It has finally come to this: Joe Weisenthal, editor of Business Insider, and Paul Krugman, Nobel prize winning economist, want inflation and bubbles. And the Tea Party wants austerity. If those are the only two solutions to the world economy then just shoot me.
Weisenthal and Krugman, keeping with the Davos 2011 promise to double world debt in 10 years, want a borrowing binge. Krugman, don’t forget, called for a housing bubble in 2002. That didn’t work out so well, did it Paul? And Joe wants Mitt Romney to be president and wants him to take his private equity experience to balloon the debt of the United States while rates are cheap. It seems risky to me.
On the other side, some libertarians and Tea Party folks want to implode the US economy. They think it is nothing to be in a Great Depression and all will then be fixed. I think they are nuts. They want to destroy the US ability to borrow by holding hostage the raising of the national debt. They want to turn the US into Greece. They probably want economic turmoil because they have read how it could make them wealthy.
It seems to me that both sides are advocating massive risk to the economy. I wish Joe would come onto Business Insider and explain how this massive debt creation should manifest itself. Does he want another housing bubble? Does he want sustainable or unsustainable debt? How does his vision of debt impact main street? What are his specifics?
We know that the auto market has rebounded, and that is good. Well, it is good except where a dollar down can get you a car you really cannot afford. I think there is a lot of that going on. People need cars to get to work, but then, the cars are too expensive for many of these folks who just pay the easy money and risk their household balance sheets. I see a lot of bad credit no money down deals on the internet.
Pretty soon, that no money down can be applied to housing, as long as the government continues to guarantee the loans, right, Joe? Right Paul? That is the plan you know, once they get securitization of loans off the mat once again.
Again, I say, if there is no other choice but bubbles, where boom results in bust, or austerity where people will be jumping out of buildings like that 60 year old guy in Greece and his 90 year old mother, then we are in a world of hurt.
Austerity is the lack of liquidity. That is not helpful. In the Great Depression my mum and dad parked the car because they could not afford the gas, and my dad was working! That is what lack of liquidity in the system will do. We have Ron Paul and Paul Ryan calling for massive cuts to food stamps and Paul Ryan calling for massive cuts against the elderly. Then Ryan’s original budget aimed to fix that Depression with a housing bubble!
On the other hand, we have seen what too much liquidity can do. It can be used to drive up housing prices and it can be used to fuel speculation and make contracts for food and oil scarce. This speculation actually increases the price of the contracts as there are too many investors chasing too few contracts! This distorts supply and demand of the underlying commodity! There is too much money at the top of the financial food chain, and all liquidity seems to be going to make it more difficult for main street to afford anything.
So, unless liquidity, ie, credit, is properly used and the world prevents the speculation in housing and commodities, I say Krugman and Weisenthal are advocating a dangerous game. The winners will be those who offer the credit, and then main street, and the real economy may only win for a while, and then they will surely lose.
Again, if these are the only two solutions, we have surely arrived in Economic Hell. I knew economics was a dismal science, but this is truly hell on earth. I really don’t want you to shoot me, but we have to find a middle ground here. It is time for some regulation of the liquidity if we are in need of it!
And if you don’t think all of this is distressing, it is clear that Paul Ryan “the Austere” and Paul Krugman, “the Keynesian” are both advocates of housing bubbles! The austerity guy and the spender both want bubbles in the end!
If Keynesians and the austerity folks are both for scamming main street with bubbles, there is no economic system worth trusting.
I just found an angry bear article on Business Insider which says:
…we’d be well advised to look to our last bout of serious public debt increase: the one that ended in 1947, and was followed by the fastest decades of economic growth in living memory.
This conclusion would be all well and good if we had the protections in place that we had in 1947, like Glass-Steagall and laws that would have stopped speculative swaps and securitized bonds in their tracks. Also, margin requirements should be raised to discourage the massive increase in the number of speculators who now populate the futures markets in oil and food and other commodities.
Update: Ira Jersey was on Bloomberg 5/31/2012 and said something that needed to be said. He said the inflation created by the Fed was the wrong kind of inflation. It was commodity inflation that acted as a tax against main street. That is a growth killer and something Krugman should consider. It agrees with my idea that commodity speculation must not be the byproduct of stimulus.
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