"In a modern monetary economy like the US (and Australia), sovereign - federal- government must spend before any net increase in financial assets can occur. Stimulus packages, especially infrastructure, are helpfull for replacing the demand that has become deficient in the private sector. I'm not crazy about the Obama plan though.

Government is an absolutely critical part of the process of stable, long-term wealth creation."

Fozz, this is anti-economic nonsense. According to that theory, the way a nation makes wealth is by printing paper. It is precisely the printing of all those paper dollars, backed by nothing, that has caused the economic dislocation in the first place.

"My problem is this: This mess has been underway for almost a decade; where have these brilliant economists been? Why couldn't they have had some influence in preventing the chaos that has developed? Furthermore, what is their solution now that the problem is severe? If they really have the answers, where are their powers of persuasion to set us on the right track?"

Joe in the US: you have hit the nail right on the head. The economists who are now telling us that the solution is for the government to run the printing presses are the ones who caused the problem by saying, like Fozz, there's 'deficient demand' which needs to be cured by government running the printing presses.

http://blog.mises.org/archives/009664.asp

Why aren't they giving the right economic advice? Because the truth is there is nothing the government can do to fix the problem it has caused, but get out of the way: and that would leave the economists without their government-funded jobs.

We all know that printing more money is folly.It is exactly what was done during the 1930's to no avail.There comes a point where the toxic asets and debt must be bankrupted.All Obama is doing is prolonging and intensifying the downtown.

Reduce the size of Govt,get out of Iraq and then Afghanistan.Sack the Federal Reserve and allow congress once again to isssue currency.

Jardine K. Jardine -
"Why aren't they giving the right economic advice? Because the truth is there is nothing the government can do to fix the problem it has caused, but get out of the way: and that would leave the economists without their government-funded jobs."

With all due respect, Jardine, simply getting out of the way does not offer an answer to the current dilemma. That would be like saying, after driving the tractor in the ditch, leave it alone and it'll get out on its own!

Joe
The problem with that analogy is that there is no reason to trust the driver who got it there in the first place.

The economy is not a tractor in a ditch. It is a mistake to think that the spontaneous order that arises from the voluntary transactions of millions of individuals can be centrally planned. Government does not have, and is not capable of obtaining the knowledge it would need to fix the problem. It is the false assumption that it can, that gave rise to the massive exercise in price-fixing that caused the whole problem in the first place.

People assume the government can fix it, and that's why they assume that 'experts' must know the answer. But these experts have been in charge of monetary policy the whole time, and have their own interests to serve too. If they're such experts, how come they didn't see this coming? How come it happened?

The simple remedy is for the businesses that are running at a loss, to go broke. That way
a) no-one else is forced to pay for them to lose money
b) other businesses which are capable of providing the service without making a loss can do so without government stopping them
c) the resources that are now being wasted on loss-making businesses, can go into providing stuff that people actually want.

All government interventions do is destroy wealth while penalising productive activities and rewarding unproductive activities. It is simply mistaken to assume that government has a magic power to be more economical than the markets. If it could be, why only do it during a recession?

President Obama is saddled with the legacy of a failed presidency, and a war that should never have happened. The money spent on Iraq and Afghanistan that should have been spent at home, is the real cause of the world economic crisis.

The United States and Australia both should have a guaranteed jury trial system, but both have an enormous number of Jewish lawyers and bankers, who have set out to totally undermine their Constitutions. The financial crisis we have is manufactured by the Jewish banking lobby. It can be simply fixed by putting every house in crisis on the market at auction, and financing its real value to the current tenants. This is not happening because the grass roots political meetings that used to organize such things, ( a Justice and a jury) are now run by lawyers and fellow travelers. I am talking about jury trials, and the equity of redemption that jury trials guarantee.

President Obama has opened a dialogue with Iran, and should instead of increasing the presence of alien soldiers of a faith repugnant to Muslims, turn Afghanistan over to Iran, and offer to buy all the heroin Afghanistan produces until Iran stops the production there. It would be cheaper than the war, in both lives and money. Likewise if Pakistan cannot control its terrorists, it should be encouraged to ally itself with Iran, help police Afghanistan, and eliminate the religious protests that fuel the insurgency.

Perhaps Obama is not going to succeed, but he has one thing going for him, he is a Christian as is Kevin Rudd. If both of them lead their respective countries back to the fundamentals of good government enshrined in their respective Constitutions, with all major local political decisions made locally, as was the guaranteed process when their respective Constitutions were made, then both countries will recover and prosper.

The Holy Bible KJV in Luke 11 verses 46 and 52 warns Christians explicitly against lawyers. For 498 years from 1372 -1870, lawyers were banned from Parliament in England. The British Parliament let them back in. Was that a mistake?

Hi Joe,

When people talk of 'economists' it is a generalisation.

Get to the nitty gritty.

After the Congressional/government meddling with the credit conditions of many banks in thje Senate with changes to The Glass-Steggal Act and the Community Re-investment Act, the next biggest meddler was the Federal Reserve.

Those are the people who bought us to where we are. Few are economists.

Look mostly at the Fed Res now as they are the biggest promoters of solutions. Particularly Bernanke.

His original solution was to bailout the banks, supposedly to get them lending. Remember the original seven hundred and fifty billion dollars given to the Banks. Net result the banks didn't lend one cent but improved their balance sheets.

Now Bernanke is saying give the Investment funds easy government credit to buy the toxic loans from the banks., to get them lending. Net result the banks won't len, it's not in their interests, and they will merely seek to improve their balance sheets. And bet your bottom dollar their balance sheets will still carry those toxic mortgages, nicely hidden among their Investment Fund assets, and at their inflated values

I suspect the (Fed Res) banks have already invested heavily in Investment Funds ... who, it is proposed by Obama/Geithner/ Bernanke, will buy the Toxic Mortgages from the banks(themselves in other words) at $0.30 cents in the dollar. They thereby improve both their short term balance sheets and will use taxpayers money to recover their $0.70 cent in the dollar write downs over the longer period as the economy recovers and the toxic mortgage securities, ie houses, prices recover.

Brilliant and simple and benefits the banks only. The rest of us will still not get the credit we need, we'll carry the problems resulting from low asset values, consumer inflation, wage restraint and job losses.