Hillarysworld

Excellent books' review here... very loaded on macro-econ.

The Slump Goes On: Why?

Read @ NYBooks.com

EXCERPT:

These broader problems of debt and deleveraging arguably explain why the successful stabilization of the financial industry has done no more than pull the economy back from the brink, without producing a strong recovery. The economy is hamstrung—still crippled by a debt overhang. That is, the simultaneous efforts of so many people to pay down debt at the same time are keeping the economy depressed.

So what’s the answer? In the short run, the only way to avoid a deep slump when almost everyone in the private sector is trying to pay down debt simultaneously is for the government to move in the opposite direction—to become, in effect, the borrower of last resort, issuing debt and continuing to spend as the private sector pulls back. In the heat of a Minsky moment, budget deficits are not only good, they are necessary. Indeed, the surge in budget deficits around the world between 2007 and 2009 was arguably even more important than the financial rescue in keeping the real estate bust from triggering a full replay of the Great Depression.

This surge in budget deficits, by the way, wasn’t mainly the result of deliberate efforts to stimulate the economy. Instead, the main factors were a collapse in tax receipts as economies slumped, and secondarily a rise in automatic payments like unemployment insurance benefits. In the United States, the two-year federal deficit over 2009–2010 will be around $2.5 trillion; the Obama stimulus plan accounts for less than a quarter of the total.

So budget deficits kept us from falling into the abyss. But how will the economy recover? This will be the subject of a second article.

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It takes a couple of reads to get the full import of this article.  These two and the authors of the three books are quite an expert panel.. and it sure looks like the budget deficit created via TARP, despite the moral hazard that it created (which is a concern for the long-run), certainly avoided another depression.

I cannot wait to read the second article.

-- Edited by Sanders on Thursday 9th of September 2010 01:17:14 PM