Wednesday, March 31, 2010

'Your so-called stimulus'

Via Real Time Economics:

The U.S. economy has traded a public bubble for a private one, according to this forecast by California forecasting firm Beacon Economics.

The firm’s stance is that the $787 billion federal stimulus package and the Federal Reserve’s near-zero interest rates have propped up the economy but will prove unsustainable and are actually exacerbating some of the imbalances that led to the recession. “The nation seems to be trading in its private bubble for a public one, swapping one set of unsustainable economic drivers for another,” the report said....

The gist is this: The stimulus and other such measures have prevented a shedding of debts that needs to happen before the economy can return to sustainable growth. The saving rate has grown from its record lows, but has been propped up by tax cuts that have exacerbated the mountain of debt at all levels of government. Property values have fallen, but accounting changes have prevented banks from acknowledging a lot of underwater loans. Even the roaring stock market is artificial, in the firm’s view.

Seems like a good time to reprise the Keynes v. Hayek video

Your so-called stimulus only makes things worse

just more of the same, more incentives perverse


J. Strupp said...

Purge the rottenness ay Jeremy?

Jeremy R. Shown said...

Sectoral shift to undo recent malinvestment.

J. Strupp said...

This is already occuring.

And we didn't even have to liquidate everyone and everything in the process.

Jeremy R. Shown said...

Here's to hoping it continues at a manageable pace.

For the record, I'm no liquidationist. I'm sure you weren't implying as much.