Responding to the loss of Ted Kennedy’s Massachussetts Senate seat to Republican Scott Brown, Barack Obama is set to announce a three year discretionary spending freeze. (Note that military spending is apparently compulsory not discretionary.)
Nate Silver at FiveThirtyEight.Com thinks that the move is, politically speaking, a “brain freeze”. He also queries “the wisdom of curtailing government spending in the middle of a massive consumption deficit”.
Obama’s move will placate ‘Blue Dog Democrats’, including champion deficit hawk Evan Bayh of Indiana, whose seat is looking shaky. In a broader sense, it’s further evidence of the triumph of politics over economics, albeit in a somewhat different register; a return to a sort of pre-Keynesian mindset, or Maggie Thatcher’s petit bourgeois rhetoric of ‘household budgets’ without the monetarism.
Obama is basically saying that the stimulus fixed the economy, that there will be no further government support measures and that he’ll govern like a hybrid of John McCain and Herbert Hoover for the rest of his term to curry favor with the deficit maniacs.
Andrew Leonard at How The World Works:
If ever there was a time to pull out the old Karl Marx chestnut, “History repeats itself, first as tragedy, second as farce,” that moment is now. Prominent members of Obama’s own administration have warned against repeating the errors of 1937, namely, Franklin Roosevelt’s decision to cut spending and balance the budget too quickly, thus strangling a nascent recovery from the Great Depression. But with the U.S. economy far from healthy, the president has decided, once again, to bow to the political winds and make the deficit priority number one.
It’s also the effective decoupling of the US from the G20 stimulus agenda, and further proof that America is mired in the politics of domestic decline. What happens to a globalised economy when the globalisers opt out?
Incidentally, this is additionally the sort of policy u-turn the Coalition in Australia have long been advocating. If further sclerotic growth, or even a double dip recession in America, is the result, it won’t be without its ramifications for the political debate here.
Update: Robert Reich on how Obama’s political panic could ruin the economy.
Update: Michael Lind.
Update: Brad DeLong: This is such a disaster in the making.
Update: Krugman: Obama Liquidates Himself.
Update: Robert Reich on how Obama’s political panic could ruin the economy.
Cutting spending? Wow, perhaps he isn’t a lightweight after all?
This is just dumb. Paul Krugman’s going to have kittens. Everything they could be doing wrong, they are. And it’s completely inexplicable. These aren’t dumb people, so why are they going down such a dumb path?
The Democrats are letting the Republicans paint them as the party of Wall St over Main St. SatP @ 2 notwithstanding, this is not exactly a path to success. Worse, the defective reasoning behind a focus on inflation (which is effectively zero) and government spending (which is irrelevant) over a focus on job creation is economically counterproductive.
What a bloody shambles.
It’s all manner of dumb.
In a democracy, politics usually trumps expert opinion.
In a democracy where the partisans of voodoo economics hold sway, you get voodoo policies.
Buckle up your seat-belts, we could be in for a bumpy ride.
The American republic is just broken beyond imagining, I think. The far-right of the Republicans, having seized complete control over the public discourse of what it means to be a Republican, willingly wants to destroy it with any amount of crazy, and the majority of Democrats seem to be just too corrupt, lazy or dim-witted to resist effectively.
It’s incumbent upon Democratic Presidents to save money so the next Republican one can piss it all up against a wall.
the democrats are dead in the mid-terms and might not even keep the white house in 2012 if they keep on carrying on like this.
I think Obama is still all over the place politically, and seemingly captive to some very dumb ‘centrist’ advice… And the Bush era was driven by the same decline Obama now has to manage. He may not be characterised by the same delusional rhetoric about empire and democracy, and military adventurism that Bush was, but the reality of how weak the US now is lies behind the way things are starting to fall apart at the seams for him. It’s a moot point whether it’s possible for any American politician to really understand the mess the country is in, because it involves:
(a) recognising that the US is just a nation among nations and not some sort of ethereal world-historical universal;
(b) recognising that the projection of military force and power is compounding the economic/budgetary problem;
(c) getting rid of ‘manifest destiny’ and all the other ideological touchstones of Americanism.
So I don’t know whether it will happen.
The worry for the rest of us is that the US may not be too big to fail, but its failure would make an awfully big mess for everyone.
I think this is the central conceit. It nurtures all the others.
When Americans concede that their world historical mission has failed, it spells trouble.
