Friday, April 3, 2009


Martin Wolf earns his bananas once again:

The conclusion is straightforward: the ability to navigate through the crisis, using either fiscal or monetary measures effectively and at modest overall cost, depends in both of these cases on the credibility of the authorities' commitment to long-term monetary stability. Neither huge fiscal deficits nor massive monetary expansions are themselves an unmanageable threat, provided the regime itself remains credible. This is crucial even for a country as indispensable to the global economy as the US. For the UK, it is close to a matter of economic life and death.

On a technical level, the breathless Republican hysterics over the deficit are a sham.  Wolf points out in this piece that the UK has been much deeper in debt in the past (of course, care is required here, they used to own the world too) and that there are plenty of other countries deeper in debt in the present.  The US is in an even stronger position as we haven't even come close to the government debt to GDP levels or deficit levels of the 80's yet.  So let's not get carried away with how we can't afford the bailout.

Unfortunately, we really can't afford the bailout from a political perspective.  Confidence in the government is all but used up at this point, and that is the much bigger danger.  This is the lasting legacy of Bush.  His cold dead hand stretches beyond the grave to preemptively prevent any rescue.  Hence my "prediction" -- George W. Bush will bankrupt the United States in 2013.

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