 merrie says: The basic questions we need to ask here are: 1. Why do economies recover? 2. Are we recovering? Q. Why do economies recover? A. They recover because bad investments made during the bubble are liquidated, valuable capital is no longer being wasted on them, new capital is formed from savings, and profitable enterprises attract new capital to expand. Low real interest rates caused by increased savings encourage borrowing, manufacturers use the capital to make new machines, producers of consumer goods buy them, cash goes through the system, consumers see things are getting better, more consumer goods are produced, and consumers buy them. It has to happen this way or the recovery will fail. The difficult part of a recovery is ugly. Bankrupt firms need to fail so that valuable capital resources are not wasted on their continuing activities. This means that unemployment rises (10.2% now) and business bankruptcies are high. Trillions of dollars of asset values are wiped out. . . While not good for those impacted, it’s not “bad” as Keynesians would have us believe. If consumers feel the need to save and not spend, how does dropping interest rates to near zero change their preference to hold cash? It doesn’t. They’re scared, much poorer, and see personal savings as the one thing they can do to protect their financial future. They don’t understand the “patriotic” need to spend to come to the aid of the economy. Your fellow citizens aren’t stupid…… Q. Are we recovering? A. Yes. No. WTF? There are two factors driving the numbers quoted above. One is the fiscal and monetary stimulus. But that doesn’t create real economic growth. That is, the government can’t crea... |
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