The Great Divergence

[Kevin]

I hate to flog a dead horse, but... you do understand that this is precisely the point? That if "households and corporations" (that is, the entire private sector) all "de-leverage" simultaneously, that causes a massive general glut in the market for everything except safe assets (gold and US bonds), causing deflation and a collapse in production? That the government is the only remaining actor with the ability to help undo this damage?

TL,DR: Government spends because nobody else will, and someone has to.

-Jester

Yes someone has to spend, but if nearly everyone has been overspending (which I feel is the case) I think the question really is. Is it better for the government to pick up this slack and spend or should we suffer the consequences of previous overspending and let the economy reshape itself to the smaller level it should have been at?

Kan pretty much believes we should suffer the pain that we have coming to us. Current policy in the government wants to limit that and shuffle it off to later. It is possible that shuffling it off makes it avoidable because of how other things can change, but personally I think we are going to have to suffer more than we have for the errors that have been made. My problem is that the suffering isn't always hitting the people that caused some of the problems or made the mistakes. I think Kan also feels that the borrow and spend model that government is following does shift more of the burden to people that aren't at fault.

At least that is how I read most of what this debate breaks down into as you guys repeat it across most threads.