Posted by: rotenochsen | June 18, 2009



Thursday, June 18, 2009 8:27:14 AM

British economist John Maynard Keynes argued in “General Theory of Employment Interest and Money” that lower aggregate expenditures in the economy contributed to a massive decline in income and to employment that was well below the average. In this situation, the economy might have reached a perfect balance, at a cost of high unemployment.
Although Keynes never mentions fiscal policy in The General Theory, and instead advocates the need to socialize investments, Keynes ushered in more of a theoretical revolution than a policy one. His basic idea was simple: to keep people fully employed, governments have to run deficits when the economy is slowing because the private sector will not invest enough to increase production and reverse the recession. Keynesian economists called on governments during times of economic crisis to pick up the slack by increasing government spending and/or cutting taxes.

In 1928 and 1929 prior to the great depression, the Federal Reserve raised interest rates to try to curb Wall Street speculation (otherwise known as a “bubble”). Many historians like Brad DeLong believe the Fed. “overdid it” and brought on a recession. Moreover, the Fed then sat on its hands: “The Federal Reserve did not use open market operations to keep the money supply from falling…. [a move] approved by the most eminent economists.”
There was not yet a “too big to fail” mentality at the federal government policy level. And today to pay for Obama’s spending the Fed has had to artificially raise the principal on our T-Bonds to get foreign governments to buy them! Source:

It appears that president Obama is, if not a student of the Keynesian theory,a person who is using Keynes ideas to spend our country out of what he refers to as an impending economic disaster

During the Depression, Roosevelt tried public works, farm subsidies, and other devices to restart the economy, but never completely gave up trying to balance the budget. According to the Keynesians, he needed to spend much more money, but they were unable to say how much more.
Keynesian economists assumed poor people would spend new incomes; however, they saved much of the new money; that is, they paid back debts owed to landlords, grocers and family. Keynesian ideas of the consumption function were upset in the 1950s by Milton Friedman and Franco Modigliani,but apparently Obama has either forgot or put aside that portion of our history.
He has spent or committed trillions of dollars to government take over programs, and he always prefaces his program with the idea that if we do not do it we will have financial disaster in the future. Never once admitting that the debt he is growing will saddle not only this generation, but generations to come after us with the burden of high taxes and a weak dollar!

A perfect example of how this president uses fear to persuade any doubting people that what he is proposing is necessary to avoid a disaster is his speech today about Wall Street.

Obama said; “Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected,” President Obama told Bloomberg News in an interview published on Wednesday. Most prudent thinkers will agree the word “abyss” is a large and shameful description of our times.

“When I hear some of the commentary that’s been creeping up about, “You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them — all we’re doing is cleaning up after the mess that was made,” Yes he inherited a large debt, but it is about time that Obama takes some of the blame for spending us into a 11.4 trillion dollar debt!

Obama’s comments came hours before the unveiling of what are the most sweeping changes to the US financial regulatory system since the 1930s, as an attempt to prevent last year’s financial crisis from happening again they say.

Although acknowledging that “you’re starting to see the engines of the economy turn,” the President added that “it’s going to take a long time” for a robust recovery to emerge.

The proposals to be announced today will require approval by Congress and the administration is hoping to have the legislation passed by the end of the year.

The President also told Bloomberg that “as soon as this economy has stabilised, we want the market to do what it does best, and that is produce jobs, invest.” He cannot be serious!

Mr. Keynes said this about people who claim to know the way to solve economic problems.
“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back… soon or late, it is ideas, not vested interests, which are dangerous for good or evil”.


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