>The real problem at the end of _this_ business cycle is not excess
>consumer inventories or excess demand (inflation), but excess
>investment in means of production, i.e., machinery of all sorts that
>is ultimately used to produce consumer goods. It will be extremely
>difficult to quickly boost effective demand - which has _not_ been
>dropping in the US - to absorb this greatly increased (potential)
>productive capacity. So all of this accumulated machinery (sitting
>around at a bankrupt dotcom, for example) will have to be "worked
>down" - sold and resold at greatly reduced prices until it find a
>new productive home somewhere. But this is precisely difficult to
>do in the aftermath of a burst bubble, which _is_ capital fleeing
>productive investment. So it will be hard to recycle all that
>excess machinery without new capital investment in production that
>could re-absorb this excess. That is the present dilemma.
Remember, though, that a lot of this surplus capital equipment becomes obsolete very quickly, so while it may represent a big loss to the people who bought it (or financed it, in the case of busted IPOs), it may not represent the same economic overhang that a bunch of redundant steel mills would have a generation or two ago. Hard to say with any certainty, though, since there's no real precedent for this downturn (assuming it really is a downturn, and not just slower growth).
Doug