Mitch McConnell Says Stimulus Package Won't Work

[Diuretic]

I thought as much. It's about ideology.

Out with Orthodoxy. Friedman's critics hold that his theory is too simplistic to guide complex economies. They believe that by calling for an inflexible system of monetary growth, he would deprive policymakers of their discretionary powers to adjust money to meet changing conditions. But even such an opponent as M.I.T.'s Paul Samuelson pays Friedman a barbed compliment. "Strong ideology drives out the weak," he says, paraphrasing Gresham's law, "and Friedman has the strongest ideology around."

This is in the TIME article from 1969

THE NEW ATTACK ON KEYNESIAN ECONOMICS - TIME

It looks very much as if Friedman's ideas began to take hold in the late 1960s and possibly early 1970s. Somehow his ideology was taken seriously and so the movement to denounce Keynesianism began. Once Keynesianism was out of the way then the Chicago mob, sorry "school", could take over. There you are - and this is the result of it.

Robert Skidelsky comments on this in some book reviews on his website. Here's an extract

Morris, an American lawyer and investment banker, seems to have anticipated the present credit crunch for some years. His book, The Trillion Dollar Meltdown, is the best account I have read of its genesis, written before the crunch had become global. In part, it is the story of financial innovation carried to self–destructive excess. At the same time, Morris unwittingly exposes the flaw in the financial system: it was too complicated for anyone but a professional investor to understand. This is also a problem with his book. Though it is excellently written, and full of arresting thoughts and phrases ("Intellectuals are reliable lagging indicators, near–infallible guides to what used to be true"), the world of financial legerdemain which it reveals is simply too opaque for the averagely well–educated reader to understand.

The credit crunch, originating in the American subprime mortgage crisis of 2007 and then spreading out to the global banking system, had its origins in a gigantic credit bubble. How did this arise? Morris identifies three enabling conditions. The first was the coming to power of the Chicago School of economists, with its deregulating philosophy. A key deregulating move was the repeal in 1999 of the Glass–Steagall Act of 1933, which aimed to separate retail from investment banking. "While Keynesians prayed to the idol of the quasi–omniscient technocrat, the Friedmanite religion enshrined the untrammelled workings of free market capitalism". The second condition was what he calls the "Greenspan put". Denouncing a "new paradigm of active credit management", Alan Greenspan, Chairman of the Federal Reserve from 1987 to 2006, held the Federal funds rate down to 1 per cent from 2003 to 2005 as the economy went into overdrive. His message to the market was: no matter what goes wrong, the Fed will rescue you by creating enough cheap money to buy you out of your troubles. The third condition was what Morris calls a "tsunami of dollars" – the result of America’s huge trade deficits, financed largely by East Asia. It was Chinese savings invested in US Treasuries which enabled Greenspan to keep the interest rate at 1 per cent for thirty months. "America’s housing and debt binge was made in China.”

It was in this regime of deregulated markets, cheap money and Asian–financed consumption demand that leveraged (debt–dependent) finance took off. The stages in the rake’s progress were the junk bond explosion of the 1980s, the development of mortgage–backed securities or "pass throughs", the creation of portfolio insurance to "manage" the extra risk, and the sprouting of hedge funds to buy up the riskiest debt and sell it to wealthy speculators. Credit agencies fed the bubble by giving bonds containing "toxic waste" triple–A ratings. Morris does not decry the value of all this financial engineering. But the new investment instruments, while hugely enlarging credit facilities by spreading risk, suffered from dangerous flaws only revealed in moments of stress. A small number of institutions – global banks, investment banks, hedge funds – built an unstable tower of debt on a tiny base of real assets. So long as a cheap–money regime forestalled defaults, the tower might wobble but stay erect. A rise in interest rates from 2005 onwards brought it crashing down. Morris comments tartly: "Very big, very complex, very opaque structures built on extremely rickety foundations are a recipe for collapse". His forecast of a "true shock–and–awe surge of asset write downs through most of 2008" proved to be all too accurate.

What needs to be done? The key requirement is to restore effective oversight of the financial services industry. Morris makes the excellent point that banks make high profits by taking large risks, but their losses are partly socialized. Banks cannot be both public utilities and risk–taking institutions. If the taxpayer is to be liable for losses, through deposit insurance or bail–outs, then risk–taking by banks must be severely limited. This points towards restoring some version of the old Glass–Steagall Act

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Robert Skidelsky - Book Review: On the threshold - of what?

 

[Kevin_Kennedy]

The Chicago school mainly pays lip service to free markets, and Keynesianism hasn't been dumped since it's inception. The government has spent massively since the New Deal to this day, and if government spending was the key to getting us out of a recession we never would have gotten in this one in the first place.

Milton Friedman Unraveled

 

[ScreamingEagle]

The Chicago school mainly pays lip service to free markets, and Keynesianism hasn't been dumped since it's inception. The government has spent massively since the New Deal to this day, and if government spending was the key to getting us out of a recession we never would have gotten in this one in the first place.

Milton Friedman Unraveled

Right, how come Bush's spending led us into this problem? Guess he didn't spend enough....

Didn't democrats complain about Bush’s spending? How he "used up" the surplus? Yet now they turn around and spend more in one month than Bush ever dreamed of spending. Plus put us into backbreaking debt. It seems whichever party in control just can’t help itself…I think politicians only latched onto Kenesianism as a handy excuse for their excessive spending…

Regarding Chicago politics (or most any politics)….I think this pig slop bill is largely to pay for the “stimulus” of drumming out the needed vote…as reward for both now and later….notice how much of the “stimulus” won’t be spent for a couple years after the 2010 election….seems they're holding back some for arm-twisting later…

POWER is the name of the game...

 

[Truthmatters]

File:US Employment Graph - 1920 to 1940.svg - Wikipedia, the free encyclopedia

This will work just like the new deal did.

Look at this graph and realize FDR took office in 1933. He backed off the new deal in 1937 at the request of the Rs and had to reinstate it the next year.

The new deal saved this country.

 

[Skull Pilot]

annnttt!

wrong answer

so tell us how this pork is different from the Japanese pork except for the fried rice that is.

You don't have to go back to FDR to see examples of this type of government waste, just go back to the 1990s and japan

 

[ScreamingEagle]

File:US Employment Graph - 1920 to 1940.svg - Wikipedia, the free encyclopedia

This will work just like the new deal did.

Look at this graph and realize FDR took office in 1933. He backed off the new deal in 1937 at the request of the Rs and had to reinstate it the next year.

The new deal saved this country.

Was it really the New Deal or the fact that the US went off the gold standard in 1933?

I believe FDR created an "inflation boom". Unemployment was still around 15%. And notice the dip in 1939. That was the first time there was ever a recession during a depression....

 

[Skull Pilot]

Mtich McConnel wouldn't know his ass from a hole in the ground. Want to bet he hasn't even read the plan except for a summary.

I bet that makes him no different than a large contingent of the senate and the house