Inappropriate Stimulation, by Mario Rizzo at ThinkMarkets:
What is happening is a massive re-allocation of resources mainly due to the excessively low interest rate policy of the past few years – but also partly due to certain sectoral shifts. The American car manufacturers, for example, are suffering both from the contraction in credit and from their own long-term inefficiencies.
The fiscal stimulus program is designed to stimulate where economic activity has deteriorated and there are job losses. Many of these areas are those that had over-expanded. As we have been saying for some time on the blog, the effect of this kind of stimulation is to slow down the re-allocation of resources. It will not succeed, however, in preventing it. What it will do is prolong the recession.
