Posted on January 14, 2010.
Is it time for "Shock Therapy?"? What I am talking about are policy actions equivalent in speed and scope of those that were developed by Jeff Sachs and used with a high degree of success in places like Bolivia and Poland.
http://en.wikipedia.org/wiki/Shock_thera ...
Seeing as how all the measures taken by the Fed and Treasury - along with their international counterparts - have ceased to end the financial crisis, I am increasingly beginning to think it is time try shock therapy here.
- Increase the discount rate to 10% or more to allay investors' fears about the trillions of dollars, pounds and euros that are being printed, and to quickly liquidate the bad debt in the system.
- Increase the required reserve ratio to 20% to restore confidence in bank solvency.
- Guarantee of deposits, money market accounts and other investments nominally safe.
- No more rescue or injections of liquidity on the supply side (directly to institutions).
They way I figure we'll be in a lot of pain either, so why not do 2-3 months of pain, rather than up years ago? It also seems clear to me that we are in a liquidity trap, the actions that monetary policy is totally ineffective (when interest rates are cut this down, money and Treasury bonds are competing assets) . Most banks and financial institutions will fail, but what? They will find themselves completely nationalized anyway if we continue with the piecemeal measures BAND-AID.
I think that Jeffrey Sachs is not so much in favor of its own methods, not more. Given the chaos in Russia, and years of economic decline unnecessary in Poland, I think even Sachs acknowledged that the shock therapy is intended to push the reform to open the country to foreign investment, to serve the interests the people.
But I think you can bet on a shock therapy "in the United States, despite or because of Obama. Its the way the wrong side of government work. Each crisis is a potential area of civil rights and were beaten on freedoms, and this makes the implementation of a new "ideal" policies much easier. the killer of her best opposition available. As much as I like Obama's agenda, I think that's addicted to the island "policy are potentially even more disastrous than the two-Pary suffocating which held so far. He was opposed to a political debate and opens the way for technocratic blind.
So no. "Shock therapy" is looking down on the institutions and structures that fall outside the Grand Master Plan. It has aa search-UNI deminsional on society, and it uses a crisis, real or perceived, to transmit solutions. The only way to permanently change the U.S. in the right direction is to turn everything slowly. Thus, the mesh of the rules of 'checks and balances (as far as the rest of it after Greenspan) has continued to work.
Have you read the book by Naomi Klein? it gives a very detailed account of economic and social reforms in S-America and Eastern Europe, as well as a fundamental critique of shock therapy. This is called The Shock Doctrine is a must read.
The only form of shock therapy to humans is when the Arctic ice cap melts, finally for good, and Amazon will disappear. It is all our other problems similar to artificial curiosities.
