Thursday, January 31, 2008

The "Washington Consensus" doesn't apply to Washington

by Ken Houghton

Ricardo Hausmann body-slams the absurd Fed actions and silly stimulus package.
Returning to a sustainable path is good for the US and the world economy over any horizon that assigns some value to what happens after 2008. Sustainable growth is not the consequence of an unsustain­able consumption boom but of the progress and diffusion of science, technology and innovation – which show no sign of slowing down.

An efficient adjustment to the US over-consumption imbalance (and Chin­ese under-consumption) in a way that does not hurt longer-term growth should be based on compensating for the decline of US consumption with an increase in domestic investment and in consumption abroad. It should not be based on giving the US consumer more rope with which to hang himself.

My HELOC is now 151 bp below my mortgage. Time to draw down again, especially given other circumstances. But at least I know this is unsustainable in the long-term.

(Via Dani Rodrik), who pulled the most damning quote.

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