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Originally Posted by Tyrone Slothrop
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?
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These things do not pay for themselves unless we have growth, which we are not getting, and govt spending will not create. You seem to think that borrowing money only involves paying interest. Recall there's a thing called principal. That the interest is low doesn't mean jack if you can't pay the principal back. "We'll roll it over," you say? Oh, really? Infinitely? Because that's what we're talking. Summers' argument that while we can borrow cheap we must assumes decent to robust future growth. It's an all-in bet on a future most other economists don't see happening. If we borrow like mad, spend, and still lack the economic activity to create tax revenue to pay back debts, borrowing costs skyrocket.
Conversely, if we pull back, tell Wall Street to fuck off on its next whining demand for QE, and let the market give back 2500 (which would put it where it should be), and allow houses to fall another 10%, and have a few bank failures and break-ups, I think you'll see the money on the sidelines do what vultures do.
We're getting the reckoning either way, so why not now?
