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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: JohnM who wrote (130866)	2/15/2010 5:26:31 PM
From: Steve Lokness	Read Replies (1) \| Respond to of 542961

John; It's not about advising governments how to pay off too much debt by throwing it to the next government. I thought this an interesting statement. Yes, of course taking all "severs economic downturns" in isolation you are absolutely correct. But how do you evaluate a keynesian fix without an understanding of how we got here AND what the consequences of the fix will be. Keynesian fixes got us to where we are; first with the Y2K push, then the bursting of the stock market bubble push and now this third major keynesian fix. After each, Greenspan/Bush fixed it all with more government spending and easy money. These Keynesian fixes led to ever more debt and the debt is what created our most recent panic. The people have to deleverage. And Greece must deleverage. Taking on more erotic debt instruments, thanks to GS, only pushes the problem further out and increases the eventual cost - er, pain. A true story to demonstrate on a smaller scale; A small town in Norway was having problems providing for an aging population - too few tax payers for the number of retirees. So the town elders went to big banks for advice. The banks suggested they buy some of these American derivatives. The town of course didn't have any money and so they mortgaged their power production from their local power plant so they could leverage the income and buy the derivatives. .....Well as you may have guessed, the derivatives turned out to be a bunch of junk mortgages - and their power is still on the hook for this junk. They believed in the tooth fairy. Just as Greece did and increasingly as America is. The only way to think of any keynesian fix is to put it into the contexts of the existing crises. If we didn't already have a ballooning deficit and if we weren't already waaaaaay over committed to the baby boomers then you could look at keynesian spending in isolation. Not now, not with this mess. We just keep digging and expect others to pay - in our case our kids.