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Another economic collapse?

The stock market has nosedived 500 points and the economic indicators appear to be disastrous.

This, right after the debt ceiling agreement that supposedly allows the government to stay solvent by borrowing money while also cutting more than $2 trillion in government spending.

Could it be that Keynesian economics is right, that the government keeps the economy going through its spending and that cutting expenditures during a recession is exactly the wrong way to produce economic growth?  Or are the free marketers right and that the trillions in new debt will mean less money for productive investment?  Or, in the worst of all possible worlds, are both right?

Are there any policies the government should take that would actually help?  Or do we just need to let the cycle play out, even at the cost of another recession, or worse?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • http://www.matthewcochran.net/blog Matt Cochran

    Seeing as how no government spending was actually cut in this agreement, one would be hard pressed to blame these occurrences on reduced spending and thereby take it as evidence for Keynesian economics.

    Of course, to a Keynesian, everything is evidence for Keynesian economics. If the economy is doing well, it’s because of the huge amount of government spending. If it’s not doing well, it just goes to show that the government should be spending more.

  • http://www.matthewcochran.net/blog Matt Cochran

    Seeing as how no government spending was actually cut in this agreement, one would be hard pressed to blame these occurrences on reduced spending and thereby take it as evidence for Keynesian economics.

    Of course, to a Keynesian, everything is evidence for Keynesian economics. If the economy is doing well, it’s because of the huge amount of government spending. If it’s not doing well, it just goes to show that the government should be spending more.

  • Michael Z.

    It is Europe’s Fault, if you believe the Washington Post. So we can’t really control it.

    But man! 500 points in one day, 1000 points in two weeks. Yuk! That is not cool.

  • Michael Z.

    It is Europe’s Fault, if you believe the Washington Post. So we can’t really control it.

    But man! 500 points in one day, 1000 points in two weeks. Yuk! That is not cool.

  • WebMonk

    And yet today’s economic news was mildly positive – certainly better than feared. Today’s market has taken some pretty impressive swings both to the positive and negative.

    Unless you’re really getting into some serious investing, don’t read anything into these day-to-day swings beyond the fact that the markets are unsettled and reacting pretty wildly to news.

    Day-to-day movements of the market as evidence of the efficacy of broad economic views? Don’t be silly.

  • WebMonk

    And yet today’s economic news was mildly positive – certainly better than feared. Today’s market has taken some pretty impressive swings both to the positive and negative.

    Unless you’re really getting into some serious investing, don’t read anything into these day-to-day swings beyond the fact that the markets are unsettled and reacting pretty wildly to news.

    Day-to-day movements of the market as evidence of the efficacy of broad economic views? Don’t be silly.

  • SAL

    Keynesians mistake the current recession for a natural dip in the business cycle due to overinvestment in real estate. It isn’t.

    The current period of low growth is due to personal debt shackling consumer and business behavior. This is a balance sheet recession.

    In 2008 the best course would have been to adopt policies to reduce personal debt. Instead the government attempted to replace private sector demand. That has caused a sluggish period of low growth. It also has left us with an economy no bigger than in 2007.

    Stimulus is a waste of resources in our current situation. What would be helpful would be alter policies to get consumers out of debt more quickly.

    Given the federal government insures loans through FDIC, FHA, USDA, Department of Education and Fannie Mae it would be possible for the government to quickly reduce millions of people’s debt loads if they’d deal with the large banks.

    Given all the underwater mortgages the banks ought to be forced to accept cramdowns. An interesting counterfactual would have been if the bailouts to the banks had been credited towards student loans, mortgages and other debts. Everyone would have gotten a certain ratio of forgiveness for their loans. Instead banks got a free check at no benefit to the consumer.

  • SAL

    Keynesians mistake the current recession for a natural dip in the business cycle due to overinvestment in real estate. It isn’t.

    The current period of low growth is due to personal debt shackling consumer and business behavior. This is a balance sheet recession.

    In 2008 the best course would have been to adopt policies to reduce personal debt. Instead the government attempted to replace private sector demand. That has caused a sluggish period of low growth. It also has left us with an economy no bigger than in 2007.

    Stimulus is a waste of resources in our current situation. What would be helpful would be alter policies to get consumers out of debt more quickly.

    Given the federal government insures loans through FDIC, FHA, USDA, Department of Education and Fannie Mae it would be possible for the government to quickly reduce millions of people’s debt loads if they’d deal with the large banks.

