Best of the Week
Most Popular
1.War on Cash, Bank of England Planning Hyper QE, Scrapping Cash for Digital Currency - Nadeem_Walayat
2.Stock Market End Run Smash Crash Looks Imminent... - Clive_Maund
3.Europe Refugee Crisis, UK to Repatriate 120,000 Hungarian Economic Migrants Back to Hungary - Nadeem_Walayat
4.The Great Deflation Will Destroy All Bubbles – These Too - Harry_Dent
5.Deflation Signals Abound for U.S. Dollar, Forex Markets and Commodities - Rambus_Chartology
6.U.S. Housing Market Two Outs in The Bottom of The Ninth - James_Quinn
7.Poland, Czech, Slovakia and Hungary Refugee Hypocrisy After Flooding UK with 4 Million Economic Migrants - Nadeem_Walayat
8.The Two Real Reasons Crude Oil Prices Are Currently Slipping - Dr. Kent Moors
9.R.I.P. Interest Rates - Andrew Snyder
10.Steps from a Deep October Stock Market Selloff - Bob_Loukas
Last 5 days
Putin’s Blitz Leaves Washington Rankled and Confused - 4th Oct 15
More Selling for Stock Market, Gold? - 4th Oct 15
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15
What Two Risks From Rising Interest-Rates Could Each Trigger A New Global Crisis? - 1st Oct 15
Stock Market S&P 500 Volatility-Based Price Probability Range - 1st Oct 15
Dow Stock Market About To Crash Like October 1929? Get Your Physical Silver - 1st Oct 15
Stock Market Negative Expectations Once Again - Will It Break Down? - 1st Oct 15
Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - 1st Oct 15
Best Short-Term Commodity Market Opportunities - Video - 1st Oct 15
The Coming Corporate "Crime Wave" - 30th Sept 15
Stock Market Retracement May Have Run Its Course - 30th Sept 15
A Stocks Bear Market Is Now More Likely Than Not - 30th Sept 15
The Killer Ape, Human Evolution, Artificial Intelligence and Extinction End Game - 30th Sept 15
Junk Bond Market Imminent Collapse Threatens (Unwelcome) BIG Rate Rises - 30th Sept 15
Stocks: Why Following the Crowd is Usually a Big Mistake - 29th Sept 15
This Stocks Bear is Just Waking from Hibernation - 29th Sept 15
Interest Rates All Bad at 0%? - 29th Sept 15
If Stocks Can't Hold These Levels, We'll Have a Bear Market - 29th Sept 15
7 Bullish Gold Price Indicators - 29th Sept 15
Crude Oil Price Is Going to Fall by 50%… Again - 29th Sept 15
SPX Triggers a Amall Head & Shoulders Formation - 28th Sept 15
Stock Market Bubble Balloons in Search of Needles - 28th Sept 15
Gold and Silver, Precious Metals Complex Getting Interesting - 28th Sept 15
Economic Channels of Distress - Fourth Turning Crisis of Trust - 28th Sept 15
Stock Market Testing Important Levels - 28th Sept 15
Stock Market Going Down, Gold Chop Continues - 27th Sept 15
Stock Market Primary Wave IV Inflection Point - 27th Sept 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Credit Crisis Solutions That Should Scare The Hell Out Of You

Economics / Credit Crisis 2009 Jan 12, 2009 - 10:03 AM GMT

By: Mike_Shedlock

Economics Best Financial Markets Analysis ArticleThings are looking pretty bleak. There is bad news in housing, the stock market, commercial real estate, jobs, and wages . Unfortunately, no matter how bad things are, someone always comes along to propose a "solution" that is guaranteed to make the situation much worse. Please consider the following ideas.

Scary Idea #1

Anatole Kaletsky is proposing to Punish savers and make them spend money .

Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively.

Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets - or simply to save less and consume more. In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.

Good Lord. We are in this mess because everyone (the state, corporations, households) went on a reckless spending spree. There is overcapacity in homes, autos, retail stores, nail salons, restaurants, and damn near everything else. Only a complete fool would propose taxing savings. Unfortunately, I have no doubt Bernanke is playing with this idea in his head right now.

