulates export demand...
I personally think they need to be creative with the economic stimulus, structuring in a way that ensures supply of fundamental parts of economy (energy) remains/trends in plethora, keeping input costs down while we dilute the money supply to stimulate our exports. That means nuclear power and electric car infrastructure to keep oil/crude depressed. If anything from the last inflationary speculation run, we should have learned that agg. supply not keeping up with agg. demand (function of amount of money out there) results in higher prices, inducing further inflation (cost push).
Keeping oil price under control even amid a higher broad money supply will impact keeping food prices down globally as well (since we've seen how oil and food are correlated).
Look to computer prices as evidence you can have increasing value per dollar spent even in an inflationary environment. The same can happen with the food/energy equation, freeing up an enormous amount of resources (disposable income) for future investment and global growth. This is why technological progress (productivity improvement, deflationary) is so wonderful in combination with dilutive central banking to keep asset values going up while our standard of living increases.
That's what I'd do if I were running the show... fix agg supply of energy and increase money supply to keep the world population happy and economic activity (velocity) going strong. That might even mean direct stimulus checks ... not just subsidization of the banking system (which is so far all we've done with any amount of any consequence... which is reason to be bullish on prices long term, since the potential is high if you just pass money out). Guess I'm a commie socialist, right?
My bet is the govt does energy too half-assed, so instead we'll trend more towards systematic hyperinflation with supply WAY behind when the cat is out of the bag... That cat will have rabies.
(lemme add: the fed must not have started doing any substantial buying of fnma bonds yet... when they do watch out. With 30 yr treasury near 3.0 percent, no reason we shouldn't see mortgages going for under 4.0% That means the cash hasn't started flowing yet .. watch out when it does)
