Having some control over inflation and the ability to moderate economic swings is a good thing for us that many countries don't have. Because of this, there really cannot be another Great Depression. Because of this, ours has been the world's most stable economy since the 19th Century.
I think the fed is in a pickle, even Greenspan has said we face the most difficult financial situation since WWII. The budget deficit is high, the current account deficit is high, and we have a housing bubble we have to work off. We had a subprime mortgage debacle that is still in the process of working out. We have a credit crunch where banks are afraid to lend, unemployment is ticking up, and consumer confidence and the index of leading economic indicators have fallen 5 months in a row, most since 1991 when it ushered in a recession that cost Bush I the election. The Fed is afraid of deflation, not inflation, at this point. House prices are down about 10% nationally, and building is way down. The fear is that home building is such a big piece of the economy that as it cycles down, it backs into other areas of the economy. If people become scared enough and stop spending, other area of the economy could deflate. In 1929 we had a deflationary recession and those are very hard to deal with. The Fed would prefer an inflationary stagflation or recession environment. They can always tame inflation with high interest rates, but deflationary spirals are much harder. Bernanke is a student of the great depression, and he wants nothing to do with systemic deflation. The debt levels in the country are out of control, at the federal and individual level. Corp. america is in ok shape at the moment. The debt creates the risk in the situation, since one default can begin to cascade. I think the fed is doing ok, in the context of being is a bad situation, that Bernanke had NOTHING to do with creating. This is on Bush and Greenspan.
http://www.govreview.com/2008/02/20/budget-crisis-may-lead-vallejo-to-bankruptcy/ The economic crisis continues to roll, impacting all over. This city is just one of many. Cal. state is in a pickle, Ahnald didn't gitrdone yet. Home prices fall, assessments fall, tax receipts fall, city gets in trouble. Be careful where you buy your muni bonds from...
http://www.vdare.com/roberts/trade2.htm Article dated 2002. Paul Craig Roberts was a Treasury Secretary in the Reagan administration. We had a great window of opportunity after WWII, when all the other major powers had their infrastructure destroyed in the war, rebuilding cost them a ton, and we had superior educational, govt., judicial systems up and running. Our competitors have learned from us, invested in education, improved their forms of govt. (Russia, China - not great but 'better than they used to be'). I agree with Mr. Roberts, that as currently structured, the US is in the process of losing its superpower status. We simply won't be able to afford it. Britain had to give up its superpower status after WWII, which it had held for 300 years. Times change. This is a massive problem. A competent govt. could host discussions leading to formulation of policy to state the problem and develop policies to deal with it. I point to N. Carolina working with private industry in the 60's to form the Research Triangle Park to provide good jobs to grads from Duke, NC State, and UNC, to keep their brains at home and improve the economy of NC. Big success. Govt. does not always fail, only clueless and incompetent govt. fail. Currently, the US tax code rewards companies who offshore jobs. That seems to qualify as incompetent, unless your objective is simply to take care of your blue blood skull and bones buddies (in which case it is highly effective for concentrating wealth at the top, while screwing over the working class). My personal opinion now is that our govt. is not incompetent. It is working toward objectives that disproportionately benefit the richest, the skull and bones society, and they just can't say that's their objective, so the tell us campaign slogans we will support, get in office, and do something else. But no, they are not incompetent, rather they are greedy liars.
I am not repeating what I have been told; I am saying what I believe to be true. The economy is driven by consumer spending; not government spending. By cutting taxes more money is put in the pockets of consumers who will hopefully spend it. And yes, it is a short term solution. But recessions tend to be short term and not very deep. As a result, increased consumer spending can either help to prevent a recession, or limit its consequences.
Meanwhile the government spends money that it doesn't have causing it to borrow more money, inrease the national debt and insuring future inflation. Addressing one economic problem by causing another is poor management indeed.
Tax breaks are the spending probem when they reduce income and force the government to borrow. If you must reduce taxes, it must be done by reducing services. To simply cut income while continuing to spend is irresponsible at every level. If you or I spend more than we take in we would go into debt and eventually become bankrupt. It works the same way with a nation. Why don't you rebate some of your salary to your employer to stimulate the economy? Because it would be irresponsible management of money, that's why.
