The Crumbling Markets

Today, the big issue is whether to bail out or not some big shots in the US industry, tomorrow it will be whether to bail out or not the US economy. While nobody's denying that the US is (still) the most important component of the world's economic system (the Chinese dragon could sketch a grimace right about now) the problem remains on what kind of signals are we sending and what type of future should we aim for. And bailing out the "Big Three" American auto producers, despite repaying political support and re-distributing funds from one taxpayer to another, doesn't do much else.
If only we could only separate somehow Economics from Politics..Moreover, the Fed cannot keep slashing interest rates crossing their fingers that things will pick up from now on. Nor does any stimulus package/money injection/etc. Today the biggest skill a Central Bank requires is be able to create confidence, because that's the only thing that keeps things going. And again, this has more to do with Magic rather than hardcore Macroeconomics. Once this wonderful feeling gone, it becomes harder and harder to keep the system stable and running. Besides, last time I checked, the economy should be rooted in some sort of palpable reality. All this money creation value enhancing out of thin air, excessive credit expansion and imaginary growth on paper, is in the end bounded by the real economic facts. While creating fancy named investment instruments and flipping them around the globe to get virtual value added works fine for a while, it will always end up in a ball of dust. There is a pressing and legitimate issue: to limit the damage. And it is a fairly good selling point for any politician, whether it will or not fail miserably in practice. However, for an economist is much more than that. Is about understanding, emulating and "optimizing" the world. And that's why right now economists are clueless and divided. We just don't know. Nobody really does. and these are just the treatments for the effects, not for the causes..which again is a bit of witchcraft Decreases of oil prices, consumer spending and confidence do point out towards deflation. Despite the whipping effect of this word associated with the Great Depression, there are serious concerns as to where and how far it may persist. However, shaping the future, making sure that things will get better from now on, is equally important.