Christina Romer: A Financial Crisis Needn't Be a Noose

The New York Times:

RECESSIONS after financial crises are long and severe, and the subsequent recoveries are protracted. That is the bold conclusion of “This Time Is Different,” the book by Carmen Reinhart and Kenneth Rogoff, and it has become conventional wisdom.

Read the whole story: The New York Times

Comments

[gerald4]

03:55 PM on 12/19/2011

I believe that it is appropriate to quote a Mr. Bruce L. Hardgraves, USN Retired, of Worland, Wyoming, who self describes himself as a "Former Drunken Sailor" who wishes to correct record with his posted opinion in the Northern Wyoming Daily News, April 2, 2010 where he states in a letter to the editor that,

"I object and take exception to everyone saying that Obama and Congress are spending money like a drunken sailor. As a former drunken sailor, I always quit (spending money) when I ran out of money."

President Obama and Congress just keep on spending money after they run out of money.

A balanced budget amendment would be like the bartender controlling the spending of the drunken sailor by refusing credit to the sailor!

[gerald4]

04:00 PM on 12/19/2011

Individuals in foreign industrialized countries view the United States government as borrowing back lots of the US dollars from the people who we paid to make the things that we consumed, and then spending these huge amounts of US dollars with the careless abandon of a drunken sailor on shore leave buying his new friends that he just met (voters) in a bar with free drinks (tax payer funded government bureaucratic jobs and government contracts), who only is concerned about today and will not plan anything for or even think about tomorrow.

US government printing and selling newly issued freshly printed paper US Treasury Bonds (economically the same as printing US dollars) to pay federal government expenses that are in excess of the tax collections and this will cause the US dollar's purchasing value will diminish to a tiny percentage of today's purchasing value related to other (industrialized nation's) currencies, and then the Chinese Yuan (or Renminbi) might be the "last man standing" with any value for use in international business transactions.

The Indian Rupee, the Pakistani Rupee, or the Brazilian Real will also have purchasing power after the US dollar purchasing power is destroyed by US government deficit spending since those nations (or their industrial manufacturing businesses and industries) are creating NATIONAL WEALTH instead of consuming NATIONAL WEALTH.

[gerald4]

02:31 PM on 12/19/2011

The economic pie, or the GDP of the USA, or of any other nation is the total of the PRIVATELY OWNED WEALTH that is being created anually within the boundaries of our nation and is SUBJECT TO TAXATION and/or CONFISCATION by our various governmental taxing authorities to pay for government services and government contracts.

The existing NATIONAL WEALTH is the total monatary value of the privately held assets such as title to (corporati­ons that own) privately owned businesses­, factories, casinos, hotels, farms, land, ports, refineries­, forests, ports, breweries, distilleri­es, and other privately owned NATIONAL WEALTH and other assets located in the USA that were created by previous US generation­s prior to de-industr­ialization.

That NATIONAL WEALTH is available for purchase by foreigners that have US Dollars that they earned when US citizens paid them to make US imported consumer products.

Otherwise the US dollar would have NO VALUE.

[gerald4]

02:35 PM on 12/19/2011

We must all realize that PRIVATELY HELD NATIONAL WEALTH is made, created, and/or acquired mainly (maybe only) when the members of a family (or the citizen businessmen of a nation, city-state, island, tribe, etc.) perform one or more of the following tasks:

1. plant, grow and/or harvest something of commercial value from the earth;

2. extract something of commercial value from the earth;

3. manufacture something of commercial value that is consumable

4. construct a building that is permanently useful for rental income;

5. provide professional services (medical, legal, dental, engineering, architecture, land surveying, technology, accounting, etc.);

6. collect payment for patent and copyright uses;

and then trade, sell, lease or rent these items and/or services to parties outside of their family, in return for a net transfer of gold, currency or commodities from other parties outside of their family into their own family.

Non-government JOBS are ONLY created by businesses and corporations in order to CREATE WEALTH for those same businesses and corporations!

