Recession Approaching? What can the government do?
The signs are all pretty clear. Consumer confidence and business confidence are plummeting. The stock markets are having day after day of losses. Previous quarters have had GDP growth revised downwards. Short-term yields on treasuries are going down, and gold is on the rise. The only thing we are missing is an inverted yield curve.
I definitely feel for whoever is in the government leadership right now, from an economic standpoint. What can you do? Cut taxes? That will worsen our deficit situation and could put us into default. More quantitative easing? There is a risk of inflation and even hyperinflation if we thread down that path more aggressively. Lower interest rates? Fed already has its discount rate at close to 0%, which is the only rate it can directly control.
Only thing I can think of is lower the reserve ratio down to 0, but that won't have a huge impact, and could be dangerous if there is ever a run on the banks. We can also try to stimulate business growth by reducing government restrictions (re-open oil and gas exploration in the gulf, reduce environmental restrictions, et.c).
Curious to hear what you other economist-minded people think is the solution, as it is pretty clear now that we are headed for recession.