Professor Roubini is the new “it” guy for economists, a pretty interesting character. he says the following, which is full of win. The government finds itself in the position of trying to coax people back into the same behaviors that they were engaged in before, so that all the people who earned their livelihood on supporting these bad behaviors can maintaintheir accustomed lifestyle and pay their tithe-multiple to the government to misallocate in search of votes. But now that there is no money willingly being spent in these bad behaviors, government is conscripting money from the people in order to prop up the enablers. We dont rise up in outrage because we are some combination of:
- sheep
- convinced that a little more misbehavior now will be better in the mythical long run
- unaware that we are mortgaging the lifestyle and freedoms of our children andother future generations by saddling them with our debt
- aware of 3 above, but unconcerned because we want what we want
in fact those 4 items probably are a working definition of “people = sheep”
What’s needed? a reorientation to do things which need to be done: find goods and services that people need and are affordable for them based on the value they create within their own circle of activity: ie live within your means in your community doing important things for our common good and get the spending under control. Care for your family and fellow man and dont pawn that social responsibility off on your government who will simply use your money to do a worse job while keeping a pile of it for their own purposes, which are usually counterproductive.
Or, keep trying to sustain an unsustainable system with borrowed money until the next crash makes us more desperate. The seed corn that must be preserved is the individual responsibility, inijtiative and gumption that in the end will make us buck up and do the right thing. If you believe that’s inside you, all is well and we’ll be fine and let’s get on with it. If you believe it’s in Washington in the head of the Savior and his Harvard educated circle of experts, please be prepared to relearn the lessons of history and central planning.
Meanwhile, here is Professor Roubini, as promised:
“A severe global recession will lead to deflationary pressures. Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. Slack in labour markets from rising unemployment will control labor costs and wage growth. Further slack in commodity markets as prices fall will lead to sharply lower inflation. Thus inflation in advanced economies will fall towards the 1 per cent level that leads to concerns about deflation.
“Deflation is dangerous as it leads to a liquidity trap, a deflation trap and a debt deflation trap: nominal policy rates cannot fall below zero and thus monetary policy becomes ineffective. We are already in this liquidity trap since the Fed funds target rate is still 1 per cent but the effective one is close to zero as the Federal Reserve has flooded the financial system with liquidity; and by early 2009 the target Fed funds rate will formally hit 0 per cent. Also, in deflation the fall in prices means the real cost of capital is high – despite policy rates close to zero – leading to further falls in consumption and investment. This fall in demand and prices leads to a vicious circle: incomes and jobs are cut, leading to further falls in demand and prices (a deflation trap); and the real value of nominal debts rises (a debt deflation trap) making debtors’ problems more severe and leading to a rising risk of corporate and household defaults that will exacerbate credit losses of financial institutions.”
– Professor Nouriel Roubini of New York University