Petro: Thanks for your post and for the compliment.
Doc: Apparently we disagree rather profoundly on these issues, especially wrt DEBT...
You say debt was the cause of the crisis and that the countries with the least debt will be more productive in future. Yet your policy prescription is to give loans to individuals, many of whom could not afford to be in debt in the first place. Correctly applied, debt ADDS to productivity and is an important source of wealth (if you've had a mortgage anytime between between 1960 and 2007, or invested on margin in an up market, you know what I mean.) But debt comes with risks, too, and we have all experienced the consequences of debt/risk mis-applied and out of control. My point: Debt is not in itself a bad thing.
I think giving out loans to individuals during the worst of the crisis would have been like fighting a forest fire with garden hoses rather than airborne tankers full of fire retardant chemicals -- an exercise in futility. Saving the banks was essential because without them the financial system and the economy cease to function. Obama's prescription differs little from Bush's b/c it's the right policy, the right medicine. The banks have been saved, capital is formed and allocated and, yes, there is more healing to be done. But would you really rather we'd messed around with alternative medicine while the patient lay prostrate?
Regarding cash for clunkers and the new home tax credit: Yes, these are temporary, imperfect and, maybe, long-term-ineffective fixes -- lipstick on the pig. But I doubt you could find one UAW worker, one auto exec, or one starving real estate agent that thinks they were a bad idea. Sometimes you just need to make the pig look a bit prettier, even if for a day.
<I think giving out loans to individuals during the worst of the crisis would have been like fighting a forest fire with garden hoses.>
No, Musk, it is more like fighting a forest fire, and the banks are hoarding water.
< Yet your policy prescription is to give loans to individuals, many of whom could not afford to be in debt in the first place.>
The programs that have been "successful" (cash for clunkers, housing credit) per Congress not me have been the ones where money has been given to the consumer. The bank bailouts have done zilch in getting money to consumers and stimulating demand.
<Saving the banks was essential because without them the financial system and the economy cease to function.>
I am not so sure about that. First off, there were banks that stayed small and smart versus ones that made a bunch of dumb loans and acquisitions for the mere sake of getting bigger. The government is supporting the latter at the expense of the former.
There is no easy solution to this banking mess, but I liked the Swedish model of nationalizing the banks better than the one we are currently following.
And anyone doing high fives over the banks being saved IMO is deluding themselves. Most of the country's banks were insolvent then and are insolvent now. Last Friday, nine banks failed in one day, a new record.
<You say debt was the cause of the crisis and that the countries with the least debt will be more productive in future.>
Irresponsible debt leading to overcapacity in so many areas was the cause of the crisis. Countries that did not go on this debt binge are certainly going to be able grow faster than countries that did.
<My point: Debt is not in itself a bad thing.>
Agreed. But debt is good only if you can get a higher percentage return than the interest rate you borrowed at. And many times that is not an easy calculation to make.
If you have a negative return, even borrowing at 0%, as the government is currently doing, is going to be a problem.