Temporary Nationalization says Greenspan

Allan Greenspan's admission that temporary Nationalization might be a way to fix the current crisis is in a way conceding that laissez faire was not the right approach to keep a healthy banking system. Greenspan was a strong advocate of the hand-off approach as he believed the corporations always acted in best interest of the shareholders and in a perfect market there is no place of wrongdoing without being monitored by interested parties.

It's quite frustrating that Obama government refuse to admit this, even after many respected economists like Krugman was a strongly advocating the same. Relating temporary nationalization to Socialism is silly and makes no economic sense. It seems Obama is trying to stay away from a 'socialist' brand by avoiding such tough decisions. His economics council probably knows what's required but protecting his political image takes the priority so far.

Stimulus Plan Miracle

Obama's stimulus plan is being debated in a rare Saturday Senate session, ahead of the crucial Monday vote. Optimism around the recovery plan was reflected in the Market on Friday itself where Dow was up more than 200 points despite the dismal January job loss report and unemployment rate rising to 7.6%. One question remains : Is the economic stimulus package is big enough to stop the recession ? None seems to know.

800 billion spending in the form of tax cuts, infrastructure building and health care subsidies appears like a big amount and a required one. However, we probably cannot place all our bets on it for the economy to recover. The government is running out of tools to give a boost to the economy and deficit financing is probably the only one left. However, the US is in war for last 6 years and some estimates show that the government spends 16 billion a month to meet war expenses in Iraq and Afganistan. Obviously a good percentage of that is earned by the US corporations and citizens so there was a stimulus package close to 1 trillion already deployed in this economy . Some economists estimate that the real cost of the war is going to be 3 trillion and that means more money in the stimulus package.

So what's the miracle we are expecting out of this stimulus ? Looking at the economic models, its about flooding the economy with money hoping that the aggregate demand will increase, driven by the Goverment and people consumption. So the war expenses and the new stimulus package are doing the same thing. Stimulus package is probably more targetted with a hope that sectoral growth help spreading the activity to other sectors as all are realated in a grand scheme of things.

I really hope the stimulus plan works . However I see the economy slipping into very low activity in 2-3 years . There are couple of signs for that. 1. Increased savings by Americans(means less consumption and hence low production) 2. Unemployment rate : Indicates that businessess see no demand int he future also people get less money for consumption.