Obama Stimulus Not Necessary, as This Is No Great Depression

[Charles_Main]

History shows doing too much for the economy, not too little, is the danger, Clark S. Judge writes
By Clark S. Judge
Posted February 6, 2009

Clark S. Judge is managing director of the White House Writers Group Inc. in Washington and chairman of Pacific Research Institute in San Francisco.

Milton Friedman had a rule: Increases or decreases in the money supply take six to nine months to alter economic output and as much as two years to move prices. As the Senate takes up the president's stimulus package, the administration argues that, to avert another Great Depression, it is better to do too much than too little. But a Friedmanesque look at today and the 1930s tells a different story: The analogy with the Depression is wrong; the current downturn may be all but over; and doing too much, not too little, is the real danger.

Start with the Depression. Two catastrophic American policy mistakes triggered the global downturn: congressional passage of the protectionist Smoot-Hawley tariff bill (producing overseas retaliation and a contraction of international trade) and the Federal Reserve's squeezing of the money supply.

Both Herbert Hoover and Franklin Roosevelt responded vigorously to the crisis, but neither understood these seminal blunders. Monetary policy remained constricted until World War II, with reform an accidental byproduct of financing the conflict. Not until the first postwar multilateral trade agreement in 1948 did trade barriers start to fall. Instead, to finance expanded budgets, both Hoover and Roosevelt increased taxes, while Roosevelt preempted more efficient private investment with direct government spending on industry (particularly in the electrical power industry) and promiscuously prosecuted business people. These policies worsened and prolonged the downturn.

The current crisis's origin is simpler than the Depression's, and the recently departed Bush administration's response more apt than that of the administrations of the '30s.

Ours is a crisis of monetary aggregates. In mid-2007, a large class of securities—first thought to be packages of mortgages, later understood to include all so-called derivatives—was found to be fundamentally flawed. As the value of these instruments started to fall, the reserves of institutions heavily invested in them fell too. Those institutions included banks, but also firms and funds functioning as banks though not covered by the banking laws. The result was a suddenly much smaller quantity of base money.

Every Economics 101 student learns that base money is composed of currency plus bank reserves, with lending on top of the base making up the rest of the money supply. When reserves shrank, so did all lending. Commercial paper and other derivative-driven markets seized up. Banks wouldn't do business with each other. The structured-finance markets (major drivers of U.S. lending) ceased functioning.

Here is where Milton Friedman's rule begins to apply.

Unlike U.S. policy in the '30s, the 2008 Treasury and the Federal Reserve attacked the problem at its source. The Fed added more than $1.1 trillion in new facilities to its balance sheet. Each facility was designed to restart the markets for one or another of the troubled classes of assets, strengthening the balance sheets of institutions holding those assets. To supplement these efforts and to augment bank reserves directly through preferred stock purchases, the Treasury received authority to commit up to $1.5 trillion—about a quarter of which had been deployed when the new administration took office. Nonbanks acting as banks were brought under the banking laws where legal authority existed to shore them up too. Currency, bank reserves, assets underpinning bank reserves: Every component of base money was addressed. The question now is, how much is enough—or too much?

In 2007, a dollar of M1—base money plus demand deposits—supported 10 dollars of gross domestic product, up from $6.30 of GDP in 1993. Allowing for 3percent growth from mid-2008, a healthy GDP in 2009 would total about $14.8 trillion. If you put the new money in the Fed balance sheet and the Treasury's emergency spending on top of the midyear total, M1 would need to support only $5.30 of GDP to achieve that 2009 target. This is the lowest ratio of GDP to M1 the United States has seen since the early 1970s. New perceptions of risk certainly mean that fewer dollars will be lent on each dollar of M1 for the foreseeable future. But even accounting for that change, it is very likely that enough has been added to the base to restore economic activity.

Following Milton Friedman's rule, the severe downturn of the last three months of 2008 almost certainly originated in the monetary events of January through May when, among other things, the structured finance markets went dead and Bear Stearns folded. By the same rule, following the massive actions the Treasury and Fed took between September and December last year, the economy should rebound between May and September this year.

