Has anybody else noticed that the U.S. Government has been "stimulating" the economy consistently for years?
Basic Keynesian economics. When in a recession the government should decrease taxes and increase spending. But what should the government do when not in a recession? They should, according to Keynes, increase taxes and decrease spending to pay off debts accumulated during the recession. However, such policies do not get anyone elected, so politicians decrease taxes relative to spending all of the time (creating an ever expanding deficit). The second stage of Keynes's advice is just ignored, and so the economy is consistently "stimulated", both monetarily and fiscally.
Those in Washginton are not ideological Keynesians, or simply miseducated about economics. If they were, then perhaps they would consider that stimulating the economy some more after 20 years of "stimulus" might not be a good idea (even Keynes understood the need to stop stimulating and pay off debts). Politicians do not understand nor care about Keynesian economics. All they know is that some academic has given some intellectual credibility to something they always want to do: spend with impunity.
It has been endless "stimulation", in the form of government spending and suppressed interest rates that has got the U.S. into this mess. It is ludicrous to think that more of the same, delivered by the same people, is going to suddenly make everything alright. Meanwhile, Obama still has the nerve to harp on about "change".
One problem for the U.S. is that many foreigners invested their dollars in mortgage backed securities and government bonds.
More dollars have been leaving the U.S. to buy imports than returning to buy exports: the trade deficit. Some have collected overseas and used for trade in lieu debased currencies, while others have found their way back to the U.S. to invest (since this return of dollars does not represent the purchase of exports, it does not reduce the trade deficit). Everything seems okay: foreigners are using the dollars they receive for imports to invest in the U.S., that must be good, right?
It seems to me that many of these dollars were invested in mortgage backed securities and government bonds. For the economy as a whole these represent malinvestments, and therefore, are not good for the U.S. economy.
Ordinarily, a businessman might sell stocks and bonds to fund expansion, refurbish or update equipment, or whatever else. The idea is to use any money borrowed to increase future productivity. These are real investments in the future of an economy; they forego consumption today for more tomorrow. But it seems to me that many foreigners were investing in mortgage backed securities and government bonds. For the economy as a whole these represent malinvestments, and therefore, a burden.
Sure the investors get paid back by the government (so far), but how often is that money spent increasing future productivity? And the real cost is everything that private businesses could have achieved with the same resources.
Real investment has to compensate for the burden and waste of government debt to keep future output high. By "investing" in the U.S. Government, foreigners have actually harmed the U.S. economy in the long run, by redirecting capital assets to wasteful government programs and away from real investment in the private sector.
The current expansion of corporate welfare is demoralising, and its support by those who have for years decried Bush's corporatism is sickening.
Some people seem to think about the economy like the hull of a ship, and these failing companies are holes which need to be plugged. The implication is that unless such action is taken the entire ship will eventually sink. But this is nonsense. The U.S. Government has undermined the hull's integrity. It is like a sponge with water seeping in everywhere. Pressing down to stop the flow of water in one place will just redirect it to come out somewhere else.
Prices are messengers about economic realities. When reality changes, prices change to convey a new message. But this relation does not work in both directions: changing prices does not create a corresponding change in reality. When the government stresses the importance of "stabilising prices", they are trying to prevent prices from signalling a change about the real economic situation.
The discrepancy between reality and prices will keep growing, and create even more malinvestments and misallocation of resources. By way of these bailouts to auto industry and banking institutions, they are sending the false signal to hire more people and redirect more resources toward these failing industries. It is the economic equivalent of going insane, as your perception of reality grows ever more distant from the actuality.