-- Posted Thursday, 18 December 2008 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, December 18, 2008
“Phenomenally accurate forecasts
A Wall Street Journal editorial on Tuesday tallied up the approximately $1 trillion that Japan injected into the economy during the 1990s in a failed attempt to overcome deflation. That amounts to 118 trillion yen, and we doubt that anyone could have imagined it would not be enough to do the job. The initial $85 billion stimulus, by far the largest in Japanese history, came in August 1992. But when GDP and investment continued to fall and unemployment to rise, another package totaling $117 billion was enacted in April 1993. Still, the economy worsened; and so, in September 1993, a “modest” stimulus of $59 billion was added, along with some token deregulation. In retrospect, however, these outlays were just a warm-up for the fiscal packages that followed: $122 billion in February 1994; $137 billion in September 1995, $128 billion in April 1998; $195 billion seven months later; and another $146 billion in November 1999.
What Japan got for its money, the Journal noted dryly, was “better roads” -- along with anemic growth and an explosion in debt. What the Journal did not emphasize was that Japan’s failed attempt to re-inflate the economy occurred at a time when its export business was thriving and the global economy humming. It is this fact that raises very serious doubts about whether fiscal stimulus can lift the U.S. economy from its trough. For how can we possibly expect to succeed if Japan, with its manufacturing prowess and deep-pocketed savings, could not, even during supposedly good times?
An Idiotic Idea
The global economy was relatively healthy when Japan was mired in a decade-long wallow; now, in sharp contrast, manufacturing, trade and finance are in a worldwide state of collapse. For the U.S. in particular, the economic drag is compounded by a manufacturing sector in its worst shape ever. And yet, policymakers would have us believe they are going to end-run these problems by pumping up domestic consumer demand with looser credit. Officialdom and CNBC guests aside, is there anyone in America who actually believes this is the path back to economic health and prosperity? And, can anyone think that the Government’s increasingly desperate attempts to induce buyers to pay more for homes will get us out of the hole?
This is surely one of the most idiotic ideas ever to captivate the popular imagination, and we can only hope that our populist President-elect understands this. Triggering off another credit binge, even if it were remotely possible, cannot possibly fix an economy that is drowning in debt. We can only hope, as our colleague Bob Hoye does, that Obama has the good sense first of all to do away with the Federal Reserve. That would be the single most effective and powerful step the Government could take to return control of the economy to the risk-takers and innovators who helped make the country great. More specifically, it would ensure, for the first time in more than a generation, that savings are channeled into the most economically productive enterprises, rather than into mortgages and other financial "products."
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-- Posted Thursday, 18 December 2008 | Digg This Article | Source: GoldSeek.com
