Christian said, in reaction to a paragraph of mine (also quoted):
>> Our point, in the "Implosion..." paper was not that debt/ income ratio is
>> guiding consumers, but that such indicator ought to inform economists and
>> policy-makers of the risk of letting things going this pace.
>
>So, in your view, an increase in saving, at this point (or a recalibration
>of our measures of savings) is beside the point. The financial balance is
>going to have to revert in short order--and that means a loosening of
fiscal
>policy and/or a really more devastating market crash in which wealth is
>liquidated to overcome income shortfalls.
Yes, in part yes. Of course, recalibration of the measure of saving would do
much harm if the "new" measure were misleading. And I think that it is
misleading to include capital gains in our measure of saving, for example.
The crucial issue (IMO) is raised by Christian above; the financial balance
of the private sector is going to revert, because it is relying on excessive
valuation of wealth (misleading indicator of spending capacity) and on
excessive debt burdens.
With this I do not imply giving 'advice' as to whether save or spend the tax
rebate. I am just stating that financial balances have gone so far out of
historical trends that will revert, soon. The problem is that, at the same
time, it is the spending of the private sector that was driven the economic
expansion, from the demand side.
Now, as the private sector balance *is going to revert*, likely outcomes
are, either a recession, or an expansion driven by another factor. That is,
public sector deficit, or net export expansion. The former requires a -quite
contercultural- Keynesian management of the budget, hopefully not only
expansionary but also welfare-protective and re-distributive. The latter
requires either devaluation or some form of protectionism.
Alex
