Endless Nonsense From Keynesian Clowns …

And the saga continues, as Nobel Prize-winning economist Joseph Stiglitz calls for second federal stimulus

Nobel Prize-winning economist Joseph Stiglitz called for another round of federal stimulus dollars to spur the economy. He spoke Sept. 30 to the Society of American Business Editors and Writers (SABEW) at its Fall Workshop.

“We will see in the next two years the real cost of there not being a second round of stimulus,” he said. “We will see the economy slow down at a very high economic cost.”

The Columbia University professor also said that the “new normal” as far as the unemployment rate is concerned may not be the 4 to 5 percent that existed before the financial crisis in 2008, but more like 7 to 8 percent.

Unemployment is about 9.5 to 9.6 percent officially, he said, but many people who are working part-time involuntarily or who have stopped looking but want work are not counted in the official rate.

Congress passed the first stimulus on Feb. 11, 2009, approving a $787 billion bill, the American Recovery and Reinvestment Act.

He said one reason that stimulus has not had more effect is that state and local governments have cut spending, undoing about one-half of the impact of the money that the feds have injected.

He said the stimulus also could have had more effect if more money had been put into making up for the shortfalls of state budgets, stopping layoffs; if less had been put into tax cuts that wary consumers just ended up saving; and if safeguards to prevent waste had not slowed the money from being spent.

Still, he said, “The stimulus absolutely worked.” Without it, unemployment could have peaked at more than 12 percent.

He said that one-fourth of Americans have negative equity in their homes, meaning that they can’t draw on their homes as a piggybank to borrow and live beyond their means. In fact, they are going to have to live below their means to pay off debt accumulated during better times.

“We likely face a marked reduction in standard of living,” he said.

It is truly amazing how the people who didn’t see any of the root problems and were completely unable to predict how an overly crushing debt load would wreck this economy, how the business cycle would inevitably turn south due to a deliberate policy of credit expansion and who don’t bother to seriously identify the root causes of the financial crisis, now boldly step forward to make the most obvious of predictions and think that they are contributing to the debate.

“We likely face a marked reduction in standard of living”

Wow, no shit Sherlock! Did it take all the decades of accumulated economic wisdom to figure that one out when it’s already happening??

And if I got a penny every time these people make up an alternate reality in order to justify their programs … oh well …

“The situation would be worse had it not been for more government spending …”, “the unemployment rate would have been even higher than it is now …” … bla bla bla.

This is perfectly natural. If their policies aren’t defensible in reality, if they can’t specifically explain how more budget deficits and bailouts have actually helped us, then of course they will have to make up a fantasy world.

I mean, they look completely silly doing that, and it’s funny watching it … but please don’t expect me to actually buy that nonsense!

Here’s the statement I made that you always need to keep in mind when you hear people like this guy talk:

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money. But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

Any temporary recovery we witness now, is likely to be remembered as just that, a temporary phenomenon. All actions taken so far have set the perfect stage for a double dip recession of enormous proportions, the worst possible prolongation of the necessary correction.

If it was our dear government’s objective to repeat the playbook from the Great Depression one by one, then they have indeed succeeded phenomenally.

And here’s of course the long term outlook which you can look back to 10 years from now if you like:

From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.

A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

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Paul Krugman, You Need Help!

Here is a nice takedown of Chief Keynesian Clown Paul K. written by Mish today:

Krugman’s Magic Mirror

Clearly one of us is wrong. But whom? Perhaps this image can help.

Throwing money at problems never works in the long run.

Japan tried that and now has debt to GDP of 200%. Because of its aging demographics, Japan is in serious trouble as soon as interest rates rise. Japan will not be able to finance its monstrous debt nor will it be able to grow its way out of the problem. Such is the nature of compound interest and unsustainable levels of debt.

Likewise, the US tried to spend its way out of the 2000-2001 recession.

Greenspan’s policies seemed to work, but it was nothing but an illusion. The real economy was taking a nosedive even as financial assets soared. It was a nice party, as all Keynesian parties are, but in the final analysis all Greenspan and Bernanke accomplished was to dig the deepest debt hole mankind has ever seen. The housing and debt implosion of 2007-2008 was the direct result.

Now Paul Krugman thinks it’s too early to shut off stimulus.

Hello Paul!

It will always be too early for you. There is no recovery nor will there ever be a recovery until there is genuine demand for goods and services at prices set by the free market not the government.

When the problem is debt, going deeper in debt cannot possibly be the solution.

Yes, Paul, we lost a decade. Yes, Paul, we are going to lose another, not because we failed to follow your recommendations, but precisely because we did!

We had a chance to write off the debt and to let the insolvent banks go under. Instead we wasted over a trillion dollars bailing out banks that still are not lending (and wisely will not lend) because we never purged the debts that needed to be purged nor did we reduce rampant overcapacity.

We could have and should have forced the bondholders of Citigroup and Fannie Mae to take a hit. Instead, taxpayers who cannot possibly afford it, bailed out wealthy bondholders.

In addition, we tried all sorts of Keynesian nonsense like cash-for-clunkers and an$8,000 tax credits for houses. As soon as the tax credit expired housing went in the gutter. It is about to do so for the second time.

Bernanke will not know what hit him even though it is point blank foolish to stimulate housing when there is an ocean of housing oversupply already.

By the way, how many roads can you pave? We paved roads in our area that did not even need to be paved. Now fooking what?

This is exactly the mistake Japan made. Yet you want to repeat it with more absurd makeshift work.

The stimulus money is nearly out and you want more. You will always want more for the simple reason there is no real demand for goods and services, only an illusion of a recovery that comes from passing out “free money”.

When you look in a mirror you see the illusion, what you should see is a Keynesian warthog. Substitute the words “Keynesian Economics” for “Real Economy” on that hag, and the picture is perfect.

As Europe found out, the will and the means to pass out “free money” is 100% guaranteed to end before a lasting recovery can take hold.

That dear Paul, whether you like it or not, is the mechanics of peak debt, compound interest, global wage arbitrage, and something you desperately need to learn: Austrian economics.

Recommended Reading List

Paul, you need help. I suggest a few books on my recommended reading list.

I couldn’t agree more, those are excellent reads indeed.

Paul, you need help!

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Keynesian Academics Unhappy About Record Deficits; They Want More!

Brad Delong seems to be coming to the realization that we are in a depression:

For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it–that we know what to do and how to do it and will do it if things turn south.

I don’t think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy–a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more–are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d—– thing about it.

We could cushion the impact of another big downward shock by a lot more deficit spending–unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government’s money is as good as anybody else’s. But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing proble afrer 2030. The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments.

… unfortunately he also deems it necessary to draw precisely that conclusion which is farthest from the truth. He is yet another sad casualty of the phenomenon I expected to occur sooner or later, as I outlined in The Great Depression 2.0:

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money. But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

I would submit that precisely this is the case now. Deficits are larger than ever and are likely to get higher. People are sick and tired of it.

I would like people like Krugman and Delong to answer some simple questions: How much more until you’re happy? Which sum of money borrowed from foreigners and banks, owed by taxpayers, and spent by bureaucrats on goods and services (and your salaries of course) will be our salvation? What’s the magic mark?

The truth is: there is no such number. In fact, every single dollar more is a dollar too many spent by government. There is nothing new to this development. Government spending has been on the rise for at least half a century. The direction couldn’t be more false. The path could hardly be more disastrous. The repetition of past mistakes couldn’t be more appalling. The apathy and ignorance of academia, media and politics couldn’t be more mind boggling, the gulf between illusion and reality more severe.

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