What's with the US budget and recession stuff?

[KrazyHorse]

Matt Taibbi, along with every other moron who thinks that non-central banks have a magic power to cause enormous multiyear drops in US output is partly to blame for the deafening silence of the left in asking for easier money. Despite their other idiocies, both Rick Perry and Michelle Bachman understand that the Fed's continued tight money policy is what's holding back US output, increasing their own chances of gaining political power. Democrats in the US should be calling for the ben bernank's head (or more rationally, Fisher's, Plosser's and Kocherlotka's).

[giblets]

Wait, Michele Bachmann understands that?

[KrazyHorse]

In the medium term (as we're now well into) my suspicion is that continued tight money mostly affects real output through longer term debt contracts. Debtors attemot to repair balance sheets (damaged by a drop of ngdp below trend), drying up demand for credit. Long-term interest rates drop, and monetary velocity is reduced. Remember that liabilities are now worth 10% more as a fraction of gdp than they were predicted to be when entered into...

[KrazyHorse]

Wait, Michele Bachmann understands that?

Who cares if she understands it consciously or not? The point is that a large majority of the current front runners on one side are trying to influence the fed to depress the US economy ahead of an election in which they wil attempt to unseat an incumbent, while the incumbent's party is silent on the matter. Meanwhile, prominent voices on the incumbent's side are attempting to place blame on the banks (idiotic) or on a lack of fiscal stimulus (useless under a tight money regime).

[DanS]

It seems clear that the Fed needs to have easier money right now. And we need to consolidate our spending drastically -- get the congress the hell out of the business of stimulating the economy.

Greenspan was the cause of all of this mess, but Bernanke isn't fast enough on the draw right now.

[Ben Kenobi]

The point is that a large majority of the current front runners on one side are trying to influence the fed to depress the US economy ahead of an election

Yeah, fat lotta good the deficits are destroying America. Time to rein in the money, cut back cut spending and go on from there.

This is the worst recession since the Gerat depression, and you have the gall to say that if only we opened up the spigots again, things would be rosey? Bull.

QE1 was a failure. QE2 is a failure, time to change plans!

[KrazyHorse]

The way to think about how the fiscal and monetary authorities under a fiat money regime work together is that the fiscal authority affects the demand for money (purchasing goods with debt) and the monetary authority affects the supply of money (purchasing assets with money). The monetary authority moves last in this game, and targets the price of money. Therefore, the fiscal authority can only affect the proportion of AD coming from government, not the total amount of it. Private impact on money supply and demand are endogenously determined.

[Ben Kenobi]

So, here comes the double-dip, eh?

Some of us have been saying that there never was a recovery. GDP has been negative straight since the big drop in 08, if you take out all the government spending. Q6 is at what, 21 percent? That's great depression levels of unemployment.

[Ben Kenobi]

The way to think about how the fiscal and monetary authorities under a fiat money regime work together is that the fiscal authority affects the demand for money (purchasing goods with debt) and the monetary authority affects the supply of money (purchasing assets with money).

Under normal circumstances, but here's what is happening. There is so much bad debt out there, that the QE is simply getting ate up trying to cover and unwind the bad debts. The only way Bernanke can even move the bad debts is to increase the money supply 10x. Which, isn't going to happen.

The best thing that the Fed can do is nothing. Let the bad debts come through and blow up the institutions that invested in them. Purge the bad debts. Will probably spike things over the next while, but it's the only way things will work.

Had this been done in 08, we'd be in recovery by now. Had QE2 not happened, we'd be in recovery now, had Obamacare not been in, we'd have recovery by now. Instead, the same flawed strategy of spending and spending fends off things for awhile, but eventually the piper comes due.

Iceland refused to bail out the banks that made bad debts, and they are doing well now.

[KrazyHorse]

Shut up, idiot.

LACK OF AD (A DROP BELOW TREND) CAUSES REASONABLE DEBTS TO GO BAD. ALL SHORTFALLS IN AD CAUSE BALANCE SHEET RECESSIONS. THE FED OWES US A 10% BOOST IN NGDP. GIVE US OUR AD BACK, BEN (bernank, not kenobi).

[giblets]

Yeah, fat lotta good the deficits are destroying America. Time to rein in the money, cut back cut spending and go on from there.

This is the worst recession since the Gerat depression, and you have the gall to say that if only we opened up the spigots again, things would be rosey? Bull.

QE1 was a failure. QE2 is a failure, time to change plans!

[Ben Kenobi]

No offense, Ben, but since budget bills originate out of the House, which is now Republican controlled (in theory, not a lot of discipline there), and the majority of our current fiscal FUBAR pre-dated Obama (in some cases, pre-dated Bush, the long-term solvency of Social Security and Medicare was first raised during the Reagan administration), how exactly does one lay S&P's publicity stunt at the feet of Obama?

Well couple things here.

1. Reagan + Dem congress is the precise opposite of your argument. The Dems were profligate, yes. Right up iuntil 94, when the budget got hacked and bushwacked.
2. Yes, the Republicans spent under Bush, but spending really took off under Pelosi in 06.
3. Since Obama came to power, there hasn't been a successful budget passed in 2 and a half years. True, the House is Republican now, but the Senate is not, and Harry Reid curbstomped the budget.

Obama in just 2 and a half years managed to jump the debt to GDP nearly 40 points. For two of these years, Democrats had supermajorities. Obama inherited 60 percent and turned it into 97. He's been a big factor in the jump because of Obamacare, and the fact that he's pushed for QE1 and QE2. If he didn't support the agenda coming out of the House, why has he not vetoed anything?

[Ben Kenobi]

LACK OF AD (A DROP BELOW TREND) CAUSES REASONABLE DEBTS TO GO BAD. ALL SHORTFALLS IN AD CAUSE BALANCE SHEET RECESSIONS. THE FED OWES US A 10% BOOST IN NGDP. GIVE US OUR AD BACK, BEN (bernank, not kenobi).

QE1 was supposed to save us. It didn't. QE2 was supposed to save us, it didn't. QE3 would just do the same thing. A temporary burst and then resuming the fall. The reason that QE keeps failing is because of the bad debts that have to be unwound being several orders of magnitude larger than QE. It's like filling your car with an ice cream cone.

[KrazyHorse]

S&P reaffirmed france's aaa rating. What a bunch of monkeys. US 5yr spread at 51 bps, France at 155.

[DanS]

That's not a good analogy, but I think that KH's whole point is that QE1 and QE2 weren't big enough. We need QE3. Now. And make it big.