Full Article here Obama Stimulus Not Necessary, as This Is No Great Depression - US News and World Report

 

[driveby]

Right , anyone with half a brain know that they're just trying to sneak one by us with this "stimulus" bill......

 

[jillian]

because we should sooooooo listen to the people who've been wrong for the last eight years.

 

[driveby]

What "people" would they be ?

 

[Kevin_Kennedy]

because we should sooooooo listen to the people who've been wrong for the last eight years.

I agree, we definitely shouldn't listen to those that have been wrong. Which begs the question, why do you still support Keynesian policies?

 

[auditor0007]

I don't have a problem pumping a little extra money into infrastructure to help get the ball rolling. Unfortunately, that is not what this stimulus package is about. Infrastructure spending is only around 5% of the total package. The rest is just throwing money into the economy which will most likely lead to high rates of inflation. As the purchasing power of the dollar falls, more jobs will be lost, and we'll be in real trouble.

At this point, I think they should just scrap the whole damn package and worry about making certain that capital is available. We're not going to walk out of this recession quickly no matter what we do. I'd prefer that we don't make things worse.

 

[Agnapostate]

I agree, we definitely shouldn't listen to those that have been wrong. Which begs the question, why do you still support Keynesian policies?

I find myself again repeating the fact that Keynesianism, for all its faults, is at least preferable to other capitalist variants in that it has the effect of preventing stagflation, whereas unchecked capitalism will inevitably result in market concentration.

Regardless, the references being made of the New Deal being Keynesian are odd, to say the least. As insightfully noted by Herbert Stein, "it is possible to describe the evolution of fiscal policy in America up to 1940 without reference to [Keynes]....y the outbreak of the war a large part of the fiscal revolution had already occurred. It was accepted policy that we would run deficits in depressions, that we would not raise taxes in depressions in an attempt to balance the budget."

 

[realdiversity1]

There is an interesting discussion about the bailout (not so much the stimulus) and the need for accountability at nothoughtpolice.blogspot.com

 

[Neubarth]

Again, I will defer to anybody who has had some economic study or training. All I know is what I have read in the papers.

What I have seen in the papers (or on the Internet) is that the rate of decline is very steep. WE are losing jobs at a faster clip than any time in history. (Rate of job loss as opposed to the precent of lost jobs.)

What I have seen in the papers is that the Service Sector collapse is just now beginning to be felt. Even though we are the largest manufacturing country in the world, over half of our economy is service sector. A service sector economy is a house of cards waiting to come tumbling down . It is starting. How bad can it get. I have heard speculation that we could see 22% 29% and even 33% unemployment. If that happens, there will be riots in the cities all across America. History tells us that. I don't need to read it in the papers.

 

[mash107]

because we should sooooooo listen to the people who've been wrong for the last eight years.

Yes, so let's not listen to Keynesians!

 

[Charles_Main]

because we should sooooooo listen to the people who've been wrong for the last eight years.

Is this the person you are referring to who has been wrong for 8 years? Nobody is saying do what the Republicans want. For gods sake they helped get us in this mess. What we are saying is what you guys want to do is not the answer.

You people are blindly rushing toward economic disaster in total disregard for history.

 

[Garinold]

I am not an authority on macro-economic analysis. However, what I have observed coming from the President, and being advocated for by politicians on the left, is a fundamentally flawed disconnect between how this mess has come about, and what actually needs to be done to remedy the situation.

Generally speaking Obama and the Democrats blame the Bush administration for the mess we are in because of lax regulations, and greedy Wall Street CEOs were out of control. When you listen to the proposed solutions from Obama and the Democrats for the problems we face, they generally reflect the line of thinking found in the underconsumption thesis where it is believed that recessions & depressions are caused be inadequate consumer demand & purchasing power. The remedy for recessions & depressions if you are an advocate for the underconsumption thesis is for the Gov't to step in with stimulus packages which always seem to involve significant deficit spending.

