Tags: Hussman | US | Financial | Ruin

John Hussman: US on the Road to Financial Ruin

Thursday, 18 Aug 2011 08:14 AM

Economist John Hussman says Washington policymakers have put us on the road to ruin.

"The reason we are facing a renewed economic downturn is that our policy makers never addressed the essential economic problem, which was, and remains, the need for debt restructuring," Hussman writes in his blog.

According to Hussman, there are two one-way lanes on the road to ruin, and unfortunately they’re the only ones on the present policy map:

1) Policies aimed at distorting the financial markets by suffocating the yield on lower-risk investments, in an attempt to drive investors to accept risks that they would otherwise shun;

2) Policies aimed at defending bondholders and lenders who made bad loans, which they now seek to have bailed out at public expense.

“The hallmark of good policy is that it preserves pro-growth and pro-social incentives … protects individual liberty … and operates to relieve constraints that would otherwise be binding,” says Hussman.

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The Federal Reserve’s promise to hold rates to near zero for the next two years does neither of these, Hussman says, and is “simply a further attempt - now becoming desperate - to distort the financial markets by dressing up the same pig with lipstick and a flirty dress.”

“The way to expand the economic wealth of a nation is not simply to ‘stimulate demand’ with fiscal policy, nor is it to distort financial markets with monetary policy,” Hussman observes.

“Rather, the way to achieve better economic performance is to focus on policies that expand innovation and productive capacity, particularly in sectors of the economy where there is likely to be latent demand (which may include infrastructure).”

The Deseret News reports that Kirby Brown, CEO of Beneficial Finance Group, says that while low interest rates can fuel economic growth, they also penalize savers and can motivate investors to take on incremental risk in order to achieve needed returns.





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Economist John Hussman says Washington policymakers have put us on the road to ruin. The reason we are facing a renewed economic downturn is that our policy makers never addressed the essential economic problem, which was, and remains, the need for debt restructuring, ...
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2011-14-18
Thursday, 18 Aug 2011 08:14 AM
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