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Government economic policy: Throw money
by Scott Gilbreath ~ January 22nd, 2009
Several business columnists and economists suggest that economic policy makers in Canada, the US, and elsewhere don’t know what they’re doing. First up, Terence Corcoran of the Financial Post:
Timothy Geithner, President Obama’s nominee for Treasury Secretary, said yesterday that the Obama administration will unleash a “comprehensive plan” to respond to the economic and financial crisis gripping the U.S. economy within a few weeks. Finance Minister Jim Flaherty, set to reveal a major deficit-spending budget next Tuesday, said yesterday that his economic plan will include a long-term strategy on how Ottawa will “exit” from major deficits – estimated to hit at least $115-billion over the next few years.
It all sounds very impressive and authoritative, although it is far from clear that Tim and Jim have clear ideas of what it is they are fixing. This is especially true since they are essentially fixing is [sic] a mess that, one way or another, they or other government agencies created.
Many economists argue that easy credit policies followed by the US Federal Reserve Bank under Alan Greenspan created the economic boom of the early 2000s—and the global bust now upon us. Says Stanford University/Hoover Institution economist John Taylor:
“I have provided empirical evidence that government actions and interventions caused, prolonged and worsened the financial crisis.” As he puts it, “no boom, no bust.” More specifically, he says “monetary excesses were the main cause of that boom and the resulting bust.”
Michael Parkin, Professor Emeritus at the University of Western Ontario, believes that Canada has abandoned sound monetary policy.
The Bank of Canada, responding to the fall-out from the U.S. financial crisis and the mistaken actions from the Federal Reserve and other central banks around the world, has departed from its tried and true approach and gone into panic mode. The rate-slashing binge that has consumed central banks is not bringing order and stability to strained credit markets, is not contributing to real economic recovery and could be fostering an upturn in the inflation rate that will be impossible to reign in without a policy-induced recession on a scale that makes 2009 look tranquil.
In the UK, Lord Turner, chairman of Financial Services Authority, the agency overseeing Britain’s financial sector, says finance ministers and central bankers around the world had failed to recognise and react appropriately to soaring debt based ultimately on bad loans. He calls for fundamental changes in the banking system to avoid a similar financial crisis in the future.
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January 22nd, 2009 at 08:50 PM
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