Quote:
Originally Posted by Tyrone Slothrop
The response to S&P's downgrading was a sell-off in equities and a massive rally in U.S. Treasuries. Not clear if most political commentators understand this.
eta David Frum:
Markets are saying: We fear recession and deflation. Washington consensus: now is the time to fight debt and inflation.
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You still misapprehend how Keynesian stimulus works. It's nothing but a loan to fill in lack of demand. It cannot persist indefinitely, and does not of itself create sustainable growth. It merely replaces what it lost until what it lost re-emerges in the private sector.
I agree with an initial Keynesian response to any recession. It should always be the first step. But when you build that bridge and find no private sector growth waiting on the other side, you can't just keep building indefinitely. Eventually, and a lot sooner than you think, you trend into banana republic territory.
ETA: What will get us out of this is the same thing that historically has followed global downturns: War. The likelihood of this increased even more than usual by the fact that our current cuts into deep slashing of defense budgets. That sector has no intention of contracting. Ever.
