So the OMG-20 confab is over.
And the world leaders have had a chance to reflect on the situation in the Western world's economy.
For the last two years the economic policy of the West has been all about preventing deflation and curing recession by pouring vast amounts of public money into the system in a belief it would ignite a new era of prosperity.
It hasn't.
At best the economy of the West has merely muddled along.
Of course this isn't the way it was 'supposed' to play out. Usually 'stimulus' applied after a steep recession leads to a snappy recovery, like it did in 1983-84 after the Reagan tax cuts.
But as I have said on numerous occasions, we still do not fully appreciate the depth, breadth and scope of the 2008 Financial Crisis. A deep economic earthquake has occurred. And the full reprecussions are still not appreciated or understood.
Do you remember when the West started pouring money into this?
Under George W. Bush, Congress was told that a "timely, targeted and temporary" spending program of $150 billion was urgently needed to boost consumer "demand".
When the Democrats assumed control in Congress, they continued with the idea.
And the stimulus produced a slight increase in GDP growth in mid-2008, but it didn't stop the financial panic and second phase of recession.
That lead to the second round of "stimulus". $862 billion worth in February 2009. At the time a pair of White House economists famously promised that this spending would keep the unemployment rate below 8%.
It didn't.
The US jobless rate is still 9.7% and the GDP estimate for first quarter growth has been reduced again, this time to 2.7%.
And what do the Americans want to do now?
Why... more 'stimulus', of course.
The problem is the Western world's Keynesian political consensus is falling apart.
In Europe, the bond vigilantes have attacked the finances of Greece, Portugal and Spain, with Britain and Italy next in line.
Politicians are scrambling away fromt the 'stimulus' mindset to one focused on cutting spending and raise taxes.
Britain has introduced an austerity budget and Germany's Angela Merkel sees vindication for keeping her country's stimulus far more modest than other Western nations.
In America many Republicans and Democrats are rebelling against a third round of stimulus. The original White House package of jobless benefits and aid to the states had to be watered down several times, and the latest version failed again in the Senate late last week.
Some will argue that the world has now reached a Keynesian dead end.
But other's suggest the spending/debt party may have only just begun.
More on that tomorrow...
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Email: village_whisperer@live.ca
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Keynesian stimulus would work better if most of the money were not getting sucked into a black hole of bad debts. The correct course of action was to force institutions to fail and creditors to take losses, then use stimulus to restart the economy. We didn't do that because governments everywhere wanted to prop up asset prices.
ReplyDeleteHigher asset prices means higher inequality and lower social mobility. We blew our wad to save the bubble's status quo. However bubble prices were unsustainable, so now either governments will stop this nonsense or they will blow up. It's an easy choice.
The sad thing is, there will be nothing left for the average person. Governments have effectively been looted by the bailouts, and benefits and services will be cut and taxes raised to pay for it.
Look at unemployment rates by household assets. What we have is effectively the end game of 30 years of one-sided class warfare. The bottom 95% never even put up an effective fight. Their jobs where shipped to China, asset bubbles drown them in debt and wiped them out, and now their pensions and benefits will be cut or eliminated. What's next, the gas chamber? That's all that's left, isn't it. I think the lower and middle classes will just be left to starve.
Here is a good assessment of the Canadian job market. One I am sure that a way too many people are familiar with.
ReplyDeletehttp://www.policyalternatives.ca/publications/commentary/temporary-recovery
The HST is going to have a drastic effect in Ontario and BC for the average person. I can't see revenue going up for the government. The ruling parties will probably be finished in both provinces.
When the stimulus wears off in March next year, the coming depression is going to be brutal. Housing has started it's crazy downward spin in Canada.
Why does the government and Main Stream Media keep spouting this idiotic "it's getting better" message? There is a big disconnect going on and they don't seem to realize it yet. "Whistling pass the graveyard" comes to mind. Do think that if they say it long enough and often enough people will buy it? It's nuts!
The heavy rains in Western Canada are going to have an affect on food prices, especially bread and cereals, this coming winter.
http://www.cwb.ca/public/en/newsroom/releases/2010/061110.jsp
Higher taxes to pay for the past stimulus are on the way. This combine with factors that stimulus cannot control are going to cost the average person. Nothing is going to stop it. Time to pay the price.