... more potential than real, since in the middle of a free fall period of a recession, prudent banks ought not to be lending to firms and households that projection of current trends suggest could well not be credit-worth within six months to a year.

And since we have tried to construct a recovery on the bank of imprudent banking and it has been a massive fail, demanding imprudence from banks now seems to me to be a mistake.

We are, IOW, in precisely the kind of downturn that cannot be alleviated by monetary policy, and requires an effective safety net to limit the damage and strong stimulus to create a bottom to the recession.

Obviously, that bottom cannot be made the platform for a strong recovery based on strong income growth unless those activities capable of generating strong income growth are able to attract finance. But ... as we have seen ... just having liquidity is not enough for that. We also need to avoid having activities capable of generating strong income growth drowned out by a focus on appropriating existing income under the cover of creating fictitious wealth. And in any event, that means a functioning banking system for recovery at the trough to complement the recovery, not the false promise of a banking system that itself acts as the engine of growth.

Luckily for the global economy, either the US or the EU establishing a robust income-led recovery ought to suffice for a global recovery. OTOH, it is a bit nerve wracking for the global economy that neither the US nor the EU seem to be institutionally capable of pursuing the full policy package, with the EU likely to be able to maintain a more or less functional safety net, but institutionally incapable of pursuing an adequate stimulus, and an adequate stimulus still in the realm of possibility for the US, while the US seems institutionally incapable of providing a functionally adequate safety net.

If neither of those pan out, that would leave a global recovery to be hammered out between China and Japan, which would certainly be economically feasible ... but whether it is geopolitically and socioeconomically feasible, I haven't the faintest idea.

We seem to have been condemned to live in interesting times.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.