Weekend Reading – What’s Next?

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29weekinreviewimg popup Weekend Reading   What’s Next?Now what?

Joseph Stiglitz said last week that "there are many ways in which you can see us almost surely being in a Japan-style malaise, it’s just really hard to see what will bring us out."  Thomas Hoenig was comparatively an optimist at the Fed conference this weekend, saying: "we’ll slog our way through this" but the best quote from the conference came from Alan Bollard of the Reserve Bank of New Zealand, who was among several foreign central bankers who said they were struck by the unusual degree of pessimism they had witnessed in the U.S.  "I can’t wait to get back to my side of the world," he said.

I’ve been blaming the MSM for keeping the public in a constant state of fear and we have clearly divided both the leadership and the punditry into two distinct camps.  “The recession is the cure for the disease that affects the economy, but the politicians don’t have the stomach for it,” says Peter Schiff, president of Euro Pacific Capital.  “They’re going to keep stimulating the economy until they kill it with an overdose. The hyper-inflation that results is going to be far worse than the cure.”    

Most economists who are close to the policy making arena for both parties take the position that austerity is the wrong medicine for what ails the American economy, and they dismiss warnings about inflation as akin to focusing on the side effects of chemotherapy in the face of cancer. First, they argue, take the medicine and stave off the lethal threat; then deal with the collateral problems.  Regardless, inflation fears persist, constraining what limited prescriptions might otherwise be thrown at a weakening economy.

partisan 15f4 Weekend Reading   What’s Next?Even after the November election, few expect a different dynamic. “We’re already in a gridlock situation, and nothing substantive is going to change,” says Bruce Bartlett, who was a Treasury economist in the first Bush administration. “Clearly, a weak economy in 2012 will be very good for whoever the Republican presidential candidate is. It’s hard to see how the Republicans lose by blocking stimulus.”

The Fed operates (in THEORY) independent of politics and, in Bernanke’s speech on Friday, the Fed Chairman said: "The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation,” he said. “We do.  The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or…
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