You know it's bad if the notorious deregulator, bad trade deal promoter, DLC Economist Larry Summers is calling the economy sick and halfway through a lost decade:

By Numerian

The Federal Reserve, in announcing the results of this week's meeting of the Open Market Committee, surprised the market by revealing it will begin purchasing US Treasury notes and bonds with the principal income it receives from its vast holdings of Fannie Mae and Freddie Mac mortgage securities. This practice - wherein the Fed buys up US government securities and injects cash into the public market as payment for these securities - is a form of monetizing the debt.

The last time the Fed did this on a big scale was back in the 1960s when it attempted to mop up the excess Treasury securities that were flooding the market as a result of Lyndon Johnson's efforts to finance the Vietnam War. That Fed program was viewed at the time as a failure, since the cash the Fed put back into the economy in exchange for the securities was a big reason - perhaps the major reason - why price inflation accelerated from the late 1960s until a decade later, when Paul Volcker managed to squelch inflation once and for all with forbiddingly high interest rates.

Fraught with risk

Obama put forth some elements of a second jobs bill. With that, I strongly suggest all those who were disappointed, disgusted with the first Stimulus, start right now pushing for legislation we need.

Here are the main elements, laid out in the State of the Union Speech.

• Take $30 billion of the [TARP] money Wall Street banks have repaid and use it to help community banks give small businesses the credit [Subsidized Small Business Loans].
• Small Business tax credit - one that will go to over one million small businesses who hire new workers or raise wages
• Eliminate all capital gains taxes on small business investment
• Tax incentive for all businesses, large and small, to invest in new plants and equipment

Often times, non-economists attribute much more confusion to the ideas of Keynesian economics than is really the case. Take for example the idea of smoothing out business cycles. Anyone who's ever tried to keep to an exercise regime understands the concept intuitively. The fancy graph way of making the case looks like this:

The idea here is simple. The black line is the boom and bust cycle that characterizes un-managed markets. The red line is what happens when the government or private actors step in to manage the economy to smooth out these business cycles. Note that while at any one point, the black line may show a much higher rate of growth than the red over the long run, it ends higher.