Naturally, there will be a search for culprits, America’s own “Stab-in-the-back” myth. We have already seen this syndrome play out in “Who Lost China” and in the interminable flare-ups over responsibility for defeat in Vietnam.
The next one will be worse because the previous two were only indirectly connected with the material prosperity of Americans.
To put it in a propositional form, the previous two were how others failed to accept the American Dream. The next one will be about how the American Dream failed Americans.
Naturally, the victims will be blamed — immigrants, minorities, women who don’t know their place in a well-ordered, god-fearing country.
Possibly, the green movement will serve as the point of engagement for disenchanted white youth in America.
Their insurgency will be fervid enough, but insufficient to achieve anything more than a rise in illiberalism in America’s silent majority in the short term.
After that, demographics may tell the story. In 2009, I heard somewhere, 55% of children born in the US were non-white.
I think the predictions of an end of American Hegemony are premature, their geo-political position is too powerful for the moment, but the question remains, what sort of America will be maintaining it.
Good move, cut spending to balance the budget. I support this.
It’s like a gambler trying to get himself banned from the casino. I’ll believe Obie’s sincere when he and congress stop raising the debt limit. Until then it’s just poll-driven rhetoric designed to fake it through the mid-terms.
One thing’s for sure, if they don’t stop borrowing and pissing it down the toilet the country will be California, writ large.
Update: Michael Lind.
Stupid question…. why would cutting spending cut it with the voters?
I would have thought it would be largely unpopular with all but the hard right?
Mark,
who knows what pressure they’re really under internationally– I think you’re under the impression that they can just borrow forever — from who? Do you really think China et al. are going to put up with them borrowing trillions for the next decade and then trying to inflate it away? Seems unlikely to me, and no doubt why China is now much more aggressive at getting real assets (like innumerable mining assets across the world). So they have to do something (what happens if China floats the Yuan, for example, and then doesn’t need to buy US treasuries?). Personally, I’d prefer them to stop fighting other people’s problems (Iraq, Afghanistan, etc.), which would save them trillions, but if they want to keep on fighting, keep military bases all over world, and have huge other defence spending, then some time or other they are going to have to sacrifice something for it. A pity really, but that’s the way it is and what the average American citizen seems to put up with.
broken link mark
I think because the site is down for maintenance, T. Rex – that’s what the front page says.
I think the US economy has quite possibly reached the limits of growth by the means that brought it to where it is now – private debt expansion. A private sector debt of 300% of GDP is almost incomprehensable and has no precedent in the history of capitalism as far as I am aware (the closest being 240% of GDP at the time of the great crash of 1929.)
In order for growth to continue down this path, the bubble must be re-inflated and the private sector must take on even more debt – this seems to be Obama’s strategy.
Real unemployment there is still rising, masked only by falling participation rates and consumer credit growth was still spiralling downward for an unprecedented 10th month running, last I heard.
The US is basically fucked and now the only entity still capable of injecting demand through increased spending seems to have decided that government spending should be frozen.
Good one.
Freezing government spending AND government tax collection should do the trick.
Flynnboy: bingo.
Not a chance Steve.
The private sector in the US are de-leveraging from the biggest private debt binge in the past few hundred years. They are not buying the quantities of the goods and services that firms need to sell in order to be profitable and to continue hiring. US consumers cannot take on any more debt as a proportion of income.
This is problematic because the huge expansion of private debt has been a powerful driver of growth – on the way up. It may now equally detract from it on the way back down.
Only sovereign government is still capable of the kind of spending needed to keep things ticking over strongly. The appear to have made it clear that they will not do this (but it’s ok to bail out the fat cats apparently).
A double dip recession is on the cards I think.
I think people may be being a wee bit apocalyptic about this. There are certainly precedents for such a measure among centre-left governments.
In 1984 Bob Hawke committed the Labor government to not increasing tax revenues as % of GDP, not increasing government spending as % of GDP, and turning the Federal budget from deficit to surplus. Over the next seven years they were pretty much the Government’s macroeconomic settings, and they did win elections in 1987 and 1990 with such policies.
The Clinton Administration was committed to turning the U.S. Federal budget from deficit to surplus and – to their credit – they had done so by 2000. The second half of the 1990s are remembered as pretty good economic times in the U.S. and Clinton won the 1996 Presidential election convincingly in the face of a more hostile and Republican controlled Congress than Obama faces.
