The 2008 crisis was as deep and terrible as that of 1929.Īs in 1929, sequential bankruptcies, unemployment, and falling prices meant no one was willing to borrow. The reason capitalism no longer works like that is the manner in which the Obama administration, aided and abetted by the Federal Reserve (Fed), refloated the sinking Western banks. Alas, we no longer live in that kind of world. In the 1950s and early 1960s, under the Bretton Woods system, an interest rate of around 4 per cent did the trick of balancing savings and investment while keeping bank profitability at a level that allowed credit to reproduce itself sustainably.īack then, if investment fell below available savings for too long, and failed to recover despite a reduction in the interest rate, a well-designed government stimulus raised investment back to the level of savings, the rate of interest picked up, and balance was restored. And there is the rub: It is not at all clear that there is a single interest rate that can do both.
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Second, it would not unleash a cascade of corporate bankruptcies, bad loans, and a fresh banking crisis. What would render any rate of interest “just right?” First, it would achieve the right balance between available savings and productive investment. Central to their prediction is their tacit assumption that there is also a Goldilocks interest rate and a corresponding stimulus size that will deliver it.
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To see why there can be no “Goldilocks” stimulus that gets the amount “just right”, it helps to engage the critics who argue that the administration’s proposal would overheat the economy and hand the Republicans the midterms. In fact, no such figure exists: Every possible stimulus size is simultaneously too little and too big. Where they disagree is on what that figure is. The problem with this debate is that both supporters and critics of Biden’s stimulus plan assume that there is a dollar amount that is big enough, but not too big. Their argument is that too much stimulus will trigger an inflationary surge, resulting in an interest-rate spike that will force his administration to slam on the austerity brakes just before the midterm elections in 2022, costing his Democratic Party control of Congress, just as too little stimulus cost Obama control of Congress in the 2010 midterms. Prominent centrists like Larry Summers and Olivier Blanchard warn that Biden’s decision may prove his undoing. He wants to “go big” with a $1.9 trillion spending plan. Then he compared how those trends performed in reality since Trump took office.ATHENS - US President Joe Biden, facing the great challenge of stimulating his country’s economy for the post-pandemic era, and haunted by then-President Barack Obama’s tepid stimulus in the face of the Great Recession a decade ago, has decided to err on the side of overshooting. To test the hypothesis, Hassett said they looked at recent trends until Trump was elected and how those economic trends were expected to play out.
#GOLDILOCKS ECONOMY CREDIT OBAMA SERIES#
He then unveiled a series of charts on a whole host of economic indicators, including small business optimism, nonresidential fixed investment, capital spending, durable goods orders, purchasing manager index, and new businesses. You know, since we are the nerds of the White House, we decided this was a testable hypothesis” Hassett noted. “One of the hypotheses that’s been floating around about the economy lately is that the strong economy that we are seeing is just a continuation of recent trends.
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To further debunk the myth that Obama is responsible for Trump’s economy Kevin Hassett, the chairman of Trump’s Counsel of Economic Advisors, came out swinging. Economic growth is expected to come in around 3% this year. In reality, growth did come in close at 2.3% in 2017, but that was before the Trump tax cuts were passed. How? Easily, we can look at the Congressional Budget Office’s economic projections published during the Obama years for 2017 onward, and compare to them to actual economic growth under Trump.įor example, in 2016 Obama’s CBO projected that economic growth would be 2.2% in 2017, and 2.1% in 2018. Just as we could quantify that Obama’s recovery didn’t live up to his own projections, we can prove that the Trump economy is more than just a supposed continuation of the Obama economy, as Obama is claiming. How can Obama place the blame for his policies that didn’t live up to his own expectations on Bush? He didn’t want to take credit for the slowest economic recovery since the great depression, so why is he allowed to take credit for the expansion that began with Trump’s presidential victory?