everything we should be doing to the banks we're doing to the auto makers...,
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the banks aren't just insolvent anymore...,
that the stimulus is going to go wrong becomes very visible in advance.
- If the stimulus is going to be ineffective because it generates bottleneck-driven inflation, we can identify that problem as the price or wage of the bottleneck good or service spikes.
- If the stimulus is going to fail because of capital flight-driven inflation, we will see the value of the dollar collapse as foreign-exchange speculators front-run the capital flight – and then we will see import prices spike and put upward pressure on prices in the rest of the economy.
- If the stimulus is going to fail by crowding out private investment, we first will see the medium-term corporate interest rates relevant to financing plant expansion spike.
- And if it is going to impose a crushing debt repayment burden, we will see long-term Treasury bond interest rates spike instead.
His point being that you can quickly modify a stimulus that produces any of those four negative feedbacks, and that we haven't seen any of them yet. Probably, one would say, because 400 billion a year - half of which is tax cuts that will be saved, so 200 billion a year - in any economy that has already shrunk by more than double that is just peanuts. On the other hand - with the incredibly immense amount of borrowing being sunk into cover the financial sector's poor allocations of future capital - to imagine a future without four happening is nigh-impossible.
Maybe Goldman Sachs just controls everybody elses' central banks as well as ours and our government and the fantasy can continue forever.
:: posted by buermann @ 2009-04-30 11:48:59 CST |