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The “naive view” is the only one that will work…..

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Paying off old debts, increasing income and improving credit scores will get the economy back on track. Unfortunately for politicians in charge it takes time. Years in this case.

Want to speed it up? Send cash directly to the the taxpayer and reignite the boom. Of course, in 5 or 10 years the next bust will make 1937 look pretty tame but hey, we’re talking about saving political careers.

Anyways the good news is the Dem’s lose in November. The bad? Republicans win. We really need conservatives to get the economy under control but ain’t going to happen!

Default Is In Our Stars – NYTimes.com

A naive view says that what we need is a return to virtue: everyone needs to save more, pay down debt, and restore healthy balance sheets.

The problem with this view is the fallacy of composition: when everyone tries to pay down debt at the same time, the result is a depressed economy and falling inflation, which cause the ratio of debt to income to rise if anything. That is, we’re living in a world in which the twin paradoxes of thrift and deleveraging hold, and hence in which individual virtue ends up being collective vice.

So what will happen? In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.

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Written by mrcauser

September 25, 2010 at 5:37 pm

Posted in Uncategorized

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