[gerald4]

02:37 PM on 12/19/2011

The members of that family (tribe, state, nation) can then reflect their real NATIONAL WEALTH and financial security with the net positive accumulation of privately owned grain, gold, cattle, jewels, land, buildings, hotels, casinos, factories, commodities and/or other marketable products that are then available to be used for economic security for reserve use in times of emergency and/or also to raise the standard of living for the members of that family and also accumulate redeemable products and/or commodities plus title to locally in-country located assets as redeemable value for any printed currency that they might care to issue and/or any Treasury Bonds that they might care to print and sell.

The NATIONAL WEALTH that was created by industrious private businessmen (and the Corporations) in any nation is the ONLY WEALTH AVAILABLE to be CONFISCATED in the form of TAXATION in order to create funds to form a government with money to build and operate schools, streets, water and sewer systems, repay sovereign national debts, pork barrel projects, green projects, infrastructure projects, wars, streets, bridges, highways, welfare, unemployment, school teachers, policemen, courts, prisons fire fighters, social security and other non-wealth creating government provided bureaucratic services for that family, tribe, city, state, or nation, EXCEPT for borrowing money and obligation future tax collections to repay those loans (Treasury Bonds).

[gerald4]

02:37 PM on 12/19/2011

Each nation must generate the assets and financial capability to be able to take care of those that cannot take care of themselves, and this capability can only be available if that nation has NATIONAL WEALTH created by successful businesses available to be CONFISCATED in the form of taxation in order to create funds to pay for that activity.

There are limits to the amount of NATIONAL WEALTH that can be forcibly taken from the wealth creators in the form of taxes and paid to the government or borrowed from foreigners to pay for various government activities and expenses, no matter how much these government expenses are deemed as being "necessary" (usually by the elite government bureaucrats).

If those limits are exceeded, then that nation’s economy will self destruct!

[gerald4]

02:22 PM on 12/19/2011

Federal, state, county, municipal, school district and other various government taxing authorities CONSUME (or destroy) a the NATIONAL WEALTH that was CREATED BY THE PRIVATE SECTOR BUSINESSES when they spend their tax collections on activities such as government contracts, government bureaucratic payrolls, wealth re-distribution, and other wealth consuming government activities.

If your family makes wine, then you must make and sell enough wine to others so that you can accumulate enough profit (NATIONAL WEALTH) so that you will be able to buy the other things that your family needs from others that produce those other things, and then hopefully you will have enough left over to accumulate more wealth for any future emergencies.

There is no magic bullet that will create enough wealth to pay off our (Credit Card National Government) debt!

Each nation in the entire world has always concentrated on producing enough food, shelter and clothing for its population to survive, and then also produce as much excess as possible to sell and/or trade to others outside of their own family (or tribe, state, or nation) in order to accumulate NATIONAL WEALTH.

[Chubbster]

01:16 PM on 12/19/2011

As an economist Christine Romer left-wing Berkeley joke who is...well, to be kinder now...very inaccurate.

[gerald4]

12:09 PM on 12/19/2011

Ms. Romer, you stated that, "According to an influential paper by Ehsan Choudhri and Levis Kochin, Spain benefited from not being on the gold standard. Its central bank was able to lend freely and increase the money supply after the panic. By contrast, in 1931, the Federal Reserve in the United States raised interest rates to defend its gold reserves and stay on the gold standard, setting off further declines in output and exacerbating the banking crisis."

The US government does not really borrow money from banks. It raises money to pay for bureaucratic tax paid salaries, government contracts and other federal government expenses that are in excess of tax revenues by printing and selling freshly printed paper US Treasury Bonds (and other US paper debt instruments) that promise that our children and our unborn grandchildren will pay off these debt instruments on the date of the bond maturity with US dollars that future generations of US citizens will have to earn mostly from foreign trade revenue by making and exporting consumer products to foreign countries for money.

Are you proposing that the US government start printing and selling US Treasury Bonds at an faster speed in order to be able to pay for the ever accelerating costs that the US Government is incurring to pay for the increasing government activities?

