Rubin Rides Again, By Mike Whitney

[Crewleader]

January 6, 2010

The Stimulus Killer

Rubin Rides Again

By MIKE WHITNEY

The economy is getting better, but will it last? Many economists don't think so, including those at opposite ends of the ideological spectrum, like Paul Krugman and Martin Feldstein. They think the economy will begin to fizzle sometime in the latter part of 2010 when Obama's $787 billion fiscal stimulus runs out and consumers are forced to pick up the slack in demand. That's a safe bet, too, considering that unemployment will still be somewhere in the neighborhood of 9 per cent and households will still be digging out from the $13 trillion they lost during the crisis.

The fact that the Fed is planning to end its quantitative easing (QE) program in early April, doesn't help either. That will just suck more liquidity out of the system and push long-term interest rates higher. When that happens, housing prices will fall, inventory will rise, and a surge in foreclosures will put more pressure on the banks balance sheets. That's why the pros are so glum, because they know the economy needs a second dose of stimulus to stay on track, but the politicos are dead-set against it. Congress is afraid of the backlash from voters in the upcoming midterm elections. They'd rather drive the economy back into recession then risk losing their jobs.

Despite the propaganda in the media, stimulus works. In fact, Goldman Sachs attributes all of last quarter's (positive) growth to Obama's stimulus. Here's how Nobel prize winning economist Joseph Stiglitz sums it up in his China Daily article "Harsh lessons we may need to learn again":

http://www.counterpunch.org/whitney01062010.html

[LeftHandPath]

1. 'Despite the propaganda in the media, stimulus works.'

No it doesnt. If new debt is not going into sustainable growth and production it is just absorbed through deflation.

Just give the debt junkie another fix, and then he'll get better. We'll get him clean after this fix, promise.