A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Thursday, November 29, 2007

Which way out of the recession?

The Fed's concern for the economy is reflected in rate cutting. The market likes rate cutting, some because they think it can actually do some good with the economy. Others because it takes more pressure off the debacle in the financial sector.

The Fed's number two man Donald Kohn said yesterday there is still a lot of uncertainty in the market. The uncertainty is they don't know which way to run.

Reflect a moment on an American economy without the financial sector debacle. Isn't that a recession two years ago? Haven't the past two years been built on the housing boom that turns out to have been $1.4 trillion of smoke and mirrors?

The way out of this mess is to create demand for real goods, not sliced and diced securities. Or patched up banks. Or passive housing. As if we needed any more of that.

Will the Fed's rate cut do it? No. Just No. Let's leave the debate for another day.

What will do it, however, is public investment in the saving of the planet. Infrastructure, R&D, world-wide investment. Stuff that needs to be done, that we can do here. That we can do in the developing world. That we can do in labor-intensive and structurally sound ways.

What will not do it is waiting for the market. The market has just shown its competence.

No comments:

Post a Comment