    Given all the underwater mortgages the banks ought to be forced to accept cramdowns. An interesting counterfactual would have been if the bailouts to the banks had been credited towards student loans, mortgages and other debts. Everyone would have gotten a certain ratio of forgiveness for their loans. Instead banks got a free check at no benefit to the consumer.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “Given all the underwater mortgages the banks ought to be forced to accept cramdowns.”

    How about letting housing fall to its actual value of what a willing buyer can pay?

    “An interesting counterfactual would have been if the bailouts to the banks had been credited towards student loans, mortgages and other debts.”

    But that is effectively stealing. It also is a de facto punishment for the folks who work and pay back loans and then have their tax money given to others. Punishing good behavior is a bad idea. Our society already rewards too much bad behavior.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “Given all the underwater mortgages the banks ought to be forced to accept cramdowns.”

    How about letting housing fall to its actual value of what a willing buyer can pay?

    “An interesting counterfactual would have been if the bailouts to the banks had been credited towards student loans, mortgages and other debts.”

    But that is effectively stealing. It also is a de facto punishment for the folks who work and pay back loans and then have their tax money given to others. Punishing good behavior is a bad idea. Our society already rewards too much bad behavior.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    Three book reviews on the topic by the highly competent yet humble, David Merkel.

    http://seekingalpha.com/article/259742-book-reviews-3-views-of-the-future

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    Three book reviews on the topic by the highly competent yet humble, David Merkel.

    http://seekingalpha.com/article/259742-book-reviews-3-views-of-the-future

  • fws

    I have an idea that I have never heard anyone discuss, and it is this:

    There is way to much passive income floating around. Things changed dramatically at the time of Reagan. until then the financial part of gdp (interest, bank and broker fees etc…) was only about 15 percent of the gdp . now it is well over 30 percent and rising rapidly.

    This distorts the economy in too many ways to count. it rewards speculative behavior that makes the market look like las vegas. it encourages greed in that people want a return that no factory or productive entity could possibly return. it pushes companies to basically become plannedly obsolete by putting the focus on short term results , discouraging r and d and no company can constantly increase profitability. so when their earnings drop to realistic numbers because they cant build more new stores, they need to merge or go bankrupt or…

    for consumers this is predatory. fees charged to pull ones own money out of the atm. interest rates that are confiscatory.

    solution: usary laws. Yeah I know this is not a free market idea. but it is a moral one. what would adam smith have said?

  • fws

    I have an idea that I have never heard anyone discuss, and it is this:

    There is way to much passive income floating around. Things changed dramatically at the time of Reagan. until then the financial part of gdp (interest, bank and broker fees etc…) was only about 15 percent of the gdp . now it is well over 30 percent and rising rapidly.

    This distorts the economy in too many ways to count. it rewards speculative behavior that makes the market look like las vegas. it encourages greed in that people want a return that no factory or productive entity could possibly return. it pushes companies to basically become plannedly obsolete by putting the focus on short term results , discouraging r and d and no company can constantly increase profitability. so when their earnings drop to realistic numbers because they cant build more new stores, they need to merge or go bankrupt or…

    for consumers this is predatory. fees charged to pull ones own money out of the atm. interest rates that are confiscatory.

    solution: usary laws. Yeah I know this is not a free market idea. but it is a moral one. what would adam smith have said?

  • fws

    another proposed cure would be increased transparency.

    there needs to be a ton of transparency rules for derivatives. let banks do whatever they want, but make them be really specific and transparent as to where the hard assets are to support the derivative and the multiple of investment vs value and some way for persons to objectively measure the stated value. yeah it would slow down that vehicle. so. what.

    and for consumers things on credit card statements like “if you make the minimum payment it will take you 10 years to pay down your card and your original amount borrowed of 100 dollars will have mushroomed to 1500 dollars. ” this would cost the banks almost nothing with computerization. and it would really protect unsophisticated consumers of debt as much as possible without regulation that does more than demand transparency.

  • fws

    another proposed cure would be increased transparency.

    there needs to be a ton of transparency rules for derivatives. let banks do whatever they want, but make them be really specific and transparent as to where the hard assets are to support the derivative and the multiple of investment vs value and some way for persons to objectively measure the stated value. yeah it would slow down that vehicle. so. what.

    and for consumers things on credit card statements like “if you make the minimum payment it will take you 10 years to pay down your card and your original amount borrowed of 100 dollars will have mushroomed to 1500 dollars. ” this would cost the banks almost nothing with computerization. and it would really protect unsophisticated consumers of debt as much as possible without regulation that does more than demand transparency.

