The Keynesian clown hit parade just keeps on rolling. Leo Kolivakis at Pension Pulse is the latest to put on the clown hat for The Third Depression?

Some economists are worried about the push to slash deficits too early. In his op-ed piece in the NYT, Paul Krugman goes as far as calling for The Third Depression.

I also fear that policymakers are making a major mistake by moving so aggressively to cut deficits at a time when the global economy remains fragile. If you go back in history and look at all the major recessions, they were preceded by major policy mistakes. Either the Fed started raising rates too aggressively, or governments slashed spending too aggressively, or both.

The Cause of Depressions

I am sick of Keynesian clowns who do not know the cart from the horse, who think debt is a free lunch, who think spending and debt are the ways to get out of debt problems and most of all never say how this debt is going to get paid back.

What causes depressions is an unsustainable runup in credit and debt that precedes it, NOT a failure to go deeper in debt.

Anyone who understands 5th grade math should be able to figure that out. Unfortunately, Nobel prize winning economists can’t.

“I listen to nonsense from some commentators claiming that if the US is not careful, it will suffer the same fate of Greece. Total rubbish.” says Kolivakis.

Three Examples of Total Rubbish

  • People who think crack addicts can smoke crack to cure their addiction
  • Alcoholics who think they can drink their way out of alcoholism
  • Debt junkies (and Keynesian clowns) who think one can spend one’s way out of a spending problem

In a sense all of the above ideas will “work”.

In the first two cases the result is physical death, nature’s way of solving the problem. In the third case, a bond revolt and economic death solves the problem.

Depression is Well Earned

If a depression is coming, and I think we are in one already, then it was well earned. Thanks to Greenspan and Bernanke, we had the biggest debt party and housing boom the world had ever seen, and depression is the unavoidable payback.

Yet parade after parade of Keynesian clowns suggest there should be no payback for that party, that life can go on, that all we have to do is keep spending money no one has, money that cannot possibly be paid back, and all will be fine.

Excuse me for pointing out the obvious Greenspan’s attempt to defeat the recession and deflation in 2001-2002 did nothing but ….

1. Put off addressing the problem
2. Made a far bigger problem attempting to do just that

Thus, those same economic clowns will soon be saying “I told you so” when this recovery dies although the reality is there was never any recovery in the first place, only a mirage of unsustainable spending.

Keynesian clowns want to keep spending until the bond market pukes. As I said in More Keynesian Clowns Come Out of Woodwork … No policy ever performs badly enough to cause its disciples to abandon it.

Mike “Mish” Shedlock
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