Crisis Is Beyond The Reach of Traditional Solutions
By Daniel at 13 November, 2008, 11:45 pm
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By Paul Craig Roberts(Father of Reaganomics)
November 13, 2008 “Information Clearinghouse”
“…Economists associate economic depression with price deflation. However, traditionally, debts that are beyond an economy’s ability to service are inflated away. This suggests that the coming depression will be an inflationary depression. Instead of falling prices mitigating the effects of falling employment, higher prices will go hand in hand with rising unemployment–a situation worse than the Great Depression.
The incompetent Clinton and Dubya administrations, unregulated banksters and Wall St criminals, greedy CEOs, and a no-think economics profession have destroyed America’s economy.
What is the remedy for simultaneous inflation and unemployment?
Three decades ago the solution was supply-side economics. Easy monetary policy had pushed up consumer demand, but high tax rates had curtailed output. It was more profitable for firms to allow prices to rise than for them to invest and increase output.
Supply-side economics changed the policy mix. Monetary policy was tightened and marginal tax rates were reduced, thus stimulating output instead of inflation.
Today the problem is different. The US has abused the reserve currency role, thus endangering its credit worthiness and the exchange value of the dollar. Jobs have moved offshore. The budget deficit is huge and growing. If foreigners will not finance the widening gap, the printing presses will be employed or the government will not be able to pay its bills.
The bailout funds have been wasted. The expensive bailout does not address the problem of falling employment and rising mortgage defaults. Treasury Secretary Hank Paulson could not see beyond saving Goldman Sachs and his bankster friends. The Paulson bailout does nothing except take troubled assets off banks’ books and put them on the overburdened taxpayers’ books, thus endangering the US Treasury’s credit rating.
What the Bush Regime has done is to stick the taxpayers with the banks’ mistakes. An intelligent government would have used the money to refinance the troubled mortgages and stop the defaults. By saving the mortgages from default, the banks’ balance sheets would have been made secure. By failing to deal with the subprime crisis, Bush and Congress have added a financial crisis to the exhaustion of consumer demand and the problems of financing huge trade and budget deficits.
Belatedly, Paulson has realized his mistake. On November 12, Paulson announced, “We have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use [bailout] funds.”
more:
http://www.informationclearinghouse.info/article21218.htm
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