  • helen

    fws @ 8
    and for consumers things on credit card statements like “if you make the minimum payment it will take you 10 years to pay down your card and your original amount borrowed of 100 dollars will have mushroomed to 1500 dollars. ” this would cost the banks almost nothing with computerization.

    My credit union does exactly this on every statement.

  • helen

    fws @ 8
    and for consumers things on credit card statements like “if you make the minimum payment it will take you 10 years to pay down your card and your original amount borrowed of 100 dollars will have mushroomed to 1500 dollars. ” this would cost the banks almost nothing with computerization.

    My credit union does exactly this on every statement.

  • http://steadfastlutherans.org/ SAL

    “An interesting counterfactual would have been if the bailouts to the banks had been credited towards student loans, mortgages and other debts.”

    But that is effectively stealing. It also is a de facto punishment for the folks who work and pay back loans and then have their tax money given to others. Punishing good behavior is a bad idea. Our society already rewards too much bad behavior.

    ——————————————————
    I understand the moral hazard viewpoint but honestly if personal debt isn’t eliminated quickly we’re probably not going to have significant economic growth for decades. I also think at a minimum that usury laws and sensible mortgage regulation (as in Texas) ought to be put in place going forward to limit the catastrophic dangers from unregulated lending.

    At some point a problem becomes severe enough that it has to be addressed even if the solution has known bad consequences (moral hazard).

  • http://steadfastlutherans.org/ SAL

    “An interesting counterfactual would have been if the bailouts to the banks had been credited towards student loans, mortgages and other debts.”

    But that is effectively stealing. It also is a de facto punishment for the folks who work and pay back loans and then have their tax money given to others. Punishing good behavior is a bad idea. Our society already rewards too much bad behavior.

    ——————————————————
    I understand the moral hazard viewpoint but honestly if personal debt isn’t eliminated quickly we’re probably not going to have significant economic growth for decades. I also think at a minimum that usury laws and sensible mortgage regulation (as in Texas) ought to be put in place going forward to limit the catastrophic dangers from unregulated lending.

    At some point a problem becomes severe enough that it has to be addressed even if the solution has known bad consequences (moral hazard).

  • Carl Vehse

    Obamastan’s credit rating has been lowered by Standard and Poor, the first time this has ever been done. What’s next on the agenda? Stevie Dunham to surrender to some enemy?

  • Carl Vehse

    Obamastan’s credit rating has been lowered by Standard and Poor, the first time this has ever been done. What’s next on the agenda? Stevie Dunham to surrender to some enemy?

  • Dennis Peskey

    To SAL (#10) – Perhaps I may be mistaken, but we got into this mess by limited regulation on the lending industries, i.e. banks, mortgage companies and investment firms bundling and reselling mortgages.

    I can not speak to the mortgage regulations in the State of Texas; in Michigan, our State has (effectively) regulated this industry for quite some time. We do have the advantage of being accustomed to recessions which temper the taste for quick fixes. I could not in good conscience advocate for a blanket elimination of personal debt without consequence. My father’s best advice: “If you want more money – spend less.”

    What was absent from this paternal admonition was several decades of futility attempting to earn more by working two jobs. The more he earned – the more he spent (in rural Michigan, we refer to this paradox as “the pole-barn dilemma – you simply can not build a barn sooo big you can not fill it”).

    During this recent governmental circus we termed “a budget deal” a number a disturbing solutions were proposed (an some adopted). A reduction in spending has long term merit and was adopted – in a manner of governmental speak. Increase revenue – this was opposed like the plague and thoroughly rejected. Yet, in the interview I heard last night with a member of Standard and Poors, this was a significant factor in their decision to downgrade our AAA status. They viewed the latest travesty of governmental budget inaction as lacking serious commitment. Anyone with a fifth-grade education in math could deduce no amount of spending cuts alone could address our current malaise.

    This brings me to the second, and equally important, financial advice my father rendered onto me: “pay for what you get – and get what you paid for.” This is the point where I believe the Tea Party folks err significantly. We as a country can not deny we’ve already spent the money and we must pay the bill. Production of a “trillion dollar coin” only adds to the problem; refusing to own up to our financial obligations is fiscal suicide; adding further to the debt is tying the hangman’s noose around one’s own neck as we march to the gallows; a “balanced budget amendment” is simply absurd.

