The Financial Crisis Framed

TW: As you may have noticed, I am concerned about the economy. A conservative economics blogger frames many of the challenges well. A consensus certainly has not been reached on how the US should address these challenges. Perhaps more importantly a consensus has not been reached on how China, Japan, Europe, India etc. should address these challenges. All policies interact without incredibly well-planned and well-executed policies the odds for success diminish.

From Doug Drezner via Pethkoukis at USNWR:
"1. Credit markets have yet to really unfreeze, because the underlying problem — putting a price on a lot of toxic debt — has yet to take place; [TW: by most metrics credit markets are still extraordinarily stressed but they are functioning, without TARP who knows if they would be]
2. It’s going to take some time for trust — a vital public good — to return to global capital markets;
3. The crisis has done nothing to unwind the global macroeconomic imbalances that contributed to the asset bubble in the first place — if anything, the crisis has temporarily reinforced it; [TW: read up on China if you think things are tricky here just be glad you are not Chinese]
4. There is a very dangerous prisoner’s dilemma game brewing in the interplay of fiscal expansion and trade policy. Unless export engines like Germany start to signal that they’ll prime their pump as well, you’re going to start to see some nasty protectionist attachments to any new government spending; [TW: the dreaded prisoner's dilemma, this one could actually be the real killer, if international players start goinig their separate ways then bar the door]
5. Fiscal expansions are going to take a long time to kick in, and the ones being proposed are not necessarily conducive to countercyclical boosts.
6. Beyond the fiscal expansion, this crisis is going to result in a lot more state intervention in the economy. Given what’s happened, it would be intellectually dishonest of me not to acknowledge that some of this intervention will be necessary. A lot of it, however, is going to be misguided and stunt long-term growth.[TW: the conservatives know they have no viable alternative to the intervention but they will continue to kick and scream just like they did from October 1929 until December 7th, 1941]"
http://www.usnews.com/blogs/capital-commerce