What is the worst of all possible worlds is that now facing Old Mother Brown and NuLabour in the U.K., where taxes and government spending went up from 1997-2007 to few obvious purposes, and then the deficit ballooned out when the recession hit, and Brown has to lie about his spending plans on a daily basis while money market vulutres hover ominously over the Pound Sterling.
The “Yes We Can” left and the Obama administration are clearly separating from one another, but I suspect that both sides have been looking for some time apart from each other for a while. A freeze on government programs would only be the end of the world if all moneys were currently being well spent, which I doubt.
Oh, and here’s Bill Mitchell’s take: A one-term presidency is in order
“As a basic minimum the government should use its budget position to ensure that there are enough jobs. At a time when private spending is still very fragile, trying to engineer a cut in spending is the last thing the US economy requires.
It is clear to me that the unemployed in the US have been abandoned by their government. I think a one-term presidency is in order.”
Terry, the point, surely is not that centre-left governments can never act to restrain spending or the growth in spending (which is something that the Rudd government will at least claim to be doing in an election year), but the potentially deleterious consequences of doing so just at the moment when, in the US, demand is so low. In other words, Obama is not necessarily accused of doing something that is not ideologically sound, but rather of doing something that is dumb for self-serving and possibly counterproductive political reasons which may well be short term.
As Nate Silver observed in a more recent post, whatever you think of Obama’s latest machinations, the Democrats in Congress facing a wipeout is not actually akin to his chances of being a one term President. You’ve said repeatedly that Gordon Brown is flailing all over the place in the face of electoral defeat. I’d suggest Obama is doing the same – in the face of the electoral defeat of the Democrats in the mid terms.
According to Wikipedia defence spending hasn’t really changed much over the years ( also here), so I doubt imperial overreach is the problem.
Mark makes the main point – a squeeze on government spending while the private sector’s spending is so weak cannot possibly do anything positive for the US economy.
Mark, there are three things here. One is that I don’t read the announced policy change as evidence of an administration that is “all over the place”. Rather, I read a fairly definite statement of economic policy intent, but one that a number of commentators who were hitherto Obama supporters don’t agree with. I’d have no idea who is right or wrong, but a turn away from Keynesian public sector-led stimulus spending would be evidence of policy coherence, as compared with the incoherence in the UK where Brown turns from ‘Labour investment versus Tory cuts” to “we’re serious about tacking the deficit” and back again on an almost daily basis.
Second, this sounds like action to avoid a mid-term wipeout for the Democrats mod-term. it sounds like their pollsters are registering some pretty serious anxieties among swing voters about expanding the size of U.S. federal Government, and perceive they can turn that around by not being seen as the administration whose stated policy is to do so. The section of the Democratic Party “base” that blogs don’t like that, but that has always been a distinctive sub-category of the voting bloc that Democrats seek in the U.S., and not the one that decides either Congressional or Presidential elections.
Finally, I’m not sure the U.S. economy won’t do reasonably well in 2010. Whether recovery in private investment and economic growth leads to jobs growth that gets unemployment below 10% is something that is unknown, but the U.S. domestic market remains the largest in the world. the economy is complex, and there are a range of areas – from cars to enrolments of foreign students in universities – where the U.S. could expand its exports significantly if its domestic industries would become as focused on world markets as their competitors are.
Terry, you don’t see plans for break up of big banks, loud claims from administration spokespeople that the stimulus should continue, continued vacillation over the desired healthcare outcome, throwing a sop to the Blue Dogs with a domestic spending freeze, denials Geithner will be thrown to the wolves followed by a return for Volcker, the invocation of Plouffe as political fixer etc. as policy incoherence driven by political panic?
It’s also not just left or liberal blogs, but some of the financial blogs (whom I’ve cited), economists like Reich, Krugman, etc. Not to mention where Obama’s ratings are going, and the recent swathe of Democratic defeats and announcements of retirements, abandonment of plans to run (ie Beau Biden for his father’s old seat in Delaware)…
And you might like to have a squizzy at the figures on consumer credit and hours worked, not to mention which the industries you cite are in a state of flux (higher education subject to budgetary squeezes, whether public or because of losses on endowments, not to mention export potential being shredded as national security/immigration paranoia makes it much harder for foreign nationals to study in the US, and the car industry isn’t exactly flourishing)…
I think it’s eminently reasonable to conclude Obama has been a huge disappointment regardless of one’s political agreement or otherwise with him.
