Joined: 28 Dec 2005
|Posted: Thu Feb 26, 2009 2:30 am Post subject: L-Shape Recovery - Achieving V-Shape Recovery
|It's ironic. The U.S. is creating the same situation Japan did during its "Lost Decade." Japan's fiscal policy was so expansionary, in the form of government spending, that it crowded out the private sector. Today, Japan has the highest government debt to GDP ratio of any developed country by far.
People don't understand the U.S. has been in a structural bear market since 2000. It's remarkable, in the 2000s, the U.S. had real asset booms, the real goods market expanded strongly, and living standards rose at a steeper rate than the '90s. I doubt there will be a third bubble, similar to 1995-00 and 2002-07.
Obama will likely achieve what he's attempting to avoid, i.e. a long-term L-shape recovery, that will look like Japan's "zig-zag" pattern in the '90s.
Oil would’ve likely reached $200 a barrel with appropriate economic policies in early 2009 to jolt the economy into a virtuous cycle of consumption-employment.
I stated in Feb ’09 [the tax cut should've been $5,000 per worker for the 150 million workers at the time or $750 billion]:
1. Obama should change his stimulus plan to a $2,000 tax cut per worker, along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets [i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc.]. This plan will have an immediate and powerful effect to stimulate the economy and strengthen the banking system. When excess assets and goods clear the market, production will increase.
2. Shift “toxic” assets into a “bad bank.” The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost “animal spirits,” and inflate toxic assets.
3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.