The Postcatastrophe Economy Debt Cut Stimulus Plan

[wayiwalk]

Re: The Postcatastrophe Economy Debt Cut Stimulus Plan

I have been in favor all along (since the crisis started) to let the creditors take their haircuts as they were the ones who took the risks and should bear the burdens. Let the rule of law work its course. But the answer given (and I recall supported here) is that we can't do that b/c the system would implode and we would all be worse off. Well if that were true (and I don't doubt that it was in large meaasure true), then the system itself was evidently untenable, and either unsustainable per se or corrupted to the point of nearing collapse - in either case needing true structural reform. Where is the reform in your plan?

Now, 2 years after the looting and direct transfer of wealth has been going on in full force (bank bail-outs, 0% interest rates etc) this suggestion to write down some of the debts that represent fictitious value. Where is the reform? Where is the end of moral hazard? Forgive the debt of those most levered, debt incurred resulting in windfall benefits to the seller of the inflated asset, after the public ledger has been loaded down, after the looters have absconded and secured themselves?

I ask again, where's the reform? Where are the prosecutions and the jail sentences? Where are the structural changes to the system? Where are the end to asset bubbles?

With this solution, while it might in fact accomplish some near term benefits, it will just encourage the same sort of behavior (do you remember immigration reform of 1986? where are we with that 24 years later?) Hey debt jubliees for the most risk inclined folks who get caught in a downturn every generation or so .... no worries, go speculate, join any bubble, this is america, everyone can get rich in nominal dollars if they time it right, asset bubbles are good, etc. This is not anywhere near the conditions or intent of the biblical proscription for debt jubilees.

A culture built on greed and envy cannot endure. The good thing about the U.S. is that although greed and envy is being thrown at us 24/7 and is slwoly infecting our broader culture and has obvioussly deeped infected the world of politics and finance (DC and Wall Street), we have a lot of cultural capital that has been built up over centuries (ingunuity, hard work, fairness, charity, and downright affability) that continues to sustain the culture. Until our economic system encourages and rewards those who create rather than those who merely trade, we're not going to recover IMO.

Agreed. How can this be anything other than a reset button for failure from the consumer side? So many americans who haven't lived through a real recession (ie, the '70s) that would think this is just the way it works.....

[Jay]

Re: The Postcatastrophe Economy Debt Cut Stimulus Plan

"The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part."

That's a great Faber quote. I love that guy. What the quote doesn't mention is that there are a few areas that America is still an economic world leader, and finance is one unfortunately. Sarbanes-Oxley II will put the nail in the American finance industry. The financieers and their capital will flee in the millisecond it takes to press a button on their computers and transfer capital to a country with more "friendly" rules. That could be the end of the American empire and will likely lead to sudden stop. Rock meet hard place. I hate what finance has done to the entrepreneurial values that used to make this country great, and while a broad Madoff-like witch hunt might be a therapeutic exercise, the resulting economic schadenfreude might be higher than we all think.

[Serge_Tomiko]

Re: The Postcatastrophe Economy Debt Cut Stimulus Plan

A youtube video would make it easier to send the link to friends, share on facebook, buzz, etc...

[FRED]

Re: The Postcatastrophe Economy Debt Cut Stimulus Plan

A youtube video would make it easier to send the link to friends, share on facebook, buzz, etc...

You can post on facebook, etc. by cutting and pasting the embed code below the animation.