[gerald4]

12:12 PM on 12/19/2011

Present US citizens have placed these burdens of re-paying our debts onto our children and future unborn generations of US citizens that will have to work hard in some factory to earn enough money to pay for our non-productive non-industrial lifestyles when these US Treasury Bonds mature.

Instead of creating more privately held NATIONAL WEALTH with RE-INDUSTRIALIZATION that could be subjected to taxation to raise money to pay for expanding government expenses such as re-building the infrastructure, the US government is printing and selling freshly printed paper US Treasury Bonds (that have NO VALUE and are not redeemable for gold) to generate money for the government expenses that are greater than tax revenues.

Since the US Treasury Bonds, Dollars and other Securities have NO VALUE, except that the US government is allowing these freshly printed paper US Treasury Bonds, Dollars and other Securities to be redeemed for title to (corporations that own) privately owned businesses, factories, casinos, hotels, farms, land, ports, refineries, forests, ports, breweries, distilleries, and other privately owned NATIONAL WEALTH and other assets located in the USA that were created by previous US generations prior to de-industrialization overseas instead of redeeming these freshly printed paper US Treasury Bonds with gold from Ft. Knox.

[gerald4]

12:15 PM on 12/19/2011

When the USA has no more privately owned wealth and assets (real estate and businesses) available for foreigners in industrial countries to exchange for the foreigners freshly printed paper US Treasury Bonds and freshly printed paper US Dollars that we gave the foreigners to make consumer products for US citizens, those foreigners will then not accept any more of our freshly printed US dollars and US Treasury bonds to pay for the consumer products that we continue to import and consume.

The Federal government will then not have funding to pay for our US government expenses (bureaucratic payrolls, military payrolls, government contracts, wars, welfare, unemployment, infrastructure expansion, highways, bridges, etc.) and/or to pay for any more imported consumer products.

The US Government will then probably just start printing US dollars to pay for their government expenses.

When this happens, the purchasing power of the US dollar will approach zero.

[kickserv]

12:30 PM on 12/19/2011

Well said, and I hope you feel better now.

[frank day]

11:53 AM on 12/19/2011

"policy makers need to make the financial system less prone to crises, and to fight panics aggressively when they arise. This is a lesson that European leaders, sitting on the edge of a financial meltdown and dithering over a solution, should keep foremost in their minds. And it’s a cautionary tale for those who’d hinder worldwide attempts at stricter financial regulation."

And yet both parties ignore the facts and are intent on reinflating the bubble and repeating the same mistakes.

Our government has proven itself incapable of good governance and we the people are waking up to that fact.

[gerald4]

12:55 PM on 12/19/2011

Hello Frank:

I believe that US Economics, the US Trade Deficit, the Federal Government Spending Deficit, Jobs for Americans, and the Buying Power or value of the US Dollar are all interrelated.

Each of these important principles generally affect each of the others.

These economic principals interlocked with easily understandable cause and effect principals of various economic action options that can be totally understood by almost any High School Graduate, and/or most High School Drop outs.

The USA needs to re-industrialize in order to generate new NATIONAL WEALTH, and stop mortgaging or selling existing NATIONAL WEALTH that includes assets that were created by previous generations of US citizens to get currency back from foreigners to pay for government activities.

The government then spends this borrowed money on bureaucratic government employee payrolls, government contracts, to pay for the common infrastructure that we all enjoy, to take care of those that cannot take care of themselves, and various other government expenses that do not create any new NATIONAL WEALTH.

[frank day]

01:03 PM on 12/19/2011

Hey Gerald!
I agree :)
Happy Holidays !!

[gerald4]

11:51 AM on 12/19/2011

I do not know why economists or anyone else could refer to or compare national (sovereign) debt as a percentage of Gross (National) Domestic Product (GDP) as having much importance.

