Not only are
we doomed, but British economist/writer (and now Harvard prof) Niall Ferguson says Obama--and his advisors, and academia and the media--aren't helping, in
the May 29th Financial Times:
Credit for averting a second Great Depression should principally go to Fed chairman Ben Bernanke, whose knowledge of the early 1930s banking crisis is second to none, and whose double dose of near-zero short-term rates and quantitative easing -- a doubling of the Fed’s balance sheet since September -- has averted a pandemic of bank failures. No doubt, too, the $787bn stimulus package is also boosting US GDP this quarter.
But the stimulus package only accounts for a part of the massive deficit the US federal government is projected to run this year. Borrowing is forecast to be $1,840bn -- equivalent to around half of all federal outlays and 13 per cent of GDP. A deficit this size has not been seen in the US since the second world war. A further $10,000bn will need to be borrowed in the decade ahead, according to the Congressional Budget Office. Even if the White House’s over-optimistic growth forecasts are correct, that will still take the gross federal debt above 100 per cent of GDP by 2017. And this ignores the vast off-balance-sheet liabilities of the Medicare and Social Security systems.
It is hardly surprising, then, that the bond market is quailing. For only on Planet Econ-101 (the standard macroeconomics course drummed into every US undergraduate) could such a tidal wave of debt issuance exert "no upward pressure on interest rates". . .
The policy mistake has already been made -- to adopt the fiscal policy of a world war to fight a recession. In the absence of credible commitments to end the chronic US structural deficit, there will be further upward pressure on interest rates, despite the glut of global savings. It was Keynes who noted that "even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist". Today the long-dead economist is Keynes, and it is professors of economics, not practical men, who are in thrall to his ideas.
See also
Jonah Goldberg:
It seems to me that all of the new New Deal talk fails to grasp that the extent to which nostalgia drives our assumptions of "what works." Even if you give the most charitable reading of the New Deal and the postwar period, the simple fact remains that those times aren't like these times.
(via
The Corner)
1 comment:
Well, first, I agree with most of this post - our debt and deficits are absurd, only the fact that we look better than nearly everyone else - the so-called safe haven - allows this to continue, and that cannot last. Sooner or later we'll have real failures or demands for *much* greater yield in the Treasury auctions and the game will be over.
The part I take issue with is:
Credit for averting a second Great Depression should principally go to Fed chairman Ben Bernanke, ... whose double dose of near-zero short-term rates and quantitative easing -- a doubling of the Fed’s balance sheet since September -- has averted a pandemic of bank failures.
First a mere doubling of the balance sheet would have been far preferable. Once again, the affects of FRB guarantees and other chicanery are being neglected - in fact the FRB is on the hook for something more than 5 Trillion.
More impoortantly, I'm not convinced that anything has been averted, other than the failure of businesses that needed to fail. The big banks, which Bernanke serves and protects, needed to fail.
And our Treasury is likewise complicit, both under Bush and Obama.
The so-called financial profits are delusional and so is the sucker's rally that accompanies them.
The U.S. economy is now like the surviving Siamese Twin - bound to and poisoned by the corrupt corpse of the failed I-Banks.
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