Paul Kasriel, the great Northern Trust economist who saw much of this mess coming, uses history to explain why recovery may now come sooner than most people think.
Specifically, Paul debunks the idea that the Great Depression was a decade-long disaster: It was actually two recessions–one long bad one, and one short shallow one–separated by a robust four-year recovery. He also points out the numerous, huge mistakes made by policy-makers and observes that we aren’t likely to make any of them again.
I believe that large increases in federal government spending that are monetized by the Fed and the banking system will result in a recovery in real economic activity. When that recovery sets in depends on how quickly the federal government increases its spending and by the magnitude of that increase. We can debate whether tax rates should be cut or federal spending should be increased. We can debate what kinds of spending should be increased. We can debate whether the federal government should increase any of its spending. But the facts of the 1930s appear to be pretty clear – monetized increased federal government spending does result in increased real economic activity in the short run.
The economic data are likely to be abysmal through the first half of this year. The popular
media will reinforce the gloom of the data. The same pundits who did not see this downturn
coming will not see the recovery coming either. My advice to you is to keep your eye on the
index of Leading Economic Indicators. If history is any guide, the LEI will signal a recovery
well ahead of the pundits.
And here’s the man himself:
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