    What we need in Congress is more people with a fifth-grade education who can add and subtract. We could conceivably achieve a balanced budget in some futuristic period – but for now, we have a greater problem to address. Elimination of debt by “slight-of-hand” economics or regulation is ridiculous unless we intend to scare off all foreign investors. My prayer is our legislators enjoy their month-long vacation as our country slides into another recession thanks to their efforts. When they return in September, they will have only two months to get serious before the November calamity begins (the ten-member bi-partisan committee report). If anyone thinks Standard and Poors was less than pleased with July’s frivolity , what opinion will they render when “trigger” unleashes the mandatory balanced budget amendment! Lord have mercy on poor sinful beings.
    Pax,
    Dennis

  • Dennis Peskey

    To SAL (#10) – Perhaps I may be mistaken, but we got into this mess by limited regulation on the lending industries, i.e. banks, mortgage companies and investment firms bundling and reselling mortgages.

    I can not speak to the mortgage regulations in the State of Texas; in Michigan, our State has (effectively) regulated this industry for quite some time. We do have the advantage of being accustomed to recessions which temper the taste for quick fixes. I could not in good conscience advocate for a blanket elimination of personal debt without consequence. My father’s best advice: “If you want more money – spend less.”

    What was absent from this paternal admonition was several decades of futility attempting to earn more by working two jobs. The more he earned – the more he spent (in rural Michigan, we refer to this paradox as “the pole-barn dilemma – you simply can not build a barn sooo big you can not fill it”).

    During this recent governmental circus we termed “a budget deal” a number a disturbing solutions were proposed (an some adopted). A reduction in spending has long term merit and was adopted – in a manner of governmental speak. Increase revenue – this was opposed like the plague and thoroughly rejected. Yet, in the interview I heard last night with a member of Standard and Poors, this was a significant factor in their decision to downgrade our AAA status. They viewed the latest travesty of governmental budget inaction as lacking serious commitment. Anyone with a fifth-grade education in math could deduce no amount of spending cuts alone could address our current malaise.

    This brings me to the second, and equally important, financial advice my father rendered onto me: “pay for what you get – and get what you paid for.” This is the point where I believe the Tea Party folks err significantly. We as a country can not deny we’ve already spent the money and we must pay the bill. Production of a “trillion dollar coin” only adds to the problem; refusing to own up to our financial obligations is fiscal suicide; adding further to the debt is tying the hangman’s noose around one’s own neck as we march to the gallows; a “balanced budget amendment” is simply absurd.

    What we need in Congress is more people with a fifth-grade education who can add and subtract. We could conceivably achieve a balanced budget in some futuristic period – but for now, we have a greater problem to address. Elimination of debt by “slight-of-hand” economics or regulation is ridiculous unless we intend to scare off all foreign investors. My prayer is our legislators enjoy their month-long vacation as our country slides into another recession thanks to their efforts. When they return in September, they will have only two months to get serious before the November calamity begins (the ten-member bi-partisan committee report). If anyone thinks Standard and Poors was less than pleased with July’s frivolity , what opinion will they render when “trigger” unleashes the mandatory balanced budget amendment! Lord have mercy on poor sinful beings.
    Pax,
    Dennis

  • http://www.redeemedrambling.blogspot.com/ John

    As long as we have a fractional reserve banking system funded by a single private bank, Keynesian economics are American economics, whether we like it or not. I do hope all the readers here realize that the government can never be debt free. To do so, we would have to pay back the FRB for every dollar in circulation (plus interest). There would be no money. Silk purse, meet sow’s ear.

  • http://www.redeemedrambling.blogspot.com/ John

    As long as we have a fractional reserve banking system funded by a single private bank, Keynesian economics are American economics, whether we like it or not. I do hope all the readers here realize that the government can never be debt free. To do so, we would have to pay back the FRB for every dollar in circulation (plus interest). There would be no money. Silk purse, meet sow’s ear.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “if personal debt isn’t eliminated quickly we’re probably not going to have significant economic growth for decades.”

