Suspended in air?

Brad DeLong looks at the current fiscial situation and writes: (amp add)

There is about a 30% chance that the U.S. economy is about to start growing rapidly, with unemployment declining by a percentage point or two each year. There is about a 40% chance that we are about to start a recovery like or a little bit better than the "jobless recoveries" that have followed the last two (much shallower) recessions, with unemployment staying where it is or trending down slowly. And there is about a 30% chance that the unemployment rate is going to pause--and then start rising again in a double-dip recession.

The tools to fight a further rise in unemployment are threefold:

• Banking policy--have the Treasury buy or guarantee risky financial assets in enormous amounts in order to boost asset prices and get businesses back into a position where they can profitably obtain financing for expansion.
• Monetary policy--have the Federal Reserve goose asset prices by taking steps that lower real interest rates somewhere along the yield curve.
• Fiscal policy--have the government spend money, either by hiring people directly or by buying things from private companies that then hire people directly.

Boosting/goosing asset prices. Are they undervalued or would this be an attempt to bring them back to prices of the borrow-bubble days?

BTW, DeLong says that of those 3 options, the first two aren't going to happen - although I wonldn't be so sure. But it's an interesting commentary on the state of the nation's economic virility when the way out is by raising asset prices. (POPULIST NOTE: We all know who that benefits.)


posted by Quiddity at 1/30/2010 03:56:00 PM