First of all. I want to make very clear that this message is not criticism to any economic authority. It is cheap to criticise after we see results of actions, sometimes it is extremely difficult to decide the right actions, severity of this crisis makes this one of those times.
In September-October 2009 I was unable to opt which actions are better and which are worse, therefore now I have no moral authority to criticise anyone once they failed. However, now I have to point at some mistakes that I see very clear. Also, I have to address some policies that might not be the best ones, however, they are better than the current ones or, at least, not so wrong. What about December unemployment data? They are a consequence of some actions and some inactions. Late October 2009 I posted (1) that US economy entered into third phase of the short term U-shaped crisis. "This news do not mean that this crisis is over. We have to treat this phase as part of a deep crisis. Third phase means that economy left bottom behind and economy is ready for different goals, but it does not mean that growth is robust and stable yet". Also I posted that "This is when we have to release all our ammunition, when we have to nurture our economy as much as we can, to protect it against all sort of risks around, etc. Time to cut interest rates, to inject liquidity, to boost growth, etc." (2) However Fed´s Bernanke and US adminstration treated the situation as if US economy were at fourth phase at that point. I posted something about it: "that policy means to lock the Fed into an easy monetary policy that will be hard or even impossible to leave in the future because it will destroy the US economic structure and it will base all profits on financial deals". (3) In October Bernanke (and maybe US administration) mischaracterized the point in which US economy was, they were too optimistic. They wrongly though US economy entered into fourth phase and therefore started to put exit strategies in place. They believed that US economy entered into a “positive feedback loop” wherein better financial conditions and stronger growth in employment and output lead to a stronger stock market and improved financial conditions, according to minutes from the Fed’s Sept. 22-23 meeting. (4) Bernanke believed that the US economy with high unemployment rates is the "new normal". Therefore as US economy reached fourth phase (into their minds) they though it was time to put some exit strategies in place. That explains while they keep low interest rates amid they drain liquidity from banks as we can see in some charts I post here again (m3_plus_credit_2009_year_end.png) (7). At that time, although I completely disagreed (I still disagree with their policies) I did not understand completely the reasons behind Bernanke´s intentions. Now I understand that it is not evil intentions, but a big mistake based on their inablility to conceive different policies. Therefore I have to conclude that although the point of no return for a second dip is technically around March, Fed will do nothing before March to avoid it. Therefore I have to be more pessimistic than prof. Krugman about the second dip, its risk is above 30% or 40% that he predicts (6) probably it is almost 100% certainity because Fed will do nothing and will not allow US administration to take any decissive action. It will lead to the projection that red line on chart GDP_and_forecast_early_january_2010 (7) Now we just have to charaterize what sort of second dip will US economy face. "Hyperinflationary recession"? or, as prof. Krugman, suggests "depression"? Reading last prof. Stiglitz speeches, I have realised the root problem few days ago (8). Unfortunately American economists cannot get rid of their ideology when they face actual troubles of US economy. Therefore they cannot advise government to rule structural reforms that, for their ideology, are exclusive priviledge of "free-market". Only economic agents (corporations and consumers) are allowed to shape economies. Thus, following prof. Sitiglitz, markets do not tend to stability, on the contrary, markets tend to exarcerbate unbalances and to destroy themselves. That is exactly the root cause of the long term crisis that US economy suffers since some decades ago. American economists and most Western economists are unable to understand this facts and therefore are unable to understand this crisis. Not their fault, that is what US universities teach, they have never seen options. Obviously, to reshape US economy is the only way out. In the supply side stimulous pack not just to push economy ahead but to create a modern economic structure that can compete on the global arena, through lower energy costs, faster transportation networks, efficient good and service choices, etc. In the demand side higher saving rates as I posted many times (9) And I have to add to teach in US universities more pragmatism and less ideologies. Peace and best wishes. Xi (1) About GDP growth and more. http://groups.google.com/group/abc_politics_forum/browse_thread/thread/d476a7020a0edbf1/97e12b3f016320ea?lnk=gst&q=phase+recovery#97e12b3f016320ea (2) How to face an U-shaped economic crisis http://groups.google.com/group/abc_politics_forum/browse_thread/thread/a70a7c593aa12cbd/2e365263132b7e0b?lnk=gst&q=U+shape+crisis#2e365263132b7e0b (3) What exactly Bernanke aims? what Americans want? http://groups.google.com/group/abc_politics_forum/browse_thread/thread/1c3c8505619aa8b/fe9b3ebad379578c?q=bernanke&lnk=ol&; (4) Minutes of the Federal Open Market Committee. September 22-23 2009 http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20090923.pdf (6) Krugman: 40 Percent Chance of Double Dip Recession http://moneynews.com/StreetTalk/Nobellaureate-economist-PaulKrugman-goodchance/2010/01/07/id/345684 (7) http://www.nowandfutures.com/key_stats.html (8) Prof. Stiglitz is becoming as radical and extremist as I am. http://groups.google.es/group/abc_politics_forum/browse_thread/thread/f77f1e3e801cb533/6ce52ef834174593?hl=es&lnk=gst&q=xieu.ling#6ce52ef834174593 (9) Are Americans frugal enough to save US economy? Are they saving wise enough? http://groups.google.es/group/abc_politics_forum/browse_thread/thread/6925681630089f0b/a96238a14b22ddcf?hl=es&lnk=gst&q=xieu.ling#a96238a14b22ddcf
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