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[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

Your gripe is with state austerity, yes? Explain how, say, CA, or IL, or FL, or any of the other states that desperately need capital, and are shit risks, can borrow cheaply.

If you're suggesting Uncle Sam can borrow cheap and give the money to them, explain who pays off the bonds down the road?

Here's your plan in a formula:

Borrow Cheap long term + [Something magical happens to the economy w/in 20 years] = Win/Win

This plan has already been used and abused to the point global long term debt obligations owed by most of the developed world are impossible to ever pay down. The next step is them becoming impossible to roll over at reasonable terms.

You can not indefinitely borrow your way to prosperity any more than you can tax yourself there. Read Stiglitz and Krugman closely and you'll see neither is a true, hard core advocate of more borrowing and stimulus. The bigger reason they're arguing for it now it is because we're at a point where we either buy time or run into a slowdown, which will put serious teeth on this depression. They're not intellectual advocates of increased govt spending so much as voices of dissent, saying, "If we keep on this road - this failed 'muddling through' - we're going to economically find ourselves, at least for at time, on something like Cormac McCarthy's Road." It's fear of the Austrian reckoning more than anything else, and truly, I understand it, and sympathize with it. But what is unsustainable will not be sustained. And your math, your academic somersaults, offered to suggest we can indebt ourselves out of debt, fall flat.

We either have upheaval, or a long, slow decline trying to prop up the status quo. I think the latter, but the former's looking more and more like a possibility.

ETA: The asset prices need to fall. Wealth needs to change hands. The disequilibrium between capital and labor has to correct. None of this happens without face-ripping creative destruction - the exact thing we've fought to avoid.

Everything you say would make sense in normal times. These are not normal times. Have you noticed how cheap Treasuries are? The federal government can borrow right now at essentially no cost. (This is because things are so unattractive for investors that they are willing to park assets with the federal government even for no return.) In these circumstances, anything the federal government does with the money that has some economic return -- building roads, railroads, airports; teaching students, etc. -- will pay for itself. This is not propping up the status quo.

What assets do you think need to fall? Why aren't they falling? Why is having everyone -- public and private -- deleverage going to help? How do we make up the huge social loss caused by people who are not working?