Re: Could G20's bitter medicine turn recession into a long...

[Guest guest]

The problem is that a market correction was due and tried to happen in 2001, about the time the World Trade Center was hit. This was in large part due to the previous correction that was prevented by the Fed dumping money into the market. Remember all those commercial about no collateral loans and such? All that money and the easy mortgages are where the money skimmed from the Dot Com bust flowed to. The Fed kept pumping in money by lowering interest rates and Congress kept on the pressure by forcing the industry, lead by Fannie and Freddie Mac, to keep giving mortgages and loans to riskier and riskier borrowers. They also allowed dangerous financial instruments and practices to go unchecked.

At the same time Federal and State spending soared as it always does in seemingly good times. Now the economy is down and the governments are scrambling for cash when they should simply cut back their obligations to what they were about 2000. That would indeed be painful for many because government has grown so much in that time, but there it is. Make the government itself and those who hopped on the gravy train in that time bear the burden, not the average person.

Will we have a depression? Probably. Notice the article backs up what I said in another post, that the US doesn't see debt as much of a problem. Well, its going to be. What is really going to hurt I think is when the middle class gets fed up with government spending and unresponsiveness. If Obama tries to balance it all of their backs, which is what is really going to happen, then things could get very messy.

Simply though: the stimulus plans were a disaster, just like they were back in the 1930's when Keynes proposed them and they were implemented. Had things been left alone we'd have had a rough year or two and snapped back stronger than ever. That has been the historic pattern. The big crashes only came when the government got involved, including the 1870's crash which was in no small part due to the end of war spending as the war ended and spending on military forces in Reconstruction dwindled. All that Federal money out of the system and hundreds of thousands of unemployed soldiers looking for work, naturally that will depress the economy. But then the war taxes also depressed the economy by government shifting resources from civilian to military pursuits. The depression was the economy shifting gears from war to business again.

In a message dated 6/29/2010 1:18:37 P.M. Eastern Daylight Time, no_reply writes:

Could G20's bitter medicine turn recession into a long-protracted depression?