The Government Bailout IS the Problem

The Failout and Krugman
02/29/09 - Angry-Economist by Russ Nelson

The economy is bad because no one can predict the future with a big government elephant stomping around. The elephant can't solve the problem, and it scares away the elves who can solve the problem. The elves are small, but they are smart and there are a lot of them. The economist Paul Krugman has spun a theory for recovery. Will he bet on its success?

[edited] The problem here is simple: credit is scarce because nobody wants to lend and nobody wants to buy. The Federal Government is threatening to borrow and spend a TRILLION dollars.

If you are bank, would you loan money if you knew that an A-grade customer was going to be spending a TRILLION dollars soon? Of course not. Even if they choose not to get their loan from you, the price of lending is going to go up. It must go up when a TRILLION dollar buyer is showing up. So nobody is lending now.

And why would anyone buy anything now. You want to be positioned correctly for the TRILLION dollars which is going to enter the market soon. You don't want to invest your money in something, only to find that the market has shifted and your investment is toast.

The failout is not the solution to our problems. It is the CAUSE of our problems, merely by being threatened as a government action.

Why is this not obvious to everyone? I blame Krugman.

I wonder if Paul Krugman has borrowed huge amounts of money and spent it already? If he hasn't done it, then why should we do it? If he doesn't trust his own theory for his own household, then why should we trust his theory for our country?

Of course he hasn't done it, because his theory requires that many people behave differently together than each person would for himself. The group is made up of individuals, so how can that be?

Krugman's theory has no legs. That dog don't hunt.