    Even if personal debt is eliminated, we’re probably not going to have significant economic growth for decades. We have a huge elderly population whose entitlements must be paid. We have tons of uneducated immigrants and we have wage laws that effectively make a significant portion of the population zero marginal productive at minimum wage. Everyone can get freebies from the government, so the demand for freebies increases and the ability to finance them diminishes. We are living above our means. We need to deleverage and settle in at a lower average cost of living. This is an L-shaped recession. It goes down and stays down indefinitely. I don’t think there will be a recovery. Where would demand come from? The elderly? No. The poor or working poor? No. Those are the only groups that are growing. The middle and upper middle classes aren’t. We did this to ourselves with our magical thinking that no matter how many bad decisions we made, it would all work out because this is America and we are exceptional. It is just nonsense.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “if personal debt isn’t eliminated quickly we’re probably not going to have significant economic growth for decades.”

    Even if personal debt is eliminated, we’re probably not going to have significant economic growth for decades. We have a huge elderly population whose entitlements must be paid. We have tons of uneducated immigrants and we have wage laws that effectively make a significant portion of the population zero marginal productive at minimum wage. Everyone can get freebies from the government, so the demand for freebies increases and the ability to finance them diminishes. We are living above our means. We need to deleverage and settle in at a lower average cost of living. This is an L-shaped recession. It goes down and stays down indefinitely. I don’t think there will be a recovery. Where would demand come from? The elderly? No. The poor or working poor? No. Those are the only groups that are growing. The middle and upper middle classes aren’t. We did this to ourselves with our magical thinking that no matter how many bad decisions we made, it would all work out because this is America and we are exceptional. It is just nonsense.

  • http://steadfastlutherans.org/ SAL

    #14 Relatively speaking we will have somewhat slower growth and higher unemployment due to a large entitled elderly population and an overabundance of unskilled immigrants.

    However that doesn’t consign us to an L-shaped recession nor does it eliminate the possibility for 2-3% GDP growth. Currently our horrible personal and public balance sheets are limiting us to below 1% growth.

    I understand the moral qualms of the middle class but they’ll have to accept uncomfortable options if we wish to make the best out of a bad situation.

    I certainly don’t feel morally troubled by requiring banks to pay back some of the welfare and assistance the government has provided to them. We never should have allowed mortgage markets to collateralize in the first place.

    What I don’t understand is the defeatist attitude of most Americans now. Obama has it, the Republicans have it. Frankly it’s discouraging to see us sit in defeat while hard work needs to be done.

  • http://steadfastlutherans.org/ SAL

    #14 Relatively speaking we will have somewhat slower growth and higher unemployment due to a large entitled elderly population and an overabundance of unskilled immigrants.

    However that doesn’t consign us to an L-shaped recession nor does it eliminate the possibility for 2-3% GDP growth. Currently our horrible personal and public balance sheets are limiting us to below 1% growth.

    I understand the moral qualms of the middle class but they’ll have to accept uncomfortable options if we wish to make the best out of a bad situation.

    I certainly don’t feel morally troubled by requiring banks to pay back some of the welfare and assistance the government has provided to them. We never should have allowed mortgage markets to collateralize in the first place.

    What I don’t understand is the defeatist attitude of most Americans now. Obama has it, the Republicans have it. Frankly it’s discouraging to see us sit in defeat while hard work needs to be done.

  • helen

    SAL @ 15

    I understand the moral qualms of the middle class but they’ll have to accept uncomfortable options if we wish to make the best out of a bad situation.

    Do you understand their monetary qualms, at being forced to finance the people who bought what they couldn’t pay for AND the bloated Wall Streeters who haul home bonuses for bankrupting the country!?

    I certainly don’t feel morally troubled by requiring banks to pay back some of the welfare and assistance the government has provided to them. We never should have allowed mortgage markets to collateralize in the first place.

    Let them pay it back in the form of fair interest rates for small savers, not giveaways to those who will max out a new set of cards and expect to be bailed out again. Just like the bankers will !!!

    If there is a “defeatist attitude” it’s because middle class America is beginning to realize that working hard and being honest only gets you forced to support those who do neither. Send half of Wall Street (including half of Obama’s cabinet) to join Madoff, where they should be by now and we may begin to believe in justice again.

  • helen

    SAL @ 15

    I understand the moral qualms of the middle class but they’ll have to accept uncomfortable options if we wish to make the best out of a bad situation.

    Do you understand their monetary qualms, at being forced to finance the people who bought what they couldn’t pay for AND the bloated Wall Streeters who haul home bonuses for bankrupting the country!?

