The alternative lies in the denominator of the Debt/GDP ratio. We have to grow GDP as fast as possible. Unfortunately, no one wants to talk about creating incentives for growth. The only discussion is how to cushion everyone from slower growth.

Here is another article with a similar outlook as you have described, though it goes a bit far in places is worth the read either way. (And this blog is in no way affiliated with me and I have no personal gain from linking it)

http://pajamasmedia.com/blog/want-change-lets-try-truly-free-markets/

Anybody else wondering about this: “One can thus only hope that this adjustment of consumption and savings rates occurs only slowly over time – four years rather than two.”

Is it better to have one year of disaster, mass unemployment and hit bottom fast or to have four years of drawn out misery?

I tend to think that the latter case will be worse for general economic confidence and thus harder to recover from. Thus, I vote for (i) putting in place a safety net for the unemployed and homeless, (ii) arranging for quick resolution bankruptcies for the likes of GM (I don’t see a problem with selling all of our car manufacturers to the Japanese and Germans for $1 each), (iii) forcing all financial institutions to mark their books down to nuclear winter levels, (if you assume those CDOs are worth nothing, you can be surprised on the upside if you’re wrong), (iv) recapitalizing the best of the financial institutions and liquidating the rest.

I would expect the economy to recover strongly once we reach a bottom. Of course, I could be wrong…

The idea that a “Bling Standard” is somehow realistic, desirable, is wrong, Even the Swiss have dumped theirs. It makes you vulnerable to whomever buys up “all the” gold: SWFs, foreign central banks, Private equity, Hedge funds etc… The Fed may have had a hand in too much leverage, but the system self-corrects. The biggest problem after Reagan’s appointment of Greenspan was Bush’s administrative fiat: the 2004 leverage ruling and Congress’s post-Clinton budget busting.

One change we need is addressed correctly above: government policies need to be counter cyclical during boom times – no nation wants to be hamstrung by the pro-cyclical “Bling Standard” – government systems should be counter-cyclical.

At a minimum, the Fed needs to be allowed into VIP lounge where the punch bowl resides.

In terms of the question of how much stimulus we need, there must be many more examples of countries applying economic stimulus to study than the few people are bantering about at the moment. OK, so modern day Japan, Britain in the 70’s and the total experience of the New Deal are not encouraging for Keynesians. Where are the happy endings?

So if we cannot allow piecemeal bankruptcies to clear the system, then what is the alternative except national bankruptcy — which takes the form of meeting all the claims in nominal terms and then hyper-inflating?

I have stayed with stock market investments on the theory that either the crisis will be brought under control and the stocks will recover, or that the efforts will fail and national bankruptcy will ensue, which means that money-equivalents are not a conservative investment. I do not think the Fed/Treasury will repeat the deflation scenario of the 1930s.

BTW – I heard James Grant speak last week, and he is bearish on money and bullish on high yielding corporate bonds, but I dunno — that looks like threading a needle.

Your thoughts (and I would be happy to be told that I am crazy)? (And I add my thanks Scott M’s).