Economy and General Discussion

You are ignoring a number of factors.

First an aside. Our contemporary economists, inspired by Keynes and a few others, like to think of the economy as a big macro-economic baloon. They even use a simple-minded equation, the equation of exchange: PT=MV. By this reckoning, the important thing about the economy is a "price level" (P), total goods and services produced (T), the money supply (M), and the money's "velocity."  This equation has so many flaws that Murray Rothbard wrote about ten pages demolishing it in his Power, Economy, and State. The equation isn't even a valid heuristic, because it leads to false conclusions and notions about how the economy can be "fixed." 

One problem you are ignoring is that the credit boom did not impact the economy uniformly, like adding "M" in the equation of exchange. No, the credit expansion impacted particular economic sectors -- housing, other real estate, and finance -- for example. Rampant house price growth lead to false entrepreneurial signals -- it appeared for a time as if the demand for houses was unlimited. There were similar false signals in these other impacted sectors and we now have huge economic distortions -- too many people working in construction, in real estate brokerage, in mortgage lenders, ... it goes on and on. We have too many houses standing, too many retail outlets, too much specialized capital equipment. All of these malinvestments and misallocations of people and resources have to be corrected. People have to move to industries that have customers with real income to spend -- not yet more credit and not a handout from government!  Some of these adjustments have already begun, naturally, and corrections shouldn't last more than a couple or a few years -- if government doesn't keep mucking up the market mechanisms. But, of course, government is going to do exactly that.

The other facts you are ignoring have been well stated by Mish and many others -- the stimulus money has to come from somewhere. You cannot "improve" the economy by stealing money from one person and giving it to another. You also, however, cannot improve the economy by creating new money out of thin air and giving it to someone to spend. Everything produced will be consumed, it's just a question of at what price and with what profitability (or loss) to the producer. Our problem is that we are now producing the wrong mix of goods because our producers were fooled by bad price signals in the economy caused by the credit expansion.

These comments are based on my understanding of the so-called Austrian School of economics, principally Ludwig von Mises.

Tom