Economic policy is geared towards controlling inflation during strong periods and controlling unemployment during weak periods.
The current "mania" over the fiscal cliff is a equivalent to the "mania" that occurred during the housing crisis.
It became the common wisdom and popular delusion that the price of residential real estate would rise in a straight line forever. Obviously this was a delusion. The delusion became so strong that people were allowed to borrow from banks the delusional paper profits that existed on their homes. There was no regard for whether the personal income of the borrowers was rising enough to ever pay back the exaggerated mortgages.
Somehow or other a delusion has been created that it's okay to cut back on government deficits even when there is significant slack in the economy, little or no inflation, and unemployment well above the reported figures.
Therefore the politicians risk accepting an obviously incorrect economic policy for the current environment. They have convinced a significant percentage of the population that the deficit is bad, no matter what economic conditions call for. This is the same as being convinced that the price of houses would rise rapidly forever.
The Republican line of focusing on the deficit is the wrong policy at the moment. Borrowing against an inflated house, at the wrong time, is the same as focusing on the deficit control at the wrong time.
There is a second delusional element that has come into the mainstream at exactly the wrong time. This combines with delusion number one, deficit reduction 2013. Attempting to raise taxes for anyone while the economy is in a marginal state, is incorrect economic policy, as bad or worse than the prior discussion on deficit control.
We now face a government, on both sides, that have dug themselves into policies that are similar to the loaning against hyper inflated houses with risks that are clearly unknown. Federal taxes have to be paid by everyone and the government has to lead the way dynamically to modernize this country.
The current "mania" over the fiscal cliff is a equivalent to the "mania" that occurred during the housing crisis.
It became the common wisdom and popular delusion that the price of residential real estate would rise in a straight line forever. Obviously this was a delusion. The delusion became so strong that people were allowed to borrow from banks the delusional paper profits that existed on their homes. There was no regard for whether the personal income of the borrowers was rising enough to ever pay back the exaggerated mortgages.
Somehow or other a delusion has been created that it's okay to cut back on government deficits even when there is significant slack in the economy, little or no inflation, and unemployment well above the reported figures.
Therefore the politicians risk accepting an obviously incorrect economic policy for the current environment. They have convinced a significant percentage of the population that the deficit is bad, no matter what economic conditions call for. This is the same as being convinced that the price of houses would rise rapidly forever.
The Republican line of focusing on the deficit is the wrong policy at the moment. Borrowing against an inflated house, at the wrong time, is the same as focusing on the deficit control at the wrong time.
There is a second delusional element that has come into the mainstream at exactly the wrong time. This combines with delusion number one, deficit reduction 2013. Attempting to raise taxes for anyone while the economy is in a marginal state, is incorrect economic policy, as bad or worse than the prior discussion on deficit control.
We now face a government, on both sides, that have dug themselves into policies that are similar to the loaning against hyper inflated houses with risks that are clearly unknown. Federal taxes have to be paid by everyone and the government has to lead the way dynamically to modernize this country.
Great site, Shep. Lots of good information!
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