The Great Depression Online

Great Depression Online Archive Issue:

Ain't Worth a Darn

Great Depression Online
Long Beach, CA
January 16, 2009

Inside This Issue You Will Discover…

*** Gunning for a $2 Trillion Deficit in 2009
*** Hardly a Bust Worthy of Mention in 25 Years
*** Ain’t Worth a Darn
*** And More

Gunning for a $2 Trillion Deficit in 2009

“Stimulus dusts off an old theory,” began a headline splattered across the front page of last Sunday’s Los Angeles Times.

This bit of misinformation was followed by, “Keynesian economics, long thought outdated, is pivotal to Obama’s spending plan.  It may be the only option.”

Since when has Keynesian economics been thought outdated is the obvious question for anyone who remembers what it is?

Naturally, the fundamental tenet of Keynesian economics is deficit spending.  And naturally the U.S. Government’s been running budget deficits practically nonstop for nearly 50 years.  In fact, they’ve been spending more than they tax for so long they’ve managed to run the national debt up to over $10.6 trillion.

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So, in effect, the stimulus plan will be more of the same.  But instead of a rinky-dink $455 billion like in 2008, the Obama team’s gunning for a 2009 deficit of $2 trillion.

Will it work to stimulate the economy?

You’ll find the answer further down the page.

But first, the LA Times is wrong again…Keynesian economics is not the only option.  Of course, mad applications of fiscal policy aren’t the only thing you can count on the brain trust to deliver…monetary policy’s run amok too.

Hardly a Bust Worthy of Mention in 25 Years

Milton Freidman was a clever fellow.  For he was able to see that government spending was not the solution to economic ailments at a time when nearly all economists were Keynesian zealots.  Moreover, he argued that government spending wasn’t the solution at all…but rather that it was the problem.  In its place, he pitched a different theory…monetarism.

Government spending, he theorized, wasn’t the steadfast economic engine everyone thought it was.  To the contrary, he concluded, it was private enterprise.  But sometimes, nonetheless, private enterprise needs a carrot dangled in front of its face to keep driving economic growth up and to the right.

When the economy sputters, a little easy credit, via the lowering of the federal funds rate, is what’s needed to grease the gears and lube up the cranks to get things revving again.  Then, once the economy’s racing back down the road, rates can be gradually raised to balance it all out. 

For the last 25 plus years U.S. Central Bankers have implemented Freidman’s theory with excellence…the U.S. economy’s enjoyed boom after boom with hardly a bust worthy of mention.

Yet several peculiar things have happened along the way.  Public and private debt has exploded.  And with each interest rate cycle, the booms are at a diminishing and ever more anemic return.  True economic growth based on capital investment and production has been exchanged for bubble based asset price increases and credit based consumption.

Ain’t Worth a Darn

Now after all these years of budget deficits and easy credit…piling on more of both seems to have lost its magic.  The Fed and the Treasury have opened the flood gates of fiscal and monetary policy, yet the jobs and credit sap out like molasses in February.

The government’s budget deficit for the first quarter of the 2009 fiscal year has already topped that of all 2008 and the federal funds rate is at the ridiculous interest of 0 percent.

What good are government fabricated jobs, if the private sectors shedding jobs at an ever faster rate?

What good’s credit, if no bank’s willing to lend? 

And what good’s credit to the average householder who already has too much of it and is buried in debt? 

You know the answer…

It ain’t worth a darn.


M.N. Gordon
Great Depression Online

P.S.  Don’t miss these startling new forecasts for 2009 – a wind-powered car, oil prices at $160 per barrel, and a dramatic +100% rebound in shipping stocks.  Check out all 11 Surprising Investment Predictions for 2009 here: 11 Surprising Investment Predictions for 2009.


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