The Angry Economist

The problem here is simple: credit is scarce because nobody wants to lend and nobody wants to buy. Why not? Because the Federal Government is threatening to borrow and spend a TRILLION DOLLARS. If you are bank, would you sell your product if you knew that an A-grade customer was going to be spending a TRILLION dollars soon? Of course not. Even if they choose not to buy from you, the price of lending is going to go up. It can't help but go up, not when a TRILLION dollar buyer is showing up. So nobody is lending now.

And nobody is buying anything now. Why would you? You want to be positioned correctly for the TRILLION dollars which is going to enter the market soon. You don't want to invest your money in something, only to find that the market has shifted and your investment is toast.

The failout is not the solution to our problems. It is the CAUSE of our problems, merely by being threatened. Why is this not obvious to everyone?

I blame Krugman.

I wonder if Paul Krugman has borrowed huge amounts of money and spent it already? If he hasn't done it, then why should we? If he doesn't trust his own theory for his own household, then why should we trust his theory for our country?

The answer is that of course he hasn't done that, because his theory requires that many people behave differently than each person. And yet when the many are made up of individuals, how can that be?

Krugman's theory has no legs. That dog don't hunt.