Look for "Obama News Conference on U.S. Economy" to see some of his underconsumptionist rhetoric (I can't post links to outside sites until after...15 posts)

You can make the argument that there is need for a stimulus package for the sake of infrastructure. As it has been mentioned before however, that isn't exactly what this stimulus package does. Furthermore, what is more dangerous is the fact that the underconsumption thesis line of thinking used to justify this stimulus package is completely out of line with what actually has cause this economic mess. The problems we face in this economy were not created by lack of consumer purchasing power. It can be argued that problems began when people were buying houses they couldn't afford. I know of one woman that purchased a $700,000 house, who had three kids, on an annual income of only $40,000. You could say, maybe if she had the 700k there wouldn't be a problem, but that is missing the point. If you research consumer spending statistics you will find consumer spending declining well after the problems began (you can check consumer spending statistics here ww.bls.gov). It is clear to me that lack of consumer spending isn't the root cause.

In conclusion if you accept the premise that the root causes of the economic problems we face today stem directly from people buying houses they couldn't afford, leading to the epidemic creation bad adjustable rate mortgages, and the securitization & circulation of those mortgages through our financial sector, then it simply doesn't make sense for you to advocate for a solution that only addresses inadequate consumer demand, and may actually create more problems by devaluing the dollar further, and driving up the overall deficit.

We should be having a debate regarding the future of regulations in the financial sector. We should debate how certain regulations help cause the problem (The Community Reinvestment Act comes to mind), and we should debate why certain lack of enforcement of existing regulation, as well as inadequate regulations in other areas helped lead to the problems.

 

[Terry]

Garinold, you will not get an honest discussion from any progressive here because that would mean they have to own up to the fact that Clinton was the one who lays claim to the Community Reinvestment Act (but of course the Rep sure didn't recend it) they rather place their fingers in their ears and sing "lalalalalalalala I cannot hear you" or it will be Bush this, Bush that.

You see I haven't met an honest liberal here yet or on any message board that owns up to anything they find their "TEAM" has made an error on. In order for any true solution one must admit to that mistake and put personal agenda's on the shelf.

This Country is totally messed up, and yes that TARP that Bush passed and all the spending the drunken Rep did were repulsive to me. This is why they lost seats and yet the Dems think they can do the same and hold their seats.

We are the Country of "Narcisist"

 

[Iriemon]

I am not an authority on macro-economic analysis. However, what I have observed coming from the President, and being advocated for by politicians on the left, is a fundamentally flawed disconnect between how this mess has come about, and what actually needs to be done to remedy the situation.

Generally speaking Obama and the Democrats blame the Bush administration for the mess we are in because of lax regulations, and greedy Wall Street CEOs were out of control. When you listen to the proposed solutions from Obama and the Democrats for the problems we face, they generally reflect the line of thinking found in the underconsumption thesis where it is believed that recessions & depressions are caused be inadequate consumer demand & purchasing power. The remedy for recessions & depressions if you are an advocate for the underconsumption thesis is for the Gov't to step in with stimulus packages which always seem to involve significant deficit spending.

Look for "Obama News Conference on U.S. Economy" to see some of his underconsumptionist rhetoric (I can't post links to outside sites until after...15 posts)

You can make the argument that there is need for a stimulus package for the sake of infrastructure. As it has been mentioned before however, that isn't exactly what this stimulus package does. Furthermore, what is more dangerous is the fact that the underconsumption thesis line of thinking used to justify this stimulus package is completely out of line with what actually has cause this economic mess. The problems we face in this economy were not created by lack of consumer purchasing power. It can be argued that problems began when people were buying houses they couldn't afford. I know of one woman that purchased a $700,000 house, who had three kids, on an annual income of only $40,000. You could say, maybe if she had the 700k there wouldn't be a problem, but that is missing the point. If you research consumer spending statistics you will find consumer spending declining well after the problems began (you can check consumer spending statistics here ww.bls.gov). It is clear to me that lack of consumer spending isn't the root cause.

