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Thus, recession can be defined as a cure to the ill-policies of government and central bank that caused boom in certain sectors such as housing market. Because of that boom, easy credit policies, subsidies, easy lending and many other government and central bank caused factors, the prices soars to extreme high and causes inflation and money gets trapped in mal-investment. As the recession acts as a cure to this situation of extreme falsehood, it starts decreasing the extent of false demand and tries to bring the market to its actual true situation. The prices start declining and the economy starts recuperating from the illness of false heights.
Since recession itself is the cure of problems of mal-investment that were caused by the government and central bank's ill easy money and credit policies, it cannot be cured by further stimulus. The stimulus will only sustain the recession for longer periods until all the mal-investment is not neutralized and the economy comes in a situation to achieve sustainable growth (Cochran, 2001). The idea can also be substantiated with the expectations of Housing economists who expect that over the next 10 or 20 years, the prices in realty sector may start rising again on an average, but that rise won't be as much as the average rise was during the past decade (Hagerty, 2008).
Obviously, because of easy money and mislead credit policies caused a boom in housing market and created a false demand that consequently resulted in unsustainable boom. As a neutralizing phenomenon, the market forces caused liquidity crunch to cure the mal-investment. Until the mal-investment will not neutralize, market will not gain sustainable growth. Stimulus package can only delay the time for achieving the sustainable growth. The stimulus also failed to provide any help in improving the job market, the unemployment rate is still 9.7% in the month of May 2010 (Trading Economics, 2010), while it was 6.9% in 2008 (Strauss, 2009). Now with the problems of liquidity crunch still persisting, even the retirees are looking forward to find jobs (Greene, 2009). The situation shows that expensive stimulus may also push U.S. towards the same fate that the Greece government and public are suffering right now.
Robert Lucas supported the idea of Ben Bernanke to reduce the interest rates (Lucas, 2008)....
Every sane minded person will support the idea. In fact, the government or the central bank should not have the power to decide or dictate the interest rates. Interest rates should be decided by the free market proponents freely as per the time requires and permits. Yet, till how long will the central bank and government let the market enjoy the falsehood of stability on the basis of stimulus, what will happen when the central bank and Obama administration will look forward to take the stimulus back? Only then the market will again step forward towards curing the mal-investment caused by bad credit policies and only after that cure the market will be in a position to attain a sustainable growth.
References
Browning, E.S. (2009), "After the Collapse, Guarded Hope for '09," the Wall Street
Journal, January 2, Retrieved 22 June, 2010 from:
http://online.wsj.com/article/SB123084159289047143.html
Cochran, John P. (2001), "Austrian Business Cycles, Plucking Models, and Real
Business Cycles," Austrian Scholar Conference, Auburn, Alabama. Retrieved 22 June, 2010 from: http://mises.org/journals/scholar/Cochran.pdf
http://online.wsj.com/article/SB123421515383065059.html
http://online.wsj.com/article/SB122764977315457619.html
http://online.wsj.com/article/SB122999959052129273.html
http://www.chicagofed.org/publications/fedletter/cflfebruary2009_259.pdf
http://www.tradingeconomics.com/Economics/Unemployment-Rate.aspx?Symbol=USD
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