Saturday, April 9, 2011
The economy was recovering from a financial crisis, but things still weren't all rainbows and unicorns. Unemployment hadn't recovered fully, and growth and investment weren't quite as high as they should have been. But Very Serious People insisted that right now the Most Important Thing was to reduce the deficit. Sound familiar? I'm talking about 1937. But I could easily be talking about 2011. As the graph above shows, FDR's budget cutting didn't "win the future." It put the US back into recession. With the last minute budget deal, Serious People, including the President, are congratulating themselves for contractionary fiscal policy. The Fed can't even bail them out. Interest rates can't go lower than 0, and they're not likely to try a third round of Quantitative Easing after the gold-bug hysteria that resulted from QE2.