Thursday, December 4, 2008

More on my latest Daily News Column

I have seen quite a few articles complementing my latest Daily News column. Here's my summary on those:

First, my explanation why the US is heading towards eventual inflation was not complete. While I mentioned inflation would be a blessing, I did not spell out why. Fortunately, Harvard professor (and ex IMF chief economist) Ken Rogoff lays out why inflation is actually needed to combat the crisis. And in case you found my argument for inflation less than crystal clear, FT Alphaville summarizes a couple of recent reports that make the same point.

Second, I have been rather quiet on investment applications of my scenario, which was by far the most common question I received on my article. I am really not a smart and rationale investor, as the recent number of bets I lost on Besiktas attest to, so I wanted to turn the interested reader to someone who is: Paul Kedrosky spells out the investment implications for a scenario along the lines I described in my column.

Third, there is the issue of the fiscal stimulus. While I briefly outlined why I think there will be a bias towards too much of a fiscal stimulus rather than too little, there is a valid counterargument as well, which blogger knzn does a pretty good job of explaining. But even before deciding on the amount, I should note that the effectiveness of fiscal policy is not a given. While I did not delve into this issue at all, one of the important considerations is whether public spending will crowd in/out private investment. Mark Tahoma tackles the issue after referring to another article written on the subject.

Last but not definitely not the least, Economix links to articles on the implications of the fiscal stimulus on US debt.

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