Tuesday, March 5, 2013

Joseph Stiglitz: Path to Prosperity

Nobel Prize winning economist Joseph Stiglitz observed that the only thing lying between the real economy and the path to prosperity was the excess debt in the financial system.

Regular readers know that this is precisely what your humble blogger has been saying since the beginning of the financial crisis.

And, the path could be easily unblocked by having the banks perform the role they are designed to perform and recognize upfront the losses on the excess debt in the financial system.
‎"Gone through the crisis... we should realize that the resources in our economy, in the United States, in Europe, today is the same as it was five years ago. We have the same human capital, the same physical capital, the same natural capital, the same knowledge... We have the same creativity that has led to the unprecedented increases in standard of living that the world has never seen before. So, we have all these strengths, they haven't disappeared. 
What has happened is, we're having a fight over claims, claims to resources. We've created more liabilities... but these are just paper. 
Liabilities are claims on these resources. But the resources are there. 
And the fight over the claims is interfering with our use of the resources. 
So, the point is the following: we should recognize that if we could only get our resources back to work, we ought to be back to prosperity. In fact, we ought to have more prosperity than we had before, because before our economy was distorted... by a bubble in the United States, by a financial sector that was overbloated... We had a distorted economy. 
So, today if we could only get our resources back to work in ways that enhance the well-being, to use the creativity of the citizens of Europe and America then we will have unprecedented prosperity." - Joseph Stiglitz
Please re-read the highlighted text as it is always nice to have a Nobel prize winning economist confirming your humble blogger's blueprint for economic recovery.

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