    I certainly don’t feel morally troubled by requiring banks to pay back some of the welfare and assistance the government has provided to them. We never should have allowed mortgage markets to collateralize in the first place.

    Let them pay it back in the form of fair interest rates for small savers, not giveaways to those who will max out a new set of cards and expect to be bailed out again. Just like the bankers will !!!

    If there is a “defeatist attitude” it’s because middle class America is beginning to realize that working hard and being honest only gets you forced to support those who do neither. Send half of Wall Street (including half of Obama’s cabinet) to join Madoff, where they should be by now and we may begin to believe in justice again.

  • DonS

    The stock market is merely responding to the failure, once again, of our government to take its budget crisis seriously. What we are seeing are symptoms. The real problem is that people don’t see any light at the end of the tunnel. The classic line — when you find yourself in a hole, stop digging — still applies. Our government absolutely refuses to stop digging!

    Government spending, in every form, is the problem right now. We have been “stimulated” to death by outrageously irresponsible government spending and promises of future goodies in the form of obviously unaffordable entitlements, and more spending will worsen economic confidence until we are spending no more than we take in. Excessive spending is not stimulative when it undermines the confidence of the people in our future, because of increasing and overhanging debt, and that is the present circumstance.

    What would be stimulative would be for a majority in our government to stand up and do the right thing — explain to the American people that we are selfishly spending our children’s money, and we need to stop doing that. Moreover, we need to devise a plan to balance the budget (exactly why is a Balanced Budget Amendment a bad idea, Dennis — don’t you do that in your own household?), and beyond that to manage and reduce the national debt over time. We also need to re-structure our entitlement programs to shrink the unfunded mandates our children are responsible for, and to ensure that we stop creating and continuing programs that obligate future Congresses to spend their money on our priorities. Being honest with the people, appealing to their sense of fairness and concern for future generations — in short, encouraging them to think of something other than themselves — should at least hopefully engender a reasonable sense that the benefits we’ve been promised are unaffordable, will impose an insurmountable burden on our children, and will ruin our country.

    Why would this be stimulative, even though there would be much less government spending, especially on wealth transfers? Because it would re-instill in people the knowledge that they are responsible for their own well being — I believe there would be an upsurge in productivity, especially if it were accompanied with tax reform that made the system much simpler and cheaper to comply with, allowing a re-purposing of substantial business funding from tax compliance and avoidance activity to productive pursuits. Also, accompanying this government spending decrease should be a vast decrease in the over-regulation that chokes business efforts today. Unleash America ingenuity and productivity once again!

    Are there politicians with that sort of courage? Does the media have the ethics and insight to report these issues fairly and fully, or will it resort to tired old anecdotes about hardships wrought by losses of government checks without also reporting about the costs of those checks? Do a sufficient number of Americans still care more about their country and future generations than what’s in it for them? I guess we’ll find out.

  • DonS

    The stock market is merely responding to the failure, once again, of our government to take its budget crisis seriously. What we are seeing are symptoms. The real problem is that people don’t see any light at the end of the tunnel. The classic line — when you find yourself in a hole, stop digging — still applies. Our government absolutely refuses to stop digging!

    Government spending, in every form, is the problem right now. We have been “stimulated” to death by outrageously irresponsible government spending and promises of future goodies in the form of obviously unaffordable entitlements, and more spending will worsen economic confidence until we are spending no more than we take in. Excessive spending is not stimulative when it undermines the confidence of the people in our future, because of increasing and overhanging debt, and that is the present circumstance.

    What would be stimulative would be for a majority in our government to stand up and do the right thing — explain to the American people that we are selfishly spending our children’s money, and we need to stop doing that. Moreover, we need to devise a plan to balance the budget (exactly why is a Balanced Budget Amendment a bad idea, Dennis — don’t you do that in your own household?), and beyond that to manage and reduce the national debt over time. We also need to re-structure our entitlement programs to shrink the unfunded mandates our children are responsible for, and to ensure that we stop creating and continuing programs that obligate future Congresses to spend their money on our priorities. Being honest with the people, appealing to their sense of fairness and concern for future generations — in short, encouraging them to think of something other than themselves — should at least hopefully engender a reasonable sense that the benefits we’ve been promised are unaffordable, will impose an insurmountable burden on our children, and will ruin our country.

