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How Keynesian US actually is, or can be?

There will be no happy "recapitalize and privatize" ending to this saga. The bill to the taxpayer is now growing rapidly - along with GSE [Government Sponsored Gnterprises] exposure - and will balloon into the trillions over the coming years and decades. And for how long the holders of GSE debt and MBS [Mortgage Backed Securities] will be allowed such handsome returns at taxpayer expense is a quite intriguing question.

I also read and hear too much about the continued need for "Keynesian" stimulus. Regrettably, the system has been in non-stop government (fiscal and monetary) stimulus mode for years now. It may have been indirect at the time, but it is now apparent that GSE obligations should be included today right along with debt owed directly by the Treasury.

Before all is said and done, the taxpayer will also be on the hook for enormous losses from various federal guarantees of deposits, student loans, pensions, and the like. The bottom line is that a whole range of direct and indirect federal guarantees - especially since the 2001/02 recession - have played an integral role in spurring credit and economic bubbles. "Keynesian" ammunition - fired way too early and freely in order to sustain multiple bubbles - has definitely buoyed the US bubble economy, although such measures will have only limited effect down the road when they're sorely needed.

This author may be right the US economy was in non-stop stimulus mode for years, though that "bubble" stimulus was far from Keynesian. How much Keynesian "ammunition" was inside the bubbles? What would Keynes would do now?

by das monde on Thu Sep 4th, 2008 at 04:32:19 AM EST

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