Crisis Diary as it unfolds ….

09-Nov-08 to 16-Nov-08: Invoking god of depression economics

With severe recession staring at the face of most world economies, everyone is invoking one god – John Maynard Keynes. The only word that rules the marketplace … well, actually it’s a two word word .. ‘fiscal policy’.
Paul Krugman suggested fiscal stimulus as big as 600b$ for US whereas Roubini is calling for stimulus of somewhat similar size. There was also the push of coordinated fiscal policy measures in G-20 summit. Monetary policy could not unclog the frozen credit markets soon enough and now falling consumer confidence across the board has accentuated the threat of severe recession.

But can governments really spend their way out of this? Well, some governments can. But US has really hard task cut out in front of her. With big corporates failing right and left, with imminent cutbacks in consumer spending, and with US federal budget in such bad shape, Governmental discretionary spending is not going to come without some serious cost.

With all this pump priming everywhere, things may seem to coming back on track for a while, but will it last? What will be the cost of this in terms of inflation? Will it lead to hyperinflation or stagflation?

We’ll have to wait and see.

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November 15, 2008 - Posted by | Weekly News | , ,

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