In conclusion if you accept the premise that the root causes of the economic problems we face today stem directly from people buying houses they couldn't afford, leading to the epidemic creation bad adjustable rate mortgages, and the securitization & circulation of those mortgages through our financial sector, then it simply doesn't make sense for you to advocate for a solution that only addresses inadequate consumer demand, and may actually create more problems by devaluing the dollar further, and driving up the overall deficit.

We should be having a debate regarding the future of regulations in the financial sector. We should debate how certain regulations help cause the problem (The Community Reinvestment Act comes to mind), and we should debate why certain lack of enforcement of existing regulation, as well as inadequate regulations in other areas helped lead to the problems.

I agree the financial seizure was caused by the housing crash and poor mortgage practices and your concluding paragraph.

But as a result of that, we are experiencing a recession that includes underconsumption now. Many have purchaing power, but they aren't applying it.

 

[Garinold]

I am not an authority on macro-economic analysis. However, what I have observed coming from the President, and being advocated for by politicians on the left, is a fundamentally flawed disconnect between how this mess has come about, and what actually needs to be done to remedy the situation.

Generally speaking Obama and the Democrats blame the Bush administration for the mess we are in because of lax regulations, and greedy Wall Street CEOs were out of control. When you listen to the proposed solutions from Obama and the Democrats for the problems we face, they generally reflect the line of thinking found in the underconsumption thesis where it is believed that recessions & depressions are caused be inadequate consumer demand & purchasing power. The remedy for recessions & depressions if you are an advocate for the underconsumption thesis is for the Gov't to step in with stimulus packages which always seem to involve significant deficit spending.

Look for "Obama News Conference on U.S. Economy" to see some of his underconsumptionist rhetoric (I can't post links to outside sites until after...15 posts)

You can make the argument that there is need for a stimulus package for the sake of infrastructure. As it has been mentioned before however, that isn't exactly what this stimulus package does. Furthermore, what is more dangerous is the fact that the underconsumption thesis line of thinking used to justify this stimulus package is completely out of line with what actually has cause this economic mess. The problems we face in this economy were not created by lack of consumer purchasing power. It can be argued that problems began when people were buying houses they couldn't afford. I know of one woman that purchased a $700,000 house, who had three kids, on an annual income of only $40,000. You could say, maybe if she had the 700k there wouldn't be a problem, but that is missing the point. If you research consumer spending statistics you will find consumer spending declining well after the problems began (you can check consumer spending statistics here ww.bls.gov). It is clear to me that lack of consumer spending isn't the root cause.

In conclusion if you accept the premise that the root causes of the economic problems we face today stem directly from people buying houses they couldn't afford, leading to the epidemic creation bad adjustable rate mortgages, and the securitization & circulation of those mortgages through our financial sector, then it simply doesn't make sense for you to advocate for a solution that only addresses inadequate consumer demand, and may actually create more problems by devaluing the dollar further, and driving up the overall deficit.

We should be having a debate regarding the future of regulations in the financial sector. We should debate how certain regulations help cause the problem (The Community Reinvestment Act comes to mind), and we should debate why certain lack of enforcement of existing regulation, as well as inadequate regulations in other areas helped lead to the problems.

I agree the financial seizure was caused by the housing crash and poor mortgage practices and your concluding paragraph.

But as a result of that, we are experiencing a recession that includes underconsumption now. Many have purchaing power, but they aren't applying it.

Underconsumption is an issue now. Underconsumption is always an issue in times of recession and depression, however what I am disputing is that the facts the surround past recessions and depressions, as well as the problem we face today, show that underconsumption is not the root cause.

Furthermore, if you look at three major problems in the economy; weak financial sector, the big three going bankrupt, major housing foreclosures & slumming housing prices, I don't believe raising the national debt to epic proportions by sending every family in America a few checks & tax credits for a few hundred dollars over an extended period of time is going to stabilize the financial sector, make the big three competitive in the global market place, and somehow stop massive foreclosures.

