Wikinvest Wire

Disease and cure - one and the same?

Tuesday, January 27, 2009

In this morning's commentary at Bloomberg, Caroline Baum wonders how the cure and the disease can be one and the same for what ails the nation's economy.

Someone returning to Earth from a yearlong sojourn in outer space could be excused for feeling disoriented.

After all, when said space traveler departed our fair planet, the U.S. economy was buckling under the weight of the burst housing bubble. The blame game was in full swing, with the villains ranging from Alan Greenspan and his easy money policies to consumers borrowing and spending beyond their means to financial institutions enabling profligate spending to a misallocation of capital to housing.

Fast forward one year, the crisis is still going strong, the villains are still under attack, yet something curious has happened: The policies and actions responsible for the economy’s illness are now being prescribed as cures.
After recounting just what brings us to the current point - technology boom, technology bust, housing boom, housing bust - and pondering the current freakishly low interest rates and freakishly large balance sheet of the Federal Reserve, attention is focused on the economists who are now in charge.
President Barack Obama’s crack economics team, including Larry Summers and Christina Romer, and Fed officials from Ben Bernanke on down have to understand that the problem of too much leverage can’t be fixed with more borrowing; that a misallocation of capital to housing can’t be cured with incentives to buy more homes; that consumers (and the nation) can’t spend their way to prosperity.

At least I hope they do.
Hope is a good thing. It's not always effective, but it's a good thing.


Nostradamus, apparently said...

It's obvious to honest people of normal intelligence that Ms. Baum's point is true: you can't spend your way to prosperity.

A friend on the verge of bankruptcy once told me he bought a new 10 speed bicycle because it was such a good bargain he couldn't afford NOT to buy it. He told me he "saved" $200 on it.

I jokingly told him that he should run down and buy every one of them in stock and make some quick cash since he was "saving" so much money.

Somehow, in his confused mind, paying less was tantamount to putting money in the bank. He was not the brightest bulb then and he's still dim and in constant financial trouble today.

Spending or borrowing money is not a way to reduce debt. You have to cut back spending, stop borrowing and start paying.

No one in government of any significance except Ron Paul (and his influence is limited) is willing to tell people that they will have to cut back to correct this mess.

It's hard to believe that people at the absolute highest levels in the world's greatest super power are so stubborn, dim, unrealistic, spineless, etc. Yet, that is obviously the case.

It doesn't matter if it's Bush or Obama, Greenspan or Bernanke, or any of the others, they all try to avoid the truth.

Logically, this leads to a VERY bad, bad end for our country.

Like Ms. Baum, all I have is hope.

Dan said...

"spending our way to prosperity" always reminds me of the song, "Zooropa" by U2:

Zooropa...vorsprung durch technik (a step ahead through technology) all that you can be
Be a winner
Eat to get slimmer

Zooropa...a bluer kind of white could be yours tonight
We're mild and green
And squeaky clean

Zooropa...better by design the friendly skies
Through appliance of science
We've got that ring of confidence

And I have no compass
And I have no map
And I have no reasons
No reasons to get back

And I have no religion
And I don't know what's what
And I don't know the limit
The limit of what we've got

Don't worry baby, it'll be alright
You got the right shoes
To get you through the night

Gretchen said...

hope is a companion, not a guide

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