Thursday, September 16, 2010

 

Economy Caught in Depression, Not Recession

Writing in his daily briefing to investors, Rosenberg said the Great Depression also had its high points, with a series of positive GDP reports and sharp stock market gains.

But then as now, those signs of recovery were unsustainable and only provided a false sense of stability, said Rosenberg.

I have been writing about our current economic situation for at least 5 years. (And yes, this is a pat on the back.) Now that we are in the middle of this mess it is a good thing to remember that getting out of it will require asset prices to fall relative to incomes to a ratio that will make even the most frugal willing to invest and buy. Until then it is a good idea not be patient.

To get out of a depression, a country’s consumers and businesses must pay down the debts they have accrued. Only then can demand for consumer and capital goods pick up. Government can, however, accelerate this process through public subsidies to individuals, businesses, and banks, and through jobs programs. If government decides not to stimulate spending and demand, as occurred in the United States in 1938 or in Japan in 1998, it can cause a regression in the recovery and prolong the process over a decade.

It is a better idea to watch those in power because they will have a lot to do with when we get on the right road. The above quote is so ignorant as to be breath taking. Japanese debt/GDP level is above 200% and this guy is saying they gave up on stimulative spending in 1998?

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