This GDP has very little to do with the ability of a nation to repay their national debt if the majority of the GDP activity was US government borrowing money from wealth producing entities in the industrial nations and using that borrowed money to pay tax funded government employee, payrolls, unemployment benefits, welfare, retirement pensions, infrastructure projects, providing free medical, housing, wars, social services, pork barrel projects, military contracts, and other tax funded activities that do not produce any NATIONAL WEALTH that the nation could use to repay national (sovereign) debt, reduce the foreign trade deficit, or create any new NATIONAL WEALTH?

What if most of the GDP is spending BORROWED government funds to build infrastructure, pay government employee payrolls, flipping hamburgers, cleaning houses, selling insurance, selling stocks and other newly printed financial products, selling investments, suing each other, and other activities that do not generate any additional NATIONAL WEALTH?

RE-INDUSTRIALIZATION of the USA and Europe would create an increasing economic pie (GDP) instead of consuming a larger and larger piece of the existing ever shrinking economic pie, and selling or mortgaging our existing NATIONAL WEALTH (borrowing money with privately held assets as collateral) to pay for more and more federal government expenditures that only consumes the NATIONAL WEALTH that was created by others!

[gerald4]

11:55 AM on 12/19/2011

I want someone to start a new political party to save the US government by creating conditions that economically require or allow the re-industrialization of the USA to create new wealth.

New wealth needs to be created so that this new wealth will be available to be taxed in order for governments at each level can have increased revenues sufficient to pay for their increasing expenses, and also to maybe pay off some of the existing US National Sovereign debt.

Paper shuffling like the Federal Reserve's QE-1, 2, and 3 buying of securities does nothing to create jobs.

The USA needs to re-industrialize and then stop buying as many consumer things from the industrious foreigners with US dollars because that CREATES A CONSTANT FLOW OF US Dollars to foreign manufacturers to pay for the imported products that we pay for, use and consume.

Only the WEALTH CREATING industrialized nations (like China that the US consumers pay US dollars to make the imported consumer goods that US citizens import and consume) accumulate US dollars through their foreign trade have the amount of US dollars available (that the US government needs to borrow) to loan back to the US government to pay for US government expenses.

[Stuart Goddard]

12:05 PM on 12/19/2011

Long overdue Gerald I have been saying it for three years. The bull crap mickey mouse consumer based economy never existed. All made up in NY and London and on borrowed money. over inflated property prices. Pre war economies I am afraid.

[Linda from Deerfield]

11:29 AM on 12/19/2011

I respect Prof. Romer's views, and I think she makes some very legitimate points, but I just can't quite get exactly what bold move she is suggesting that the Fed could make (other than some debasing of the currency). Anybody?

[frank day]

11:54 AM on 12/19/2011

http://www.nytimes.com/2011/10/30/business/economy/ben-bernanke-needs-a-volcker-moment.html?_r=1

[Linda from Deerfield]

02:56 PM on 12/19/2011

I read that, but I'm still not sure -- print more money, a lot more, with fanfare?

[nothingchanges]

11:13 AM on 12/19/2011

The study that NEEDS to be done, is a comparison of financial crisis, recovery, and corruption.

I would postulate, the more corrupt the society, the longer the recovery will take, regardless of the cause.

If that truly is the case, I fear we are in for decades of joblessness.

America has been falling in the Least Corrupt Countries in the World indexes........for years. We now no longer even make the top 10% of Least Corrupt nations.

The 112th Congress of the United States of America...........best government money can buy.....
and it shows.

[gerald4]

03:22 PM on 12/19/2011

nothingchanges,

I truly believe that any new US Federal legislation concerning any topic will be written by the businessmen wanting special legislation, and then their lobbyists will spend hundreds of thousands of dollars on wine, food, prepaid sexual services, women, song, jobs for the congressmen's (plus their congressional aids') unemployable wives, girlfriends, and children, plus campaign contributions, and exotic vacations to entice (bribe) our elected US congressmen (and their congressional aids that "advise" the congressmen how to vote on each issue) to enact whatever legislation that the businessmen desire.