June 30, 2010
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Interesting article from the NYT.
What do you think? Cut deficits or ramp up spending?
Let me hear your thoughts.
The key fork in the road was passed long ago ... trillions of dollars ago.
The reason why those discussing this topic are sensing that we're "damned if we do, and damned if we don't" is because we are. The final opportunity for the U.S. to pursue the austerity strategy was at the onset of this crisis. I championed that approach from the beginning, and vociferously opposed every intervention and stimulus that has been undertaken since.
I argued from the beginning that we needed to take our deleveraging on the chin without exacerbating the problem with additional debt in a futile attempt to avoid the deleveraging. Once the $1.2 quadrillion notional market for global derivatives began to freeze, the writing was already on the wall for this deleveraging process to run its course. It would have been unthinkably ugly and the U.S. (and U.K. and Europe behind it) would have sunk into a deep depression ... but still it would have been of shorter duration and lesser intensity than the one we will now endure since we have thrown so much public debt onto the fire.
But the U.S. has already shown its cards, and QE to inifinity is the road our bank emperors have selected. Europe is talking austerity, but how austere will they be when French banks replete with toxic CDS are taken to the brink? As a product of political expediency, fiat money from both continents will continue to fuel the fire of our ultimate impoverishment through disastrous currency debasement.
Just as in Great Depression I, wewould have been a whole lot better off if those in power had simply permitted markets to work themselves out. Now we have two beasts to contend with, the 800-pound gorilla of toxic derivatives, and the horned beast of unintended consequences.