Yes, Krugman is right in requesting the Fed that it needs to allow the economy to
recover. Classical Keynesians are always vary of the Gold Standard and Krugman
sticks to his roots! However, the lack of coordination between the branches of
financial policy could cause many problems.
Well, yes, Krugman is again right on the idea that Government is for the people and
the banks are for the investors. Yet he does not explain the issue correctly. Funds for
bailout/TARP etc. have to flow into the real economy. By picking up the shortfalls
of AIG, the system is set up for more imbalance, and credit markets are frozen while
bonus payments are not is an issue. It is the average homeowner and the economy that
needs a bailout, however only the creditors to AIG were bailed out.
Bernanke and Geithner and Summers seem to be missing this key issue and Krugman
should explain this well - to the people on Main Street - Freddie, Fannie and Ginnie can
possibly become full fledged banks whose main role is to repair the housing market. That
is where the TARP is best used. As banks go under, start selling branches to Freddie, Fannie
and operate in local depressed markets. Reopening credit in Mahoney City, Miami and Modesto
implies that the Govt. must operate in the sub-prime markets. New ways to do this include
equity instruments, insurance etc. Reflating housing will bring a semblance of restitution -
Scarcity theory today is the better model.
Today, there are prime-borrowers with sub-prime loans. and the downfall of some communities has lead to tough problems. quick govt. intervention that liquefies these markets is necessary.
one thing that the Fed can do is to buy up the CMOs and MBSs and then reintegrate them and resell them also. The answer is to have operations at the local level while cutting up the red tape
through efficient handling of foreclosures and stopping those that can be stopped. This calls
for the skills of a community organizer.
Today there are those who have lost their home who might like to be homeowners again. Lending to these folks can be the job of these new nationalized banks. Call this ownership society-II or the New Deal-II but reintroducing ownership albeit at a depressed price is called for.
Removing this structural issue from the economy will clear the way quickly. Fixing this fully and
well is extremely important - it is not the houses or the owners that need fixing, it might be
said.
Tuesday, October 20, 2009
Friday, October 2, 2009
Krugman call for stimulus - yes and no
While Krugman's call for stimulus is a good one, he squarely avoids faulting his buddies at the
Fed, who were responsible for the problem in the first place. Fiscal stimulus presently would
be a welcome panacea, but Krugman needs to notice the broader issue.
The jobs report indicates the economy bled jobs in construction, durable goods manufacturing,
retail and govt. with local govt shedding jobs.
Bush grew govt in a big way in 2001. The construction industry was stimulated through a drop
in interest rates and the whole idea around ownership society. The auto industry gave no interest
loans and retail expanded on the stimulus from refinancing cash back. Amazon turned a profit
in 2001.
This time it is different. Tight credit implies that the auto industry, construction & housing industry and retail are shedding jobs. Bernanke is currently trying to keep his finger on the dollar with no ability to raise interest rates. But the credit markets need to be reflated. The question "Where are the helicopters, Ben?" is not being asked by Wall Street but it is being asked on Main Street.
A new stimulus from the Obama administration would help the economy but what is unclear is how it would be different from the ghost of stimulus' past. The Keynesian answer to most questions is always stimulus.
With Congress ready to help Obama it is clear that he needs to more quickly use the stimulus already allocated. One approach is Municipal and State Debt retirement. By offering Federal loans to states, cities and counties, a road towards rejuvenation is built. Better funded school districts would reduce layoffs in local Govts.
Obama needs to be more proactive on the auto industry. Both Chrysler and GM are best broken into a few companies and these companies can then merge to form a new set of focused companies - for example one that builds electric cars, one that builds trucks etc.
For construction, the roads and transportation stimulus can be quickly used.
Obama is America's first Green President and he should get the Department of Energy to work
with various universities on the new technologies. Public sector spending on scientific research often produces longer term rewards. This can lead to hiring and rejuvenation of the university system.
Obama's other big task is to reform Medicare. The answer to Medicare is to not think single payer but to get into the "Provider" side of Medicine. Buying up new hospitals and SNFs can be a tremendous cost cutter in the long run. Drug manufacture can reduce costs in a big way. Such cost cutting and efficient Govt. service providing is a key to the success of Medicare. Today, the private public partnership is so bloated that Medicare alone can push the deficit to a breaking point.
Over the long term, the size of the US economy will be similar to that of China and the BRIC countries will be similar in size to the G-8. As this time nears, the US has to nominally reduce its debt levels to about 50% of its GDP from the projected 120% or so in 2014.
Fed, who were responsible for the problem in the first place. Fiscal stimulus presently would
be a welcome panacea, but Krugman needs to notice the broader issue.
The jobs report indicates the economy bled jobs in construction, durable goods manufacturing,
retail and govt. with local govt shedding jobs.
Bush grew govt in a big way in 2001. The construction industry was stimulated through a drop
in interest rates and the whole idea around ownership society. The auto industry gave no interest
loans and retail expanded on the stimulus from refinancing cash back. Amazon turned a profit
in 2001.
This time it is different. Tight credit implies that the auto industry, construction & housing industry and retail are shedding jobs. Bernanke is currently trying to keep his finger on the dollar with no ability to raise interest rates. But the credit markets need to be reflated. The question "Where are the helicopters, Ben?" is not being asked by Wall Street but it is being asked on Main Street.
A new stimulus from the Obama administration would help the economy but what is unclear is how it would be different from the ghost of stimulus' past. The Keynesian answer to most questions is always stimulus.
With Congress ready to help Obama it is clear that he needs to more quickly use the stimulus already allocated. One approach is Municipal and State Debt retirement. By offering Federal loans to states, cities and counties, a road towards rejuvenation is built. Better funded school districts would reduce layoffs in local Govts.
Obama needs to be more proactive on the auto industry. Both Chrysler and GM are best broken into a few companies and these companies can then merge to form a new set of focused companies - for example one that builds electric cars, one that builds trucks etc.
For construction, the roads and transportation stimulus can be quickly used.
Obama is America's first Green President and he should get the Department of Energy to work
with various universities on the new technologies. Public sector spending on scientific research often produces longer term rewards. This can lead to hiring and rejuvenation of the university system.
Obama's other big task is to reform Medicare. The answer to Medicare is to not think single payer but to get into the "Provider" side of Medicine. Buying up new hospitals and SNFs can be a tremendous cost cutter in the long run. Drug manufacture can reduce costs in a big way. Such cost cutting and efficient Govt. service providing is a key to the success of Medicare. Today, the private public partnership is so bloated that Medicare alone can push the deficit to a breaking point.
Over the long term, the size of the US economy will be similar to that of China and the BRIC countries will be similar in size to the G-8. As this time nears, the US has to nominally reduce its debt levels to about 50% of its GDP from the projected 120% or so in 2014.
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