One of the curious features of the U.S. economy is that, for the nation that is perhaps the architect of globalization at a policy level, its industries remain strangely focused on domestic markets rather than export markets. GM thinks primarily in terms of how it can out-sell Ford in Denver, and not in how its products compete with those of BMW for sales in Britain. The standard of U.S. domestic airlines is so woeful, and U.S. flyers have to use them, so there is an assumption that American, United, Delta etc. don’t have to think of how they compare on international routes to Singapore, Cathay Pacific and Emirates. U.S. universities do not recruit particularly actively in key international student markets such as China and India, and are very loathe to use local agents, so these agents recommend British and Australian universities where they would actually recommend U.S. universities were money in it for them in doing so.
I’d be very wary of writing off the prospect of a strong U.S. economic recovery driven by its key industries becoming more export-oriented. With a sluggish $US, there is an ideal opportunity for them to do so.
@ Katz
“In 2009, I heard somewhere, 55% of children born in the US were non-white.”
The numbers have been released for last year — in January? Forgive me for sounding cynical, but I call bullshit.
I was writing while you were posting, so I missed the last comment. There no doubt is a degree of panic in the Obama camp at present. I also think some of the commentators are confusing a turn away from a liberal agenda with policy incoherence, which doesn’t follow, and assuming the domestic economy can only be revived by large public sector-led infrastructure programs, which there are reasons to doubt.
The Democrats are historically a very disorganised party, with a very visible schism in their support base between social conservatives and urban progressives.
I don’t know what will happen with their universities, but I’d be careful not simply to accept the version presented by UC Professors in publications like The Guardian. I think foreign students account for about 2% of enrolments in American universities, as compared to 15-20% in Australian and British universities. Many of the top ones could cover a cut in Federal and state government budget appropriations through raising those ratios to at least 5%. I’m not recommending it from an educational point of view, but it would involve them doing things that certainly look very familiar to anyone in an Australian or British university.
It’s a little difficult to see Obama gaining too much political capital from an export orientation, Terry. I’m not saying it might not happen, but I think you put your finger on it before – with the US being the largest market in the world there’s historically been little appreciation of the need. Politically, debates about the internationalisation of the economy in the US have tended to default into a fairly protectionist stance, which, incidentally, there’s fairly ample evidence of Obama having played to over the last year.
I agree. There are also some amazing Congressional boondoggles. If you find out who gets what from Federally funded ethanol schemes, its pretty mind blowing. And Obama voted for all of that as a Senator, so suppose he at least knows where the fat is.
Beyond the proposition that the Republicans are well and truly back, I think its too early to make projections with confidence about the mid-terms, let alone the next presidential poll.
At any rate, while Gordon Brown remains in office, Obama is safely away from the “worst political leader in the Western world” tag.
Just on the weakness of US consumers at the moment – latest figures on consumer credit:
http://www.federalreserve.gov/releases/g19/Current/
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLgyNnSVw3LA
Latest employment stats – note rise over 2009 in long term unemployed and number of involuntary part timers, and decline in participation rate:
http://www.bls.gov/news.release/empsit.nr0.htm
@34 – Terry, if Lind’s article is back up, he set out a few possible scenarios. Eliminating boondoggles was the least likely, because the deficit hawks are often the marginal Senators whose votes are most needed and the most inclined to extract wasteful pork for their states.
Brad DeLong:
http://delong.typepad.com/sdj/2010/01/this-is-such-a-disaster-in-the-making-ii.html
Bring back the line-item veto. I don’t like their chances on that though.
Update: Krugman – Obama Liquidates Himself.
I’ve tended to defend Obama against his critics from the left (as well of course as from the right), but frankly I cannot see a defense for this one. Just when he looked like he was getting it together to take on the banks he comes out with this. The timing is just madness. The short term political benefit tiny, and the long term political damage from ongoing unemployment huge – besides the personal cost to the unemployed.
The only justification I can remotely think of is the suggestion someone made that the Chinese and other potential buyers had flagged they’d stop buying US government debt. In that case they may have decided to gain some benefit out of necessity, but if this was done out of the administration’s free will it is utter madness and will sink his presidency.
Come on guys, remember you are through the looking glass, in the political “reality” of the US of A.
A conservative Democrat like Obama is the only one who could do something like this. Pretty much every politican in America (save Ron Paul) wants to spend, spend, spend.
And they owe so ****ing much that one day, the rent will be due and suddenly we have East East China.
I believe someone once said if everyone is angry at you, you must be doing something right. Maybe I paraphrasing or participating in malapropism.
But. America. Needs. To. Stop. Spending. Money.
