Friday, July 8, 2011

Tim Duy: "No way to put lipstick on this pig"

Tim Duy at Fed Watch is perplexed:
The employment report polishes off what was already a depressing week. The turn of events in the budget negotiations was deeply distressing. It just seemed like it should be impossible to imagine that budget cutting is the order of the day when unemployment is over 9%, 10-year Treasuries hover near 3%, and a Democrat is in the White House. Yet possible it is.

The extent to which our leadership seems determined to follow in the path of the Japanese is absolutely stunning. My impression of the last two decades is that Japanese policymakers were never able to keep their eyes on the weak economy, instead always eager to turn their attention back to "normalizing" policy – raising interest rates, raising taxes, cutting spending. Our leadership suffers from the same obsession.

The employment report should be a wake up call. A slap in the face. A bucket of cold water poured over your head. But it won’t. I suspect it will be seen as further evidence that stimulus is pointless, that austerity is the only solution.
By trying to avoid becoming the next Greece, the US is becoming the next Japan.


Ralph Musgrave said...

The mental blockage in the brains of “our leadership” revolves around the word “debt”. That is, they think that more deficit means more debt. In fact deficits can accumulate as extra monetary base instead of extra debt. So how about we campaign for doing the latter?

The West’s mentally constipated leaders would answer that by chanting “Weimar, Mugabwe, etc”. But we then just need to point to the fact that the US monetary based doubled around a year ago with no sign of much inflation in consequence.

Craig Austin said...

The irony is that our current economic problems have nothing to do with ideology (capitalism/ socialism/ communism) but rather poor monetary management. Fiscal optimization at any level of public spending by a currency issuer requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate.