Posted by
Andrews on Saturday, January 31, 2009 10:11:51 PM
Watching local news, I heard that the Democrats are trying to force lenders to provide 4% fixed interest rate loans to "any qualified borrower". As a big part of our financial problem was non-performing loans, given on overpriced homes, whose value was pushed up by the ease of obtaining low-interest loans, isn't keeping housing loans at an artificially low interest rate the second worst thing we could do? (The worst being massive monetary inflation, which is taken care of by the $850 billion bailout, which will doubtless balloon the deficit, leading the Fed to monetize more debt, creating new money.)
Immediately before that quote, I heard something even more troubling, President Obama promising it will take years for the economy to recover. As the economy is already showing signs of having bottomed out, isn't that needlessly negative? Even the worst fear mongering economists have predicted two years as a worst case scenario. So, is Obama's prediction just hedging his bets so he won't sound too optimistic if things go wrong? Or does he mean he is going to meddle enough that he will prolong the crisis into an FDR-like decade long depression?
POSTSCRIPT
My own thought is that, if we do nothing, the economy would recover in about 18 months, less if we could cut out deficit spending, stop the CRA, close down Freddie and Fannie, and freeze monetary inflation. However, even if we do none of those things, I think, left to its own, the economy could clear all the inflationary deadwood in 18 months or less. After all, it took Reagan less than 2 years of recession-like conditions to clear all the Carter and Nixon debris out of the economy, so I doubt our current state is going to take longer than that.