Sunday, April 20, 2014

A thought for Sunday: the legacy of a fateful choice

 - by New Deal democrat

Bonddad's  weekly international summary, below, is well worth a read at  In it he describes the deflationary danger of the pro-creditor/pivot to austerity choices that were made in the developed world.

The below quote, from Larry Summers describing his "secular stagnation" theme,  in particular leapt out at me:
 in such a situation falling wages and prices or inflation at slower-than-expected rates is likely to worsen economic performance by encouraging consumers and investors to delay spending, and to redistribute income and wealth from higher spending debtors to lower spending creditors.
 In 2008-09, we could have bailed out debtors, or we could have bailed out creditors.  Had we bailed out debtors, the debtors could have used that bailout money to renegotiate, pay down, or pay off their debts to the creditors, and then both would be made reasonably whole.  Bailing out creditors rescued them, but didn't cancel the debt, and so debtors still had to deleverage and pay off the debts, a painful and slow process.

At that critical juncture, none other than Larry Summers had the most powerful position possible to argue in favor of bailing out debtors, but did not do so.  We chose creditors, and we've been paying the price since.