    Why would this be stimulative, even though there would be much less government spending, especially on wealth transfers? Because it would re-instill in people the knowledge that they are responsible for their own well being — I believe there would be an upsurge in productivity, especially if it were accompanied with tax reform that made the system much simpler and cheaper to comply with, allowing a re-purposing of substantial business funding from tax compliance and avoidance activity to productive pursuits. Also, accompanying this government spending decrease should be a vast decrease in the over-regulation that chokes business efforts today. Unleash America ingenuity and productivity once again!

    Are there politicians with that sort of courage? Does the media have the ethics and insight to report these issues fairly and fully, or will it resort to tired old anecdotes about hardships wrought by losses of government checks without also reporting about the costs of those checks? Do a sufficient number of Americans still care more about their country and future generations than what’s in it for them? I guess we’ll find out.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “The real problem is that people don’t see any light at the end of the tunnel.”

    There isn’t one.

    We have set up a system that can’t work. And now we are watching it happen. We are like the yogis who try to fly.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “The real problem is that people don’t see any light at the end of the tunnel.”

    There isn’t one.

    We have set up a system that can’t work. And now we are watching it happen. We are like the yogis who try to fly.

  • helen

    “To solve this, we need to take more from the middle class”

    God forbid that we should ask those who have profited most to do as much as the middle class is asked to do!

  • helen

    “To solve this, we need to take more from the middle class”

    God forbid that we should ask those who have profited most to do as much as the middle class is asked to do!

  • Cincinnatus

    SAL: The banks actually are paying back their bailout funds, at least some of them–and with interest. That was a condition of receiving it.

    I think what sg is attempting to communicate is that our entire economy is, in the long term, unsustainable. Literally everything about our current economy is debt-financed. Our currency is debt-financed, our capital is debt-financed, our entitlements like Social Security are debt-financed, our wars are debt-financed. Even our debt is debt-financed, from personal mortgages leveraged on top of other mortgages and debt instruments to actual sovereign debt that is accrued to pay interest on other debts. We are going to have to accept a long-term deleveraging and a long-term adjustment of our living conditions until growth can be achieved sustainability. Permanent economic growth is a myth, and it isn’t even desirable when it’s all–you guessed it–debt financed.

    It’s turtles debt all the way down, man.

  • Cincinnatus

    SAL: The banks actually are paying back their bailout funds, at least some of them–and with interest. That was a condition of receiving it.

    I think what sg is attempting to communicate is that our entire economy is, in the long term, unsustainable. Literally everything about our current economy is debt-financed. Our currency is debt-financed, our capital is debt-financed, our entitlements like Social Security are debt-financed, our wars are debt-financed. Even our debt is debt-financed, from personal mortgages leveraged on top of other mortgages and debt instruments to actual sovereign debt that is accrued to pay interest on other debts. We are going to have to accept a long-term deleveraging and a long-term adjustment of our living conditions until growth can be achieved sustainability. Permanent economic growth is a myth, and it isn’t even desirable when it’s all–you guessed it–debt financed.

    It’s turtles debt all the way down, man.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    @ 19

    There is no way to solve this. What we ideally want to have cannot be done. We can’t all have everything we want and we can’t all be above average. We have too high a fraction of folks who cannot produce as much as they consume. That is why we have debt. This is not solvable in the sense that we figure out a way for everyone to have everything he wants. It is not possible. If it were, the most advanced productive nations in the world would not all be in debt. People may not like to hear this but it sure does look like China understands this. Yes, they are abusive, but they got the memo. They live below their means. Their people manage to work enough to produce products for folks all over the world, and loan folks all over the world money to live above their means. China is the great sucker in all this. They are paying now. We are living now and lying and saying we will pay later.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    @ 19

    There is no way to solve this. What we ideally want to have cannot be done. We can’t all have everything we want and we can’t all be above average. We have too high a fraction of folks who cannot produce as much as they consume. That is why we have debt. This is not solvable in the sense that we figure out a way for everyone to have everything he wants. It is not possible. If it were, the most advanced productive nations in the world would not all be in debt. People may not like to hear this but it sure does look like China understands this. Yes, they are abusive, but they got the memo. They live below their means. Their people manage to work enough to produce products for folks all over the world, and loan folks all over the world money to live above their means. China is the great sucker in all this. They are paying now. We are living now and lying and saying we will pay later.


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