Hayek said that recessions are beneficial: “like a cold douche” (shower).

Schumpeter’s definition of capitalism: ‘creative destruction’. My question: where is the second part of the above?

CrocodileChuck

ps Paul Keating, then Treasurer of the Labour party said of Australia’s ‘90/’91 downturn: “The recession we had to have”.

Sadly you are probably right, but there was a time long ago when Americans did make sacrifices (rationing in WWII) and could take tough medicine (Volcker’s interest rate increases).

There is an appalling lack of appreciation of the advantages we gain by having the dollar as the reserve currency, and worse among people who should know better.

No country, be it first world / third world, East / West, whatever, takes its financial medicine until it’s pushed to the very verge of bankruptcy and mass social upheaval. A bunch of pointy-headed economists with their cushy jobs and tenure for life (to use a stereotype that I’m sure none of your readers exemplify talking dryly about the need for financial pain is no match for the millions of voters and potentially violent protesters that politicians who implement such measures will be facing. Appealing to rationality when talking about people losing their jobs and homes is naive.

So that said, what levers does the rest of the world have to force the U.S. to take its medicine? Even China, potentially the largest lever, can’t decide whether it should sell its dollar holdings, revalue the renminbi, or continue its current policies and hope for the best.

Until the U.S. finds itself forced to borrow Euro/Yen/Yuan to fund its account deficits, I suspect the world, much less FT columnists, won’t really have a way to make the U.S. cry uncle…

Cannot have a recession going into an election. All incumbants will be blamed.

Kick the can up the road as long as you can and let the next President deal with the consequences.

Jim

Well, do the math with regard to the whatever hundreds of dollars that go to individuals vis tax rebates, unemployment checks, etc:

If, say, 40 million households are in debt (mortgage, credit, car loan, etc), then some percentage of the money they receive will go to pay off interest. How much will go to that as opposed to further consumption? I don’t know. But, it probably relates to the percentage of consumers who have sensed ‘the party is over for now’.

This money, then, goes through hands of consumers straight to corporations.

What will corporations do with it?

That answer will determine how much of the stimulus goes into the kind of investment that can help put the economy on a firmer foundation.

Of course a cynic who looked to how much corporations have concerned themselves with ‘the greater good’ would have to conclude: Not much.

And, if that’s accurate, then the stimulus package is really just one more shell game to prop up corporate profits.

But this is a presidential election year, so our politicians will do everything possible to try and convince the electorate that they have everything under control. NOT!