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PeakTrader

We’ve had a hundred years of faster per capita real growth, since the Fed was created in 1913, because of smoother business cycles.

Economic boom/bust cycles are inefficient, both in the boom and bust phases. Periods of strain and slack are suboptimal.

The Bernanke Fed has placed a floor on the economy, e.g. by raising asset prices, and lowering the cost of capital for households and firms. Without QE, economic growth would’ve been even slower.

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“Everybody is talking about how we are going to pay for the huge national debt, but nobody seems to be talking about the runaway spending which created that record-breaking debt.”

Maybe, Republicans should talk to the American people about Keynesian economics, rather than what the NeoKeynesians, Democrats, and media want to talk about.

I stated before:

In the equation Y = C + I + G + NX, when Y is too low, more G will speed-up Y, and when Y is too high, less G will slow Y.

Reducing taxes and raising spending through borrowing are both expansionary fiscal policy. However, in the 1930s, taxes were too low to raise G.

In Keynesian economics, government borrows in recessions and saves in expansions. However, government has been borrowing in both recessions and expansions.

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And, more regulations, in recessions and expansions, slows growth.

Federal regulations cost $2 trillion a year, which the American people pay for, one way or another.

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When demand exceeds supply, prices rise.

Through borrowing, asset prices can rise sharply, while prices of goods & services can rise little.

Anyway, economic booms and busts are unnecessary and suboptimal, to a large extent.

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Ben, you’re correct. Here’s what Bob Brinker said about the Fed (Dec 2012):

“It’s only because the Federal Reserve has been active that we have any growth at all in the economy….The Federal Reserve is the only operation in Washington doing its job.

The only person that would criticize Ben Bernanke would be a person who is so clueless about monetary policy and (the) role of the Federal Reserve as to have nothing better than the lowest possible education on the subject of economics….Anybody going after Ben Bernanke is a certified, documented fool….”

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Some people want the good old days, before the Fed, when there were feasts and famines, or floods and droughts, resulting in slower per capita real growth, along with real hardship:

List of recessions in the United States – Wikipedia

Recessions in the Industrial Revolution – 1871-1914

Period – Percent Decline of Business Activity

1873-79 – 33.6%
1882-85 – 32.8%
1887-88 – 14.6%
1890-91 – 22.1%
1893-94 – 37.3%
1895-97 – 25.2%
1899-00 – 15.5%
1902-04 – 16.2%
1907-08 – 29.2%
1910-12 – 14.7%
1913-14 – 25.9%

Recessions in the Information Revolution – 1982-2007

Period – Percent of Contraction

1990-91 – 1.4%
2001 – 0.3%

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Too much inappropriate government spending and squandering, along with too much regulation, is not Keynesian economics.

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.

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With much stronger U.S. corporate balance sheets, including $2 trillion held in cash, and little capital spending by U.S. corporations, to expand, Americans are basically holding much of their wealth in cash too, like in Europe.

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Here’s what one economist said a year ago:

“The decline and lackluster recovery in business investment has a wide range of causes, including globalization, regulatory barriers, and weak demand.

Many companies are investing overseas rather than in the United States. Multiple layers of regulation, even if well-intentioned, have the impact of discouraging capital investment and innovation. And the continued weakness in demand at home makes it difficult to justify building new factories.

Government has to invest in infrastructure, education, and research. Households have to invest in their own human capital. And businesses have to invest in buildings, equipment, and software.”

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Citizen Buddy,

Michael Mandel – Ph.D. in economics from Harvard University

He wrote this article in 2006:

http://www.businessweek.com/stories/2006-02-12/why-the-economy-is-a-lot-stronger-than-you-think

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PeakTrader:

In response to the cartoon:

http://www.aei-ideas.org/wp-content/uploads/2013/10/cartoon.jpg

More capacity is the best option, which would also slow liquidity flows of both fiscal and monetary policies.

A stronger expansion can lead to budget surpluses, while the Fed begins a tightening cycle.

Unfortunately, an enormous amount of potential output has been destroyed and stunted, while we continue to lose $1 trillion a year in actual output, forever.

Consequently, the economy can’t get fully back on track, because it’ll be inflationary.

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