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Will Obama Stimulus Correct the Spiraling Economic Crisis? January 22, 2009

Posted by Daniel Downs in Barak Obama, capitalism, economy, Federal Reserve, monetary policy, news.
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Here is an answer by Bill Bonner of Agora Financial:

U.S. banks are “effectively insolvent,” says Nouriel Roubini. He figures losses in the United States might rise to $3.6 trillion – most of it in banks and broker-dealers. Which leaves the sector a little short. The banking system in the United States only has $1.4 trillion in capital.

Last week, Bank of America posted a quarterly loss of $1.79 billion…the first loss it’s taken in 18 years. Citigroup out-did it, with a loss of $8.29 billion for the last quarter of ’08.

As in Japan in the ’90s, the economic boat cannot right itself until this bilge is dumped overboard. But the feds are against it – fighting the correction with every tool they’ve got.

Obama says his team with be “bold and swift” in its efforts to deal with the problem. But the action they take will be timid and slow. That is, they will try to hold on…to protect what we have…to prevent change at all costs. “Yes we can!” they will say. But they can’t make the mistakes of an entire generation disappear – especially if they try to prevent a correction.

The truly bold and swift solution, on the other hand, would probably get him impeached. It would be to simply announce that the Obama government was letting nature take her course. No more bailouts. No more stimulus packages. No more federal guarantees or ‘refund checks.’

“Keynes is dead,” Obama should say; “the bankers will get what they deserve.”

In a matter of days, the whole banking sector would go bust…along with GM (more about that, below)…and thousands of businesses all over the country. Millions of people would lose their jobs. Stocks would crash down to 3,000 on the Dow…maybe lower. There would be keening by widows, whose husbands had jumped in front of trains or slit their wrists…there would be gnashing of teeth by millions, whose hopes of getting something for nothing were suddenly dashed…there would be mobs in the street and revolution in the air.

A few days later, banks that were still solvent would pick up the pieces of those that had gone bust. And gradually, the economy would pick up…building on a much more solid base.

But don’t trouble yourself about it, dear reader. That won’t happen. Mr. Obama will take the more cautious route…

Source: The Daily Reckoning, January 21, 2009

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