Barack Obama: From Kenya to Keynes

Many opinions are being expressed over whether we are at the beginning, middle or end of this economic crisis. But what seems much more important (and obvious) is the fact that the Federal Reserve has already reached the limit of it’s monetary policy, namely zero interest rates. So when Mr. Obama does take over the reins, his focus is much more likely to be on what seems to be accepted as the “next step” - Keynesian economics.

You could spend a good weekend reading “The General Theory of Employment, Interest, and Money”, or you could read this 2 line summary by Paul Krugman:

Until The General Theory, sensible people regarded mass unemployment as a problem with complex causes, and no easy solution other than the replacement of markets with government control. Keynes showed that the opposite was true: mass unemployment had a simple cause, inadequate demand, and an easy solution, expansionary fiscal policy.
The Unofficial Paul Krugman Web Page

To those prudent savers/renters who did not gamble away their money on the real-estate market, it seems only fair to let deflation take hold so that excesses can be worked off, and the guilty get punished. But when it comes to investing our money (as investors) and planning our business (as enterpreneurs) - it is more prudent to think in terms of what is “likely” to happen rather than what “should”.

So rather than fret about whether inflation, stagflation or hyperinflation is in our future,  its more productive for our investments and businesses to speculate on what the Obama presidency might choose as its vehicle for a massive Keynesian push.

Lastly, and most importantly, its worth noting that there is a good chance that a Keynesian policy will not work.

Paulson and the Keynesian fools want banks to lend. For what? What is it we need more of? Houses? Condos? Pizza Huts? Home Depots? Lowes? Nail salons? Strip Malls? Walmarts? And if by some miracle banks did lend that money and new stores were built, who is there to buy? What would happen then? Is the amount of money that can be thrown at problem unlimited? What about the problems that will create? Can problems be postponed forever? Is there a Keynesian on the planet who can think more than one second ahead?

Keynesian Claptrap From PIMCO