Eeyore's Economic Outlook

"So I want to emphasize one more time that stabilization policy does not have to change the size of government in the long-run.... " - Thoma

I get Mark's point. But to write that sentence, you have to be completely blind to factors that exist outside the standard macro models.

Is Mark's theoretical argument a sound one? Sure. The math checks out. It completely ignores the political reality on the ground, though - Obama and co. are decidedly NOT trying to implement the most effective stabilization policy. That would be a secondary goal, at best.

No, the Democrat's goal is to use this crisis to usher in a the Return-of-the-Jedi expansion of government to follow up FDR's New Hope and LBJ's Empire Strikes Back. That's what Rogoff is worried about, and Thoma's assertion that it is theoretically, back-of-a-napkin possible for Washington to reduce the size of government and stabilize the economy in one fell swoop is irrelevant.

My pessimism, which goes beyond Rogoff's and enters rifles/canned goods/zombie fencing territory, is only tangentially related to the health of our financial system. If Obama succeeds in turning America into the EU, the consequences of this or that financial crisis will be utterly banal.

Zdeno

Please, somebody give me reason to be optimistic. I'm heading back to college this year and I'm worried about the financial aid/loan situation. The student loan industry seems to be falling apart.

Sorry Jacob. I'm with Zdeno, only I'm way past rifles.

As the crisis gets bigger - it's not just the banks now, all countries are staring bankruptcy in the face - the solution needs to get bigger, too. Nationalising western banks - if it happens - won't help Mexico or the Ukraine. And if they fall, the domino effect could be catastrophic. So how about this suggestion (The Sander Solution):

- x% of all bank and savings deposits in the OECD above, say $1000, are requisitioned as forced loans and placed in a special IMF fund.

- This fund can be used to bail out countries ...

- ... and to buy up insolvent banks. Because it isn't national government doing it but the IMF, this might be politically acceptable.

How easy this would be depends on the value of x%. If only 2% of deposits were to be "borrowed", people would probably leave their money where it is rather than moving it out of the OECD. Much more, and there would have to be a swift and secret agreement and possibly even a 24-hour closedown of the banking system. possible, but unrealistic.

The programme would ideally generate a few trillion dollars - enough to make it absolutely clear that the IMF and national governments have the funds to achieve turnaround.

I'm afraid I can't find numbers for this suggestion I don't have access to the appropriate figures in order to enable to do the maths. Maybe you do?