The government printed money at the wrong end of the horse. This will sound outrageous (but who cares, we live in outrageous times) we should have instead just had a debt jubilee using individual taxpayers as the transmission system. After all, this entire 2 year credit bailout effort is nothing more than a theory about how to get credit flowing again and via what credit transmission system. They thought that by covering the bank's hole, that this would allow them to shovel out money. The problem of course is that debtors are too numerous, and the debt is too high.
We would have been better off if every tax paying adult was allowed to submit up to, say, 150K of debt to the government--and then the government simply payed the creditor. We could have combined it with new, onerous debt creation laws in the aftermath. Say, no lending entity or combination of lending entities can extend credit card or mortgage credit beyond a certain percentage of reported income. Obviously after a debt jubilee, you'd have to have some new rules to constrain most--but not all--of the pent up demand.
My debt jubilee even sounds outrageous to me--but, when I think about it, who could top what's already occurred? At some point, some country, is going to realize that debt jubilee like currency devalution will be one more route to competitive advantage. I am not so much advocating debt jubilee as I am trying to make a point: without debt jubilee, it will likely take at least 5 or more years to repair balance sheets. Frankly, longer than that given the collapsed economy. Moralists will of course be repulsed by any such idea.
In the the meantime, here is when economic recovery comes to the US: not anytime soon.
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