I don’t like the stimulus act that’s just been passed, but there is no way this crisis is going to solve itself with just tax cuts and less government spending. There is simply too much lost liquidity and deleveraging of assets for that to be realistic.

If Amacher is anything like many of his 200 colleagues who have put their names in the New York Times Cato Institute ad, his “solution” is likely as bad as the current one passed. Time is a much better alternative. In fact, most of Amacher’s fellow colleagues (unfortunately I don’t know his position) couldn’t even forecast this looming crisis. I know I did, and there are a few real economists who did. It’s simple, housing cannot increase forever, and anyone who believed that or said “hindsight is 20/20″ is delusional.

Lastly, Amacher’s hands off approach didn’t help him to much as President of UTA. He resigned 2 1/2 years in, during an audit, and just before faculty giving him a no confidence vote due to accusations against him of extravagant spending and cronyism. Here’s a link to the article (it’s a bit long but interesting): http://www.dallasobserver.com/1995-01-12/news/fast-times-at-uta/

However, this response sticks out:

“Yes and inflation will be high. All this debt will be monetized by the Fed and we will have a period of very high inflation – maybe very high. All real assets including houses will rise, maybe a great deal.”

First of all, he should separate the two distinct notions of inflation – one is an increase in that actual supply of dollars, and the second is the total amount of money, virtual or otherwise through leveraged lending, that is circulating through our system. He has not made any case for the increase in actual dollars (i.e. really printing money), so we’ll ignore that effect, especially since it is a small one compared to the second effect.

The second, which is money generated through lending, is something which I think makes his statement ill-thought out. Even if you were to put all of the TARP money out, directly into the hands of consumers (this has NOT been happening) it will still be dwarfed by at least 10X the amount of money that has DISAPPEARED through crazy lending. How in the world he can claim that things will be inflationary is beyond me when the real, actual supply of money has decreased by many times over?

The only way this would be possible is if the US Government (or world governments) could somehow convince everyone, and I mean *everyone* – the banks, investors, hedge funds, to lend crazy amounts of money to consumers at rock-bottom rates with little or no oversight. In other words, repeat 2004-2006. That’s the only way to put over that much money back into the money supply.

Does he really think that’s going to happen? That “real” asset values are going to be skyrocketting to the moon? In order for that to happen, wages will have to start getting out of control like inflation. Maybe in this guy’s world, that’s going to happen, but not here in California, or most any other state I can think of.

I do agree with his points of view that TARP is a bad idea, and that we should let consumers and business lead the way out of the depression. But hyper-inflation? That’s insane.