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Popping the asset bubble, the oil price spike, and the financial melt-down.

But a recession is a dynamic process, not a mechanical one ... in the current stage, its in free fall because its in free fall, and magically and instantly providing a functional, prudent banking system would not be enough of a boost to create a bottom.

Letting it find a bottom on its own gives the strongest likelihood of a low employment macroeconomic equilibrium.

Enough of the output gap has to be covered to create a bottom, and at that bottom, after the recognition lag, there have to be prospects for new income-creating activity.

Here in the US, that means we have over six months before we will really need to have have a fully functioning banking system again, able to create long term credit to finance long-term, self-funding real investment. And given the amount of Stimulus I wasted on tax cuts, that could easily require a Stimulus II.

Geithner and Treasury are, of course, frittering away the time we have in one last effort to prove that the Paulson Plan Mark III or Mark IV can at least work, so the open questions are how fast it will take the plan to fail, and whether a workable plan can be rammed through in the aftermath.


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

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 03:17:14 PM EST
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