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[sebastian_dangerfield]

But now we have to make economic policy for everyone because Grandma's a shitty investor? No thanks.

Newsflash: That's what we've been doing all along. We've been attempting to carry those with less working years left at cost to those with many.

Huh? The cost to youth and workers, who are more likely to be workers than savers, is in persisting with low inflation and low growth.

The cost to them is a lack of jobs occasioned by the fact that no one believes the current status quo can persist - that when interventions (stimulus, twist, QE) finally end, so does the economy.

The best we can get with blunt monetary policy is growing NGDP. Some of that will be real growth, some of that will be inflation. As we have no policy tool that allows us to separate the two, we can do what we can do.

We do have that policy tool. We can give debtors the tools to force investors to write down more debt, freeing discretionary income. Alternatively, we could simply refuse any more easing, which would force investors to cut more deals with debtors, which frees up discretionary income. Remove the Bernanke Put and investors will become fearful, and when they become fearful, they negotiate with less leverage. The debtor class has no choice but to spend, so every dollar they lose in a negotiation is a dollar that goes into consumption, rather than debt repayment. Which is, of course, what I think we should be trying to achieve. Less debt repayment, more consumption. Sure, it's nuts. But it's necessary.

But growing NDGP means growing income which means lessening relative debt burden and more nominal spending.

Income from what? There are no jobs being created. And what are tend to be low pay service sector shit jobs.

On top of that, which bank agrees? The servicer? The one who sponsored the MBS? The many who hold the MBSs? The one who sponsored the CDO that included the MBS? The holder of those CDOs?

Servicers have broad latitude to cut deals on behalf of the investors. They don't like doing so because they're all owned by the big banks, which usually held 15% of the paper. Also, the servicers get monthly fees for managing the loans through loss mitigation and litigation.

Okay then, but I don't follow why you keep saying the things they said about how everything will right itself if only we go through enough pain/prices fall enough.

Kills uncertainty. Right now, everyone's waiting for the other shoe to drop. Let the fucking thing fall already.

Now you're going Austrian? To fight them endlessly with monetary policy is to help solve them.

I agree with Keynesian responses up front. But after a thing's been tried from several different angles without success, you have to start considering the definition of insanity (same thing over and over, expecting a different result).

Your approach is to make the current hole deeper. Granted, you believe that will make it shorter and I think it will make it longer, but nonetheless, your position is that we should make things worse so they can get better.

No. I'm saying let it go for a while, and see if after it gets worse, it doesn't get better, which I think it should. If that doesn't happen, turn the printing presses on again.

Yes, that worked so well in the Great Depression.

WWII got us out of the GD. If we hadn't had that, FDR's policies would have taken us through a see saw of downs and ups with tepid growth.

The problem with Hayek in times like these is that interest rates cannot fall to the market clearing level because they are already at zero. That's why Hayek disciples, in this situation, should actually be calling for more inflation. The resulting negative real interest rates are how you make the market for loanable funds clear.

That would have happened already. The market in, say, housing can't clear because even if there were equilibrium between credit demand and availability, there is an absence of qualified creditors.

Businesses invest via credit.

So it's "job creators" who'll spur a recovery?

I like all of those as ways to help people who are in trouble.

None of them should be expected to be particularly stimulative. To the extent it means more spending elsewhere, it's directly at the expense of the investors holding the mortgage and the housing industry (not to mention the other homeowners whose home values will drop yet further).

Sure it will be. Moral hazard's a dike. Crack it with a little bit of debt forgiveness and we'll be talking widespread jubilee soon enough. All the cash funneled to paying down debt will go into consumption, which is what we need to spur to heal ourselves. (I know this sounds twisted. I am picking a side, and oddly, it's not my own. I'm saying steal from investors and put the money into commercial, consumer circulation. As we heal, the rising tide of economic activity will lift the investors back up. But you have to start at the bottom first.)

First and foremost, macroeconomics is not a morality play, and enforcing moral judgment doesn't help. All of the big banks deserved to go under back in 2008. We don't allow that because the outcome of enforcing those just desserts is 1929 (or any of the bank panics of the late 19th and early 20th centuries).

There's no morality here. It's just smarter to put more dollars in the consumers' hands, as we've seen propping investors doesn't get the job done.

I don't know what you mean by current rally. Stock prices are basically where they were a decade ago. That's not a rally, that's a lost decade.

I was considering offering all sorts of cherry-picked timelines in response, but I'll leave it at this: Don't be annoying. You know what I'm talking about.