 

[Iriemon]

I am not an authority on macro-economic analysis. However, what I have observed coming from the President, and being advocated for by politicians on the left, is a fundamentally flawed disconnect between how this mess has come about, and what actually needs to be done to remedy the situation.

Generally speaking Obama and the Democrats blame the Bush administration for the mess we are in because of lax regulations, and greedy Wall Street CEOs were out of control. When you listen to the proposed solutions from Obama and the Democrats for the problems we face, they generally reflect the line of thinking found in the underconsumption thesis where it is believed that recessions & depressions are caused be inadequate consumer demand & purchasing power. The remedy for recessions & depressions if you are an advocate for the underconsumption thesis is for the Gov't to step in with stimulus packages which always seem to involve significant deficit spending.

Look for "Obama News Conference on U.S. Economy" to see some of his underconsumptionist rhetoric (I can't post links to outside sites until after...15 posts)

You can make the argument that there is need for a stimulus package for the sake of infrastructure. As it has been mentioned before however, that isn't exactly what this stimulus package does. Furthermore, what is more dangerous is the fact that the underconsumption thesis line of thinking used to justify this stimulus package is completely out of line with what actually has cause this economic mess. The problems we face in this economy were not created by lack of consumer purchasing power. It can be argued that problems began when people were buying houses they couldn't afford. I know of one woman that purchased a $700,000 house, who had three kids, on an annual income of only $40,000. You could say, maybe if she had the 700k there wouldn't be a problem, but that is missing the point. If you research consumer spending statistics you will find consumer spending declining well after the problems began (you can check consumer spending statistics here ww.bls.gov). It is clear to me that lack of consumer spending isn't the root cause.

In conclusion if you accept the premise that the root causes of the economic problems we face today stem directly from people buying houses they couldn't afford, leading to the epidemic creation bad adjustable rate mortgages, and the securitization & circulation of those mortgages through our financial sector, then it simply doesn't make sense for you to advocate for a solution that only addresses inadequate consumer demand, and may actually create more problems by devaluing the dollar further, and driving up the overall deficit.

We should be having a debate regarding the future of regulations in the financial sector. We should debate how certain regulations help cause the problem (The Community Reinvestment Act comes to mind), and we should debate why certain lack of enforcement of existing regulation, as well as inadequate regulations in other areas helped lead to the problems.

I agree the financial seizure was caused by the housing crash and poor mortgage practices and your concluding paragraph.

But as a result of that, we are experiencing a recession that includes underconsumption now. Many have purchaing power, but they aren't applying it.

Underconsumption is an issue now. Underconsumption is always an issue in times of recession and depression, however what I am disputing is that the facts the surround past recessions and depressions, as well as the problem we face today, show that underconsumption is not the root cause.

Well that is my point. The recession has moved beyond the root cause to a underconsumption fueled by credit freeze as well as fear. The stimulus has be designed to address both these issues.

Furthermore, if you look at three major problems in the economy; weak financial sector, the big three going bankrupt, major housing foreclosures & slumming housing prices, I don't believe raising the national debt to epic proportions by sending every family in America a few checks & tax credits for a few hundred dollars over an extended period of time is going to stabilize the financial sector, make the big three competitive in the global market place, and somehow stop massive foreclosures.

It is unfortunate that at a time when we really need to run a deficit, our previos leaders have left America in such a debt laden state. If we had paid the debt down a couple trillion over the past 8 years, the nation would be $4 trillion in debt now and a trillion dollar deficit wouldn't be a big deal.

But we have to deal with the America that mismanagment by our recent leadership has left us.

The issue is whether adding yet another trillion or two in debt is worse than the prospects of a severe recession/depression. I'm not convinced at all that it is.

The best hope is that confidence will return, people will stop sitting on cash and invest, and the real estate markets will stabilize and increase. That would be the best thing possible to shore up the shaky financial institutions.

There is signs that is happening, albiet slim. But then we have the out of power half trying to sabatouge the economy as much as possible, which doesn't help confidence.

