Could Govt support a second Great Recession ?

[dallas27]

For all the thinkers out there, if we had a great recession part two in the next couple years, could the US govt (and foreign) use the tools they did last time to get us through a second time?

 

[eytonxav]

Tool #1 is cutting rates which currently have no more room to cut.

 

[Tadpole]

So dallas27, suppose you are a responsible party - member of Fed, President, Congress critter, etc.


With rates at zero, what would you do if the economy was in collapse? If you come up with a good plan, please share.

 

[Mulligan]

Not an unreasonable question to ask as currently on average we are already past due for another run of the mill recession.


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[Lakewood90712]

Don't know for the US , but Japan has been holing on through many great recessions starting in the 1980's ( IMO ) , partly with the near zero rates and gov. stimulus spending.

 

[Lakewood90712]

So dallas27, suppose you are a responsible party - member of Fed, President, Congress critter, etc.


With rates at zero, what would you do if the economy was in collapse? If you come up with a good plan, please share.

$10,000 refundable tax credits for everyone, only requirement is that the money was spent, not saved.

 

[Walt34]

$10,000 refundable tax credits for everyone, only requirement is that the money was spent, not saved.

Cool! That's my excuse to buy that expensive Nikon D4s camera ($6k) and a couple of lenses that I've been [-]drooling after[/-] wanting.

 

[ejman]

Like Ben said, as last resort just shovel money out of that proverbial helicopter. I believe Ms. Janet has applied for her helicopter pilot's license... I think the government has lots of choices other than interest rates as long as the political will is there. If however, the Government response is like it was back in 1929 i.e. just stand back and let the market take care of things on its own- not so much.

 

[imoldernu]

For all the thinkers out there, if we had a great recession part two in the next couple years, could the US govt (and foreign) use the tools they did last time to get us through a second time?

I don't think so.

As a thinker and an early member (1985), my choice would be for "A Just Third Way" ... Here:
Welcome to CESJ! - Center for Economic and Social Justice | Center for Economic and Social Justice

Few who have read Loiis Kelso's "The Capitalist Manifesto" come away unaffected.

I especially like the code of ethics:
http://www.cesj.org/about-cesj/what-we-believe/cesj-code-of-ethics/

 

[cooch96]

Imoldernu, I've been meaning to read a Capitalist Manifesto. I'll move it higher in my queue.

Does the Third Way involve using sound money?

As a free marketer, I'd welcome the government stepping aside and letting things sort themselves out and rebound. I think Amity Schlaes made a convincing point that the New Deal meddling prolonged recovery until AFTER WWII and many of the confusing and conflicting social programs were disbanded. The super wealthy would get hurt the most (relatively) and the poorest wouldn't notice a change. Those with talent and agile skills would rise and lift the economy.

Please pardon my Blue Skies verbiage, but I get emotional about red tape inertia.

 

[donheff]

Who knows. The Fed can print money till the cows come home. Lots of predictions for hyper inflation and destruction from the stimulus we already went through and here we are still waiting. Seems like eventually something has to give but Krugman would undoubtedly vote for an aggressive response and he knows more about this than we do. What I doubt we would see is an aggressive bipartisan response on the Hill which might really send a message.

 

[dallas27]

What I doubt we would see is an aggressive bipartisan response on the Hill which might really send a message.

On that, i expect, we may all agree.



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[Totoro]

For all the thinkers out there, if we had a great recession part two in the next couple years, could the US govt (and foreign) use the tools they did last time to get us through a second time?

Just finished reading Timothy Geithners book, found it very insightful.

In terms of recession fighting, I think so. Whether the political will is there to act on it, which is more important, seems impossible to answer upfront.

In terms of tackling another banking crisis, apparently the US congress took away some tools (emergency powers) to stop panics, so those won't be available anymore when disaster (first) strikes.

 

[Lsbcal]

Why worry about that bridge now?

 

[dallas27]

Why worry about that bridge now?

...Said the globally recognized brilliant owners of LTCM before they brought the country down to it's knees.


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[Lakewood90712]

...Said the globally recognized brilliant owners of LTCM before they brought the country down to it's knees.


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IIRC , some of the principals at LTCM received the Nobel prize a couple of years before they went into the dumpster .

 

[dallas27]

IIRC , some of the principals at LTCM received the Nobel prize a couple of years before they went into the dumpster .

Ya, they solved a longstanding math problem of how to (perfectly) hedge risk, and properly price options. And they were right mathematically. In the real world they were right, and profited bigtime, until they were not. Ultimately, they lost a bet on how long it took the market to return to the correct pricing. The saying is that the market prices can remain irrational longer than your model can remain solvent, despite being right.


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[Lsbcal]

...Said the globally recognized brilliant owners of LTCM before they brought the country down to it's knees.

Maybe you could expand on this?

I don't see the connection between LTCM and a general recession which was the OP concern. LTCM was a short term equity market crisis that did not get into the general economy.

 

[dallas27]

Maybe you could expand on this?

I don't see the connection between LTCM and a general recession which was the OP concern. LTCM was a short term equity market crisis that did not get into the general economy.

They were the epicenter of the recession, and arguably put the world system at risk.


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[Lsbcal]

They were the epicenter of the recession, and arguably put the world system at risk.

The LTCM problems were in the fall of 1998. There was a sharp downturn in August 1998 but no recession.

 

[dallas27]

The LTCM problems were in the fall of 1998. There was a sharp downturn in August 1998 but no recession.

There is a pretty straight line from Bear to LTCM, and the bailout creating incentive for risk. Hell, bear was run by a LTCM investor. I could argue back to laws in the 80's setting it up, but why. My point was you don't always wait for the bridge to smack you in the face.


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[Fermion]

The thing that would worry me in another Great Recession is state and local funding. There are a number of states that are only getting by because the market recovery. Another sharp drop before they can get their house in order could cause problems.

The federal government could always step in with a few trillion though.

This time I am going to buy gold early, even if it looks expensive when it goes up $300 in a few days. I will just get out of it near the top (around $3000 an ounce)

 

[karen1972]

But isn't the real question, we would go into another recession why I mean last time one of the biggest issues was the housing and credit crisis which is a different beast.. since most people are conned into thinking their house should be their biggest wealth thus they overleverage themselves into an asset that has no liquidity. The solution depends on the problem, a slowing of the economy has many options to fix.. a credit based problem is a different beast which lowering the interest rate is not an option and another crisis of that sort would be chaos.