More to the point, the US needs to start paying down debt.
A modern political economy cannot operate on the levels of taxation currently extracted from US taxpayers.
If the people of the US want a viable political economy, then they will have to pay for it (and for the political economy it got through borrowings) by increasing taxation.
This applies to local, state and federal taxation.
Peter #26 ‘doubts imperial overreach is the problem’, but refers us to a diagram with a note that
“The bars in this diagram reflect budgeted amounts, which exclude spending for the wars in Iraq & Afghanistan (about $750 billion from 2001-2008), which were funded via supplemental appropriations. Further, it appears that homeland security spending is not entirely included in the budgeted amounts described as defense spending per the budget historical tables; these amounts are spread in other “buckets.”
Peter should read Tom Engelhardt’s piece, ‘Our wars are killing us’ at http://www.tomdispatch.com/post/175196/tomgram:_our_wars_are_killing_us__/
Katz
Yet the Republicans manifesto on the fiscal discipline is “Tax Less AND Spend More”.
At least the Democrats want to increase revenue.
Wow, there is some awful misunderstandings about basic economics here. The US government is not revenue constrained. They don’t need to borrow money to buy American resources (like the unutilised labour of 10% of their population). China buys US Treasury bonds because that’s how they want to operate their economy… not because they are being forced to and at some stage are going to say “enough is enough”. China in no way provides the US government with USD to spend.
Private investment and consumption is never going to provide enough aggregate demand to provide enough jobs; it is the governments responsibility to make sure there are enough jobs to go around.
I don’t understand how the party that caused all this mess are escaping the blame entirely
They would be the RINOs being targeted by Tea Party candidates. Charlie Crist is one such endangered Republican.
Those “RINOs” don’t want to cut Medicare spending, want to spend more on the military, aren’t serious about cutting into spending on entitlements or pork, and are committed to cutting taxes, particularly on the reach.
Under your rule, GWB is a RINO. He spent like no other, and cut taxes. The deficit is largely of his making.
HC @ 42, I think this bloke agrees with you:
Bush was a big spender. You’ll find plenty of conservatives who complained about his spending policies (particularly entitlement expansions like Medicare). All things are relative however – his spending and deficits pale into insignificance compared to the current regime’s. And that’s without the stillborn Healthcare bill.
Wow, now it’s just an Obama-bash. Thanks for the excellent tone of conversation.
Andos is correct in saying that the US government is not revenue constrained.
They are sovereign in their own fiat currency and do not really need to borrow or tax US dollars before being able to spend US dollars. Their net spending is the genesis of that currency – if they never spent it into existence first, nobody else would be able to hold it at all.
So despite all the hoopla, they can never “run out of US dollars”.
Yes, the same applied to the Weimar regime in 1923.
Here is one way that some jurisdictions in the US are trying to preserve parts of their political economy.
Some rich folks are threatening to move out of Oregon.
Woohoo! Congrats to Katz for mentioning Weimar first. Why not Zimbabwe too? They’re both completely irrelevant historical examples of hyperinflation which tell us nothing about how the economy of the US works today.
In 1923, the Weimar republic was operating under a completely different international monetary system, i.e. the gold standard, compared with modern monetary economies of today like almost every country on Earth. Weimar also experienced, like Zimbabwe, a massive collapse in productive capacity without a similar drop in demand. Neither of these situations apply to the US, where 30 million people are currently unemployed. How many of them could you employ before running into production constraints?
Reality check, please.
Here’s your reality check.
You seem to know very little about the gold standard.
Some countries with which Germany traded and to whom Germany owed reparations were operating under the gold standard.
By definition, by inflating its currency in 1923, Germany was not.
You seem to know very little about German economic history.
Germany did not suffer a major collapse in productive capacity in 1923. In fact, the German economy was recovering from the immediate postwar economic collapse. In 1923 there were massive strikes in the Ruhr protesting against French and Belgian confiscation of goods that were owed to them, including among many other things, telegraph poles.
The German government showed its support of the striking workers by paying them unemployment relief. This dole wasn’t funded by either taxation or borrowing. Instead it was paid with paper currency.
Katz,
I further agree with Andos in that before you can have hyperiflation, you have to spend far in excess of the capacity of the economy to absorb it. At 10% unemployment, you have quite a ways to go.
You will note that despite spending the most massive sums in history, the US is experiencing no inflation (it all went to Wall street of course).
“your reality check.
You seem to know very little about the gold standard.”