Imagine if instead of the constant daily blather you get from the right about how terrible things are and how Obama is ruining the country, Rush and Sean and Mark and Mike were saying things are really looking better, the stimulus is going to work, etc? An increase in confidence of that 30% of the population that follows them would make of difference.

But that is not in their best interest, is it?

 

[Garinold]

The fact is there is nothing that you have just said the 1) Provides a sound fiscal justification for the stimulus package based upon the facts and circumstances we face today and 2) From a more academic perspective; provides a framework for why the underconsumptionist line of thinking is sound when dealing with a recession or a depression.

If you are feeling up to doing some math I challenge you to drop the rightwing bashing bs and answer some of the following questions:

1) How exactly is paying unemployed people an extra $25 per week and extending the time table for receiving benefits for an additional 5 months going to actually lower the unemployment rate?

2) How is giving a $500 tax credit to singles ($9 per week) and a $1,000 tax credit to couples (about $19 per week), going to keep people in their houses when they are tens of thousands of dollars, if not hundreds of thousands of dollars in debt and are being foreclosed on?

3) How are the above mentioned tax credits going to encourage people to go out and spend X thousands of dollars on a new or used car from the big three?

4) How is a one time only check of $250 to seniors collecting social security going to help pay healthcare bills and subsidize retirement?

5) How is an $8000 refundable credit for first time home-buyers going to stimulate demand to meet the supply of 1 out of every 9 homes being vacant (USA today report - "No one home: 1 in 9 housing units vacant")

6) How is $51 billion in tax relief for businesses going to make the big three viable and competitive in the global market place (this is kind of a no brainer since Chrysler already went bankrupt )

7) What part of this stimulus package is going to address the problems we face in the financial sector?

I have only hit the very tip of the tip of the iceberg. I can go on and on siting different appropriations in this stimulus package that will do very little to 1) stimulate this economy and 2) Actually address the problems facing the housing market (sorry $4.1 billion to the Department of Housing and Urban Development isn't going to help anyone..including the person the bought the $700,000 house on an income of $40,000), the financial sector, or the auto industry.

In conclusion: I scarcely believe you can come up with a justification for its implementation to remedy our problems based on historical argumentation, statistical analysis, or any form of comprehensive economic analysis. It doesn't spend money in the right areas, and even if it did the fundamental problem is that a stimulus package isn't going to address the problems that caused this mess.

 

[mash107]

I agree the financial seizure was caused by the housing crash and poor mortgage practices and your concluding paragraph.

But as a result of that, we are experiencing a recession that includes underconsumption now. Many have purchaing power, but they aren't applying it.

Underconsumption is an issue now. Underconsumption is always an issue in times of recession and depression, however what I am disputing is that the facts the surround past recessions and depressions, as well as the problem we face today, show that underconsumption is not the root cause.

Well that is my point. The recession has moved beyond the root cause to a underconsumption fueled by credit freeze as well as fear. The stimulus has be designed to address both these issues.

Furthermore, if you look at three major problems in the economy; weak financial sector, the big three going bankrupt, major housing foreclosures & slumming housing prices, I don't believe raising the national debt to epic proportions by sending every family in America a few checks & tax credits for a few hundred dollars over an extended period of time is going to stabilize the financial sector, make the big three competitive in the global market place, and somehow stop massive foreclosures.

It is unfortunate that at a time when we really need to run a deficit, our previos leaders have left America in such a debt laden state. If we had paid the debt down a couple trillion over the past 8 years, the nation would be $4 trillion in debt now and a trillion dollar deficit wouldn't be a big deal.

But we have to deal with the America that mismanagment by our recent leadership has left us.

The issue is whether adding yet another trillion or two in debt is worse than the prospects of a severe recession/depression. I'm not convinced at all that it is.

The best hope is that confidence will return, people will stop sitting on cash and invest, and the real estate markets will stabilize and increase. That would be the best thing possible to shore up the shaky financial institutions.

There is signs that is happening, albiet slim. But then we have the out of power half trying to sabatouge the economy as much as possible, which doesn't help confidence.

