Friday, March 27, 2009

Recessions Aint So Complicated

The best, simple explanation for the current recession is that interest rates have been, and are, excessively low. The best single policy to get out of it isto RAISE them.

This comes as a response to an interesting statement made by David Rosenberg of Merrill Lynch, brought to my attention by a friend:

"We do not aim to be critical, and we do not claim to be public policy experts by any stretch, but the reality is that the economy is in dire need of a major positive exogenous shock. Whether that means the Fed starting to buy Treasuries to pull down market rates even lower, the public sector establishing land banks to establish a floor under residential real estate prices, or the White House instructing Congress to dole out a $1 trillion zero percent long-term loan to the beleaguered state and local governments who are being forced to cut back services and raise taxes at the worst possible time, or all of the above, we will leave open for debate. What is not open for debate is the state of the economy, and we can no longer just label this a recession after the latest
string of shockingly negative employment reports. The government has to declare war right now ... against this modern-day depression."

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