Then maybe you would explain in clear simple terms, the difference between the gold standard of history and the modern fiat monetary system with floating exchange rates such as the US and Australian governments preside over.
Flynnboy, thank you for agreeing that Germany was not operating under the gold standard in 1923.
In fact, if you consult you history primers you will discover that Britain, the largest economy in Europe at the time, did not return to the gold standard until 1925.
Craig Mc @ 51
Names and quotes and date of quotes of ten US Congress conservatives, and the dates of their votes against Bush spending increases, please.
Katz: I concede to you in regards to your point about the gold standard post WWI. Nevertheless, it remains that the situation leading to hyperinflation in Germany following the Great War has nothing in common with the situation in the US (or most of the rest of the world) today.
To hit inflationary constraints, the US government would have to inject trillions of dollars directly into the pockets of consumers. I think it’s plain to see that nothing like that has happened or is going to happen.
I have been trying to get my head around the modern monetarists, takes some doing but I think they make a lot of sense but even a classic Keynesian would be screaming for continuing stimulus.
Here the Libs are screaming for the stimulus to stop–they must be bulk disappointed Rudd & Swan etc handled the recession so well. Here is a little nightmare scenario–what if Howard & Costell had been re-elected in 2007?
http://www.polanimal.com.au/viewtopic.php?f=5&t=511
I do get annoyed with the no-debt advocates. You wouldn’t do it in the private sector – the question there is whether the debt is expected to generate sufficient future benefits. And so it is in the public sector. Stimulus packages are other debt-funded expenditures are entirely justified if they result in sufficient increased activity to repay the debt through future tax revenues. What I can’t understand is why Governments don’t attempt to explain this. Instead they leave the field open for oppositions to monotonously bleat the simplistic and wrong message that “debt is bad”.
Nevertheless many interest groups in the US will welcome high inflation in the future as a means of getting out of debt, especially middle-income earners in secure jobs with mortgages they are struggling to pay off. Lots of people did well in Australia in the 1980s when we had 10% plus inflation – it’s a cute way of transferring wealth from savers to debtors. People on CPI-linked incomes love it.
The supply of US dollars has increased massively over the last couple of years. There’s no inflation because they are circulating very slowly. Once the velocity accelerates there’s a very real risk that inflation will get out of control. The Reserve Bank is clearly aware of a similar danger here, thus the preparedness to increase interest rates even though unemployment remains comparatively high.
I would believe that 55% of the US population is non white.
All the Repug’s have to do is make sure Democrat voters don’t turn out to vote. And if they do challenge every vote.
The next election is there for Palin to lose.
Ken: the assertion about “increased supply” of dollars leading to inflation only holds if the economy is currently at its maximum output level, i.e. no unemployment and no room for extra productive capacity (clearly not the case at the moment).
Bill Mitchell has a good summary of this theory (and its weaknesses) here, scroll down to “What about the inflation bogey?”
I have a problem with the US and their intention to keep borrowing for limited benefit with no real long-term vision to how to pay down the debt.
Borrow by all means, but then pay it back. Don’t just “service” it.
Andos my main point was that a lot of powerful interests in the US would welcome a bout of high inflation, and might therefore reward government actions that bring it about. To the extent US public debt is payable in $US, the government might not mind it so much either. In other words the moral hazard alarm should be sounding.
This is partly true.
The Weimar situation is an example of what you mention.
The US govt is attempting to reflate the US economy. Their direct stimulus packages were modest by Weimar standards.
The quantitative easing and other methods of reflation are indirect. They rely on banks to extend credit. So far the banks have been very reluctant to do so. It’s like playing pool with a cue made of rope. However, there may come a time when QE encourages a major expansion of credit by the banks. That may stimulate asset bubbles.
I think we’re in furious agreement Howard. The tea party’s point is that Democrats are, and Republicans were, both too free with taxpayers’ money (or more to the point, their credit servicing). Why are they more angry with Obama than Bush? This is probably why.
Republicans are scrambling to get their base back on board – especially after NY-23. Their fund-raising is struggling to attract disaffected conservatives, and several establishment incumbents face tea party insurgents in the primaries.
The Democrats are scrambling to get independents back on board. I think their chances are much poorer: a) they’ve recklessly focused the intrinsically small-government-oriented electorate’s anger with weekly fiscal horror stories, and b) as incumbents in control of both congress and the presidency, there’s nowhere to hide.
Katz,
I await your answer to my question.