Imagine if instead of the constant daily blather you get from the right about how terrible things are and how Obama is ruining the country, Rush and Sean and Mark and Mike were saying things are really looking better, the stimulus is going to work, etc? An increase in confidence of that 30% of the population that follows them would make of difference.

But that is not in their best interest, is it?

It is overconsumption that led us here, though. We must underconsume to rebuild our savings and pay off our debts. If we continue overconsuming, we will be bankrupt. What would happen if you had $50,000 on credit cards but your spending habits didn't allow for you to pay off that debt? You'd have to cut spending substantially and deleverage or you'd be forced to declare bankruptcy. The same principle applies to a nation.

Confidence is not what makes an economy churn. I could be the most confident man in the world, but if I don't have an income, and I'm spending like crazy, I am going to be broke. We are in a recession not because of human behavior and psychology but because of human actions, and those actions that come from Washington tend to do the most damage.

 

[editec]

Milton Freedman's either a tool or a fool.

Anyone who believes that they can prescribe a single formula for what an economy needs -- one that suits every occassion! -- is either a damned fool or a lying tool.

Can any of us tell us exactly what every person needs on every occassion?

Of course not!

Well, then... why do any of us imagine that an economy's needs are less complex than an individual's?

To everything
There is a season
And a time for every purpose under heaven​

 

[Iriemon]

Underconsumption is an issue now. Underconsumption is always an issue in times of recession and depression, however what I am disputing is that the facts the surround past recessions and depressions, as well as the problem we face today, show that underconsumption is not the root cause.

Well that is my point. The recession has moved beyond the root cause to a underconsumption fueled by credit freeze as well as fear. The stimulus has be designed to address both these issues.

Furthermore, if you look at three major problems in the economy; weak financial sector, the big three going bankrupt, major housing foreclosures & slumming housing prices, I don't believe raising the national debt to epic proportions by sending every family in America a few checks & tax credits for a few hundred dollars over an extended period of time is going to stabilize the financial sector, make the big three competitive in the global market place, and somehow stop massive foreclosures.

It is unfortunate that at a time when we really need to run a deficit, our previos leaders have left America in such a debt laden state. If we had paid the debt down a couple trillion over the past 8 years, the nation would be $4 trillion in debt now and a trillion dollar deficit wouldn't be a big deal.

But we have to deal with the America that mismanagment by our recent leadership has left us.

The issue is whether adding yet another trillion or two in debt is worse than the prospects of a severe recession/depression. I'm not convinced at all that it is.

The best hope is that confidence will return, people will stop sitting on cash and invest, and the real estate markets will stabilize and increase. That would be the best thing possible to shore up the shaky financial institutions.

There is signs that is happening, albiet slim. But then we have the out of power half trying to sabatouge the economy as much as possible, which doesn't help confidence.

Imagine if instead of the constant daily blather you get from the right about how terrible things are and how Obama is ruining the country, Rush and Sean and Mark and Mike were saying things are really looking better, the stimulus is going to work, etc? An increase in confidence of that 30% of the population that follows them would make of difference.

But that is not in their best interest, is it?

It is overconsumption that led us here, though. We must underconsume to rebuild our savings and pay off our debts. If we continue overconsuming, we will be bankrupt. What would happen if you had $50,000 on credit cards but your spending habits didn't allow for you to pay off that debt? You'd have to cut spending substantially and deleverage or you'd be forced to declare bankruptcy. The same principle applies to a nation.

Confidence is not what makes an economy churn. I could be the most confident man in the world, but if I don't have an income, and I'm spending like crazy, I am going to be broke. We are in a recession not because of human behavior and psychology but because of human actions, and those actions that come from Washington tend to do the most damage.

You are correct we cannot continue borrowing, but there is a balance.

My point is that the problem we are experiencing in the economy is underconsumption, even if that was not the cause of it.

Business confidence is absolutely key to the economy. If people think things are going to get worse, they don't spend. If businesses think things will get worse, they don't hire. And down the spiral goes. If people think things will get better they spend and businesses hire.