Riff: Deflation? Second Stimulus?

(Here is a random F/B riff in response to an inflation/deflation? and next move question that was posed by an interested party):



imho:

Deflation isn't coming, it's already here. It is there on the biz side, and if energy costs were stripped from food (the cost to farm and ship), it would be more evident there on the personal side as well

So what to do?

The 'between a rock and a hard place' analogy comes to mind. The two options most discussed are:

1. Some (Stiglitz) argued early on that the recent stimulus wasn't nearly enough and that to pull back now would be an error, as seen in the past (FDR stopping too early, before WWII hit and became the Mother of All Stimulus progrmas) and currently (just look at Ireland). Those of this view can not be charmed by today's political reality, with the GOP suddenly finding the Deficit Hawk religion and the general populace buying into it as well. Spend, Pt II might be the right thing to do, but it would likely also be Obama's swan song

on the other side...

2. the more convincing (but seldom heard) argument for austerity is to do so as a way of biting the bullet on 30 years of US econ insanity, and give the system a chance to purge the toxins of inefficiencies that have built up -- as in housing, the flow of too much talent into the financial industries, and so on. This, too, might be proper, but it would also be brutal

I guess I would lean toward another stimulus round, (if the relevent numbers decline sugnificantly in the the next couple quarters), but it can not repeat the major bout of misplaced priorities that polluted (and ruined) the first round (and I am saying that as a Democrat and supporter of Mr O).

The 2 major goals of each dollar spent under federal stimulus need to be directed towards: a) directly supercharding industry's ability to make exportable products; or 2) creating an infrastructure that has the same exact goal in mind.

Sorry, but $8K home buying credits, filling pot holes, new highways, cash for clunkers, and local govt transfer payments all fall under the 'miss' category.

Instead: I'd suggest better aims would be to simply direct them towards the buildout of a limited number of very specific initiatives: a) a legit rail system; 2) FREE ultra-broadband networks; and c) a quickly scaled new-energy ecosystem.

Bottom Line: if we're going to take a gamble on another stimulus round, let's increase our odds with a more clear cut (and effective) focus. If we can't do that, then let's instead just resort to the yucky medicine of the deficit hawks, and see how that gamble works.


RM