Tuesday, September 8, 2009

Sold on the Stimulus

Day late and a dollar short?  Or at this point, do we still need to be sold on it?  I know the bill was passed seven months ago and it's been showing itself in cash for clunkers and high speed rail ideas ever since.  Next year, that money will flood the US economy.  However, all summer we've been told that things are getting better and that the stimulus was unnecessary.

Well those people are wrong.  I rediscovered this graph and even though I've always been pro-stimulus, I was 100% resold when seeing it again
But looking forward, the Taylor rule says that the Fed should cut rates a lot from here — in fact, to negative 6%. That’s not surprising: we’re clearly opening up a huge output gap, inflation is turning into deflation.

The problem, of course, is that you can’t cut interest rates below zero (if you try, lenders will just hoard cash.) So the Fed simply can’t do what the rule says it should.

This is why we need a huge fiscal stimulus, unconventional monetary policy, and anything else you can think of to fight this slump. Quite literally, the usual rules no longer apply.
No matter what we we told all summer, things are not getting better.  Banks are still not fixed.  Business are not growing.  People are out of work and continue to be out of work.  Things are really really bad.  Maybe not 1932 bad, but they're as bad as anyone born after World War II has seen.  And they are not getting better.  Don't listen to the GOPers or the White House.  We have a ways to go.

However as wrong as both parties are about the economy (nothing says out of touch as when you say one thing and your constituents look around see and tell you another), the GOP is more 'wrong'.  This idea that the stimulus wasn't need is wrong—Iraq has WMDs wrong.  The Fed was out of tools back in the Fall and Winter of 2008.  A huge injection of money—the hope, promise, and reality of—was a necessity.

Now, I think people are too often confusing the stimulus (Obama) and the bank bailout (started with Bush, lead by the Fed and pretty much non-political/partisan).  The credit crisis and thus the bailouts, are what should make us all go, Holy Shit.  Those numbers are so large, that it's pretty much impossible for us to fully understand them in our heads.  Check this out if you haven't already - it compares policies like the Marshall Plan to the credit crisis.  Wow.

And of course, that's lead to a whole new mess—already big banks taking on the sick banks to create even bigger banks which of course can't fail.  It's a moral hazard that is TRILLIONS of dollars worse than any welfare program only two bit idiots have an issue with.  But of course, some how, in the mess of the last year, everyone is confusing policy, politics, GOPers and Dems... and as a result, lots of misinformed people (ie main stream media, Sarah Palin) are placing a lot of blame on all the wrong shoulders.

If you have the 90k a year job and think the stimulus was a bad thing... well, be happy you have the 90k a year job because there is a better than you might think chance that you might not have it without the stimulus.

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