Monday, March 02, 2009

Balanace Sheet recession and the Revenge of the Glut

Revenge of the Glut - Paul Krugman

The best explanation of the financial crisis I have heard and it's solution came from an NPR expert from Japan. He explained how property owners are experiencing balance sheet problems.

The result is very obvious. Our balance sheets are wacked so we must recover by saving. This savings a has lead to a ridiculous problem of the paradox of thrift. The paradox is that if everyone attempts to repair their balance sheets at the same time and get financially health all at once, then the economy as a whole goes to hell in a handbasket.

Can I get a witness?

The solution is that we allow the government to temporarily and intentionally get its balance sheet into trouble and spend while we all save. I do see a problem with this fix. The trouble with this solution is that the government already has a balance sheet problem. BUT, nonetheless, if they government tries to fix it's balance sheet problem now, like Hoover did, then the problem will get as severe as the '20's.