People talk about fixing our economic problem by regulating or deregulating or inflating or deflating or by... well, the list goes on and on. But, what *IS* the problem?
And how do we know this?
Because the economy tanked all of a sudden when deleveraging became all the rage.
So what must the solution be?
The solution can only be to help with deleverage: to help reduce private debt as soon and as fast as possible. To get us to the point where we don't have to reduce debt.
Joseph E. Stiglitz and Mark Zandi write:
Late last month, the top regulator overseeing Fannie Mae and Freddie Mac blocked a plan backed by the Obama administration to let the companies forgive some of the mortgage debt owed by stressed homeowners. While half a million homeowners could be helped with a principal writedown, the regulator, Edward J. DeMarco, argued (we believe incorrectly) that helping some homeowners might cause others who are paying on their loans to stop so that they also could get their mortgages reduced.
First of all, so what if others also want their mortgages reduced? That is exactly the thing that must be done. We should prevent this thing that needs to be done, because it is something people want?
That probably gets us into the arena of "moral hazard". That's fine. Let's look at the problem again.
The problem is debt. Excessive private sector debt.
The solution must be to reduce private sector debt.
If you have some excuse for not allowing the reduction of private sector debt, then you are delaying or preventing economic recovery.
Edward J. DeMarco, you are delaying and preventing economic recovery. Get off your damned high horse, Edward, you holier-than-thou son of a bitch.
And for the record, the right time to be a moralistic prick would have been the 1990s, when you were instead encouraging the excessive use of credit and the excessive accumulation of debt. Or the 1980s, when you were encouraging the excessive use of credit and the excessive accumulation of debt. Or the 1970s, when you were encouraging the excessive use of credit and the excessive accumulation of debt. Or even in the 1960s.
Then, it would have been a heroic stance to take. Now, it is a horrific stance.