Scary Idea # 2

Obama Says 'If Paul Krugman Has a Good Idea … Then We're Going to Do It'

Today in his press conference, a reporter questioned Obama about Krugman's criticisms. Obama said that he is open to the economist's ideas: "If Paul Krugman has a good idea, in terms of how to spend money efficiently and effectively to jump-start the economy, then we're going to do it."

Last month, Krugman told radio host Bill Press that he is "in communications" with the Obama team.

The Obama Gap

Krugman is writing about The Obama Gap

Mr. Obama's prescription doesn't live up to his diagnosis. The economic plan he's offering isn't as strong as his language about the economic threat. In fact, it falls well short of what's needed.

Bear in mind just how big the U.S. economy is. Given sufficient demand for its output, America would produce more than $30 trillion worth of goods and services over the next two years. But with both consumer spending and business investment plunging, a huge gap is opening up between what the American economy can produce and what it's able to sell.

And the Obama plan is nowhere near big enough to fill this “output gap.”

To close a gap of more than $2 trillion — possibly a lot more, if the budget office projections turn out to be too optimistic — Mr. Obama offers a $775 billion plan. And that's not enough.

Krugman is not content with Obama blowing close to a $trillion by himself (more if you count the second installment of $350 billion Obama will blow). Amazingly, Krugman who believe in the free lunch, wants to spend even more.

My Rebuttal for Krugman's Keynesian claptrap, can be found in Krugman Still Wrong After All These Years and also in Fiscal Insanity Virus Rapidly Spreading The Globe .

If Obama listens to anything Krugman says, which now seems likely, it is going to be a disaster. Actually, I mean a bigger disaster.

Scary Idea # 3

Time Magazine is making The Case for Bigger Government .

Thirty years ago, Americans were told that government was part of the problem, not the solution. We bet on the magic of the marketplace, but the magic proved illusory. Every major part of the economy — health care, energy, transportation, food and finance — is deeply troubled. Now we are ready to invite government back in to help solve our problems, if the price is right and the strategies are convincing. By spending more through government and treating government as a partner rather than an enemy of the private sector, we can potentially save vast sums in the long run through a more efficient health-care system, safer climate, more competitive economy and more secure country.

Although Obama's tax cuts might stimulate consumer spending — and placate Republicans — any permanent cut would be a huge error, and even short-term tax cuts are an unnecessary risk. Obama's long-term success will depend on his ability to lead Americans to a new, even revolutionary consensus that the U.S. government can offer value for money.

The Times article contains some of the most ridiculous blather to date. Please read it in entirety as a monumental testimony to stupidity. Here is a short rebuttal.

What Hath Big Government Wrought?

  • It was big government that brought us Fannie Mae and Freddie Mac.
  • It was big government that sponsored the war in Vietnam and the war in Iraq.
  • It was big government that gave us nightmare problems we face with Medicaid and Medicare.
  • It was big government that gave us overlapping hundred billion dollar systems in the Army, Navy, and Air Force.
  • It is big government that sponsored 10's of thousands of pork barrel projects and bridges to nowhere.
  • It is big government that gave us the Davis Bacon Act and the insanity pf prevailing wages.
  • It was big government sponsorship of the rating agencies that created the "AAA" rated securities that went to zero.
  • It was big government that took us off the gold standard and illegally confiscated citizen's money.
  • It was big government that allowed fractional reserve lending and theft by inflation this is the root cause of a shrinking middle class today.
  • It was big government that created the Fed, and it was the Greenspan Fed that blew serial bubble after bubble culminating in the housing crash we are in today.

Big government either created or made worse every problem we have today. Yet Time Magazine and free lunch proponents like Krugman propose an even bigger government is necessary to fix the enormous problems of an already too big government.

Obama for his part, is listening to this madness. If that does not scare you, nothing will.

By Mike "Mish" Shedlock

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History