Great Depression Redux

When the sun goes down
And the tide goes out
People gather 'round
And they all begin to shout,

Hey, hey, Uncle Fed
It's a treat to beat the rate
So it's really, really great
Monetary flow keeps it really, really low.

   Economists are fond of saying that in good times, a rising tide lifts all boats. But consider this: In a storm, small boats are more likely to be swamped. And when the tide goes out, both large and small are stranded.
   The outgoing tide of austerity may not affect the economic boats -- read: nations -- big enough to sail their own course on an open sea, but eventually they'll need a port to unload and sell their cargo.
   Some 80 years ago, many nations were chanting the austerity song, but in doing so only made things worse for everyone, including their own citizens. The U.S. economy may be the largest boat in the world economic fleet, and the second round of quantitative easing (QE2) may have pumped enough monetary fuel to keep the ship afloat and cruising for a time, but soon enough the American trading boat will need customers. And if austerity means others stop buying, then what?
   Now, echoing the Great Depression, some nations are demanding austere measures, which may in the short term help an individual government -- but not necessarily its citizens -- but the larger consequence will be that smaller national economies will be left high and dry.
   Monetary policy from Uncle Fed has kept interest rates low and encouraged some investment and purchasing. But Big Ben Bernanke warned that policy may change, and the market reacted by sending rates higher, which will cut into housing loans.
   One solution is the same one offered during the Great Depression by economist John Maynard Keynes: Government spending, or fiscal policy, as a way to keep things moving, to stimulate demand so that supply keeps flowing and people -- the makers -- have jobs and income to buy stuff. Then, when the economic seas provide better sailing, government can move on to other things.


   NEWS ITEM: Some state politicians want to increase spending for prisons while reducing taxes, especially for business. Sorry, but as Robby the Robot told Will Robinson, "That does not compute."  It also says something about priorities.
   You can't expand your budget while reducing your income. On a state level, that's true, since states cannot operate at a deficit. But on a national level, you can, and during a depression, you should, to kick-start an economy.