Signs of an economic recovery are starting to appear. After recapitalising the financial system, President Obama kept the US economy liquid. This is may have averted more depressing news but as the bankers start to return funds they were lent by the tax payer the question arises, where to now for the US economy?

An economy is a little like an elastic steam engine. As it gets hotter and more pressure the boiler can inflate – and that reduces the pressure. There are little feed pipes that take excess steam away and it is also possible that you may have too many coals firing the engine – if there is coal burning, and there is not enough water to accomodate the heat generated, then less coal is required. The coal that burns that is not required is in danger of becoming unemployed. What is the point of burning coal that is not generating heat? With the extra coal burning, there is more of a tendancy for the boiler to overheat, and expand without producing more energy as the water pressure is not sufficient to supply it.

There are two economic arguments:

1) prevent inflation at all costs (conventional economics)
2) avert as much unemployment as possible, despite a bit of inflation (putting wealth into the hands of the people).

The trouble with doing 1) is that it creates a wave of unemployment.
The trouble with doing 2) is that it creates future inflation.

The economic crisis however created a new condition. It is not just the burnoffs from the Madoffs

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