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Tuesday, December 23, 2008

How the Bush Administration is Combatting the Fiscal Crisis

... can be seen in this video.


H/T: Greg Mankiw.

This makes more sense to me than the spasm of government spending promised by Obama, but in both cases, they're trying to help the country avoid paying for profligacy and greed. I don't think that's going to work.
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3 comments:

  1. Anonymous12:07 PM

    Maybe I am missing something, but it sounded to me like "Quantitative Easing" is a fancy term they are using to avoiding admitting that they are creating wads of currency and using it to buy the banks. And that the net result will be to let the bank owners breathe a sigh of relief, take a few hundred million dollars each, retire, and let the government deal with trying to make their banks actually fulfill their purpose (which is to loan money) again.

    This does not sound like a viable strategy at all. In fact, it sounds uncomfortably like paying off a bunch of extortionists.

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  2. Apian Apostle8:47 PM

    The real catch was exposed at the vary end of the video...

    - If the U.S. government creates all of this extra money to land crashing banks softly and Quantitative Easing doesn't work, then... all of the Governments around the world who are hoarding U.S. dollars start selling their dollars creating an unexpected flood of dollars on the world economy causing the value of the dollar to crash to near nothing! Chaos!

    It sounds a little like Germany after WWI, or Mexico in the 1990's.

    But unlike Germany or Mexico, the thing that may be saving the U.S. is that so many other countries have underwritten their currencies with U.S. dollars (including China) that the risk of U.S. dollar sell-off to the world economy is huge. The resulting crash could take Europe, China, Russia, and any number of developing countries right down the tubes with us.

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  3. K T Cat7:54 AM

    Thanks for the great comments!

    All the governments around the world, with the exception of Germany and Australia, are trying variations of the monetarist or Keynesian themes. The UK has dropped interest rates and the EU is running around throwing money into the air.

    When one country does this, you end up with Zimbabwe where everyone dumps Zimbabwe dollars and the currency crashes. When everyone does this, you end up with ... what?

    I can't quite figure it out. All I know is that decades of spending our children's money is now coming to a head. How spending, printing or easing more is going to fix this is beyond me.

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