Hair of the Dog
Source: GoldSeek, Peter Schiff (10/30/09)
"Could there be a simpler illustration of trading long-term pain for short-term gain?"
Even the giddiest commentators admit that the upside GDP surprise resulted almost entirely from government interventions. But, by pushing up public and private debt, expanding government, deepening trade deficits, and pushing down savings rates, these interventions have succeeded only in putting our economy back on an unsustainable path of borrowing and spending. Accordingly, they have prevented the rebalancing necessary for long-term health. Could there be a simpler illustration of trading long-term pain for short-term gain?
The unpopular truth is that rather than curing the economy, government stimulus has made it sicker. The Bush administration and the Greenspan Fed pursued this policy recipe in the 2002–2003 recession. The result was four years of phony growth, greater global imbalances, and the development of unsupportable asset bubbles. Clearly we have learned nothing from those mistakes.
If the government were not 'stimulating the economy,' higher interest rates and falling home prices would have hamstrung residential construction. That would have been the right move. Instead, based on the false economic signals of the 'stimulus,' we continue to build houses for which no legitimate demand exists.
The same is true for cars. Because of stimulus money, Americans are buying cars that they otherwise would not have.
In the end, this stimulus, just like prior doses, will only worsen the condition it is meant to cure. When it wears off, the resulting recession will be even bigger than the one that everyone assumes has just ended. Until the impulse to fight recessions with government stimulus is quashed, genuine economic growth will never return.