Well, Willem Buiter, a well known economist, thinks the bird coming home to roost is a major problem. He also thinks the fiscal stimulus is only temporary relief, not a cure. I tend to agree with him for the most part (if that counts for anything). I tend to think the bird coming home to roost will not be as severe as he anticipates. He thinks U.S. dollar denominated assets will implode and the U.S. will no longer be able to turn to our friends around the world to finance our stimulus ways. I think too many other countries have their economies tied to us for them to let that happen to the extreme he thinks, but I do expect countries like China to start spending more money on their own problems domestically than on supporting our needs, though supporting ours tends to help with theirs (in the wrong way).
Nonetheless, I do agree that the dollar will devalue and our fiscal stimulus is not going to work too well. All it is doing is trying to stop the inevitable, which is a shift in our economy to a more practical way of living, i.e. one not based upon debt to finance a living standard. Part of what I liked about the Obama plan was my belief that the spending, on the way it was intended to be spent, would at least get us some bang for our buck and lessen job losses, i.e. the pain. I do not expect it to fix the problem, just lessen the pain. But if Buiter is right, spending this much at this time is only adding to an already massive mess. He could be right.
There is a lot more in this piece, including his statements on economics generally. He seems to readily admit economists are wrong on a regular basis and to some extent they are simply trying to get things less wrong as time goes on. Interesting perspective for an economist.
This is a somewhat long piece but worth the read, especially if you are someone that means something in terms of the stimulus plan. Best to understand the ramifications, or at least possible ramifications, before we act. I am attaching Yves summary from Naked Capitalism that distills the piece better, but if you are truly interested in this area, the original read is worth the time.
http://www.nakedcapitalism.com/2009/01/willem-buiter-calls-for-less-us.html
I mentioned above that I am not as thrilled now with the Obama Plan. It appears that a major part of the plan, roughly 40%, may now come in the form of a tax rebate. Raise your hand if you do not want money in the mail? I see no hands. Okay, raise your hand if you want your own tax dollars back to you in the mail knowing you will have to pay them back again later? Still seeing no hands. Okay, raise your hand if you know a lot of the tax rebate will perhaps go to companies that have never made a profit and but for lax credit would have likely folded years ago, again money you will need to repay later in taxes? Hands? Anyone? Bueller?
Whether or not it is a desire to bring Republicans on board, as Yves notes, putting over $300 billion of these precious dollars on tax refunds is foolish. Especially if the goal is stimulus, there are better ways to spend your money. And if you buy into Buiter's logic above, this is truly stupid. Then again, to the extent it goes to individuals, probably 75% plus goes to pay down debt and to increase savings, so we are just returning it to ourselves for a few years until we have to pay it back in taxes. I recommend, by the way, that you save it or use it to pay off debt and not on spending. This is a painful adjustment but it is a necessary adjustment and things will be quite painful. You will need those dollars down the road more than today, unless you are just using it for necessities. Long story short, the plan gets worse by the day.
I am still seeing this as long and nasty. I expect no real relief before 2010 and that is getting increasingly remote. The potential for this to spiral downward in a dangerous way is increasing in my opinion. You are certainly reading different expectations elsewhere. I hope they are right and I am wrong. Those who are reading me to date feel free to keep score.
http://www.nakedcapitalism.com/2009/01/obama-considering-310-billion-tax-cut.html
There is one thing that I think could eliminate at lot of the pressure on the system right now, however, that is an important part of my pessimism. Companies, and I mean well run companies that did not get us into this mess, need regular credit for day-to-day activities. The financial institutions that are not lending need to get their collective CEOs together in a room with no windows and agree to start lending overnight - all of them. Limit it to good companies if you must but LEND THE MONEY!! If you all do it and agree to do it, it will work to all your collective benefit. By letting businesses fail because of a lack of credit you are only worsening the toxic waste already on your books and making your own recovery much slower. Stop waiting for the other guy to take the first step. Just a suggestion. Wonder what Paulson is suggesting behind closed doors.
Not Big News
Car sales still down - big time. Not a big surprise. Chrysler is down 53% from a year ago. I think some used car lots sell more vehicles than this.
http://www.nakedcapitalism.com/2009/01/obama-considering-310-billion-tax-cut.html
Bubblemeister
Here is a thought I just had. Obama should add another Cabinet post called Bubblemeister. The job would solely be to arm a small team of financially oriented souls whose sole purpose is to identify building bubbles and recommend ways to deflate them before they become a problem. Greenspan would call this foolhardy, but Greenspan drove the bus that got us here, so he fell off of my recommended list a long time ago. I am halfway serious here. Some federal department or agency really does need a committee or at least an individual with a red button to push when a bubble is building and recognized. And let's give them a big pin.
Disclosures: None
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