Making friends with the Austrians One can objectively measure the extent and depth of an economic crisis only go half the level of originality in the views of economists.
If a university professor says that things go wrong and only suggests lower interest rates and spend some structural reformilla is not a question of worrying too much. If you talk to press the accelerator with gusto and enthusiasm to create public deficit, begin to sweat. When some
suggest that the best can be done to avoid layoffs is
create pure monetary inflation baskets, it's time to run and jump into the trenches.
And hey, the idea is less absurd than it seems. I will not say is necessarily correct (I have a vague hope that
Rallo take me seriously someday), but logic is not completely stupid. The idea is that companies may be laying people off or reducing solvent wages, as the latter is unacceptable if done directly, the Federal Reserve can do so by that each dollar buys less. Competitive devaluation, come on.
The idea is actually less than it seems original, and would have effects outside the U.S. side nothing nice. Still, when you start seeing these things in the discussions, is that there are nerves. Many nerves.
back to planet earth, share some of
Rallo concerns about the bank bailout, which makes me a bit strange. The Paulson plan, as implemented now (the federal government provides capital to banks, but not be a shareholder "first" have money in the business, but not vote) certainly has a severe risk to degenerate into a repeat of Japan nineties: the attack
zombie banks. Banks have money and will not break through state guarantees, but are not slightest intention of taking any chances.
Why? The banks think that: the economy is a disaster, it is difficult to draw state benefits, and dad gets angry if I lose money from taxpayers. In addition, if I win money, there will be little and poor, and if I do too well let me state again only. With how well I am warm and do nothing, let him hear. Giving the other loans.
Gordon Brown and other European politicians enthusiasts also have solved this problem easily: since you have nationalized, now will do what we say. The state is not a banker too good, but it is far better banker zombie bank, the loans will be bad or good, but at least shared credit, which is what real economy are not seeing now.
Rallo's recipes are equally creative trying to avoid the evil zombie banker, but are a little savages in the short term. If I'm reading it right, can be summarized as "fire to the economy, adjust fast and strong, and start from scratch after tomorrow" and then return to the gold standard.
again not discuss why the gold standard is a bad idea (what is
), but to reduce spending now is the worst thing you can do. And no, I do not think the tax cuts that avoid parallel aggregate demand decreases. The problem now is not a lack of savings is a lack of demand. Banks may be in trouble because they are short of capital, but that capital can provide the state (which is what you are doing), but the real economy is now entering into a spin because there is nobody buying anything. This comes in part from the collapse of the credit market (which again, the state is trying to resurrect nationalizing banks), but the downturn in the real economy is painful when this lack of circulating money starts to reinforce itself.
Namely: I did not buy a car because I can not get credit, GM asks no more parts because there sell cars, banks do not give credit to GM to produce more efficient cars because they are not selling, GM lays off workers, they buy less furniture because they have no credit and no job, and so forth. Banks will not return from the dead, still kicking enthusiastic owner finance ministers, if they can not make money, and if the real economy gets into a horrible recession, can not earn money.
Rallo is more or less right than you can not get out of this hole to base monetary policy, central banks are giving money to banks and they continue to do nothing (Why? Nobody wants invest in this economy!). One can always be cape and do what I suggested above type (if banks do not want to lend this money, we hit fire! Inflation!), But a less absurdist and risky is basically making the "ultimate consumer appeal "of the economy into action: the state.
deficit, government expenditure, and leverage that banks do not know what to do with money and rely only on these days governments. Overspending does not have inflation (after all, no one else is spending), and whether the state has done its homework and has a manageable debt level (Something the United States and Spain! Have) not too expensive will cost in the medium term. In fact, is what the administration intends to
Obama in January. It will be time to cross fingers, pray for the economy to react enough for banks to lend money again, and the mechanism starts.
Otherwise ... well, we have the crisis in Japan in the nineties on a global scale, and then yes you need to ask to put inflation or declare war on Mars, or some other original solution. In theory, a partially nationalized banking and non-zombie should not be sitting around doing nothing, but the theory has been wrong at times above.
Rallo says the bailout of the financial system is essential when viewed from the theory, but the state incompentencia (and believe me, in this state is not a virtuoso) makes it inadvisable
in practice. My position is slightly different: the plan makes sense in theory, but the consequences of not applying it are so poor that anything is better than doing nothing wrong. Better a banker drunk, stupid and vulgar that pulls money away for a zombie, I think. I prefer a more inefficient recession so soft and destroying bad ideas, Rallo prefers to run the risk of something more serious to take forward some good.
And yes, pan, fire, etc.. Economics is fun.
