Stimulus and Solvency

One of the more interesting aspects of the current crisis is how we have become reliant on a set of theoretical models that are rife with assumption errors and barren of predictive capacity.

Yet, despite this, we are about to embark on a stimulus package (defended here by Krugman) since it is called for in these same theoretical economic models and by historical precedent. It is an effort to return liquidity to the marketplace. However, this crisis is as much about solvency as it is about liquidity. How does this get us to lower debt levels or a return to solvency? Where's the theoretical model that can solve that problem?

Comments

[Claymore]

Must read:

http://www.amazon.com/Money-Magic-Critique-Economy-Goethes/dp/0226051854

Worth its weight ;)

[Claymore]

This too:

http://tracyrtwyman.com/blog/?page_id=93

[Tom Grey - Liberty Dad]

Here' the theory: print money, give some to everybody*, and let a lot of the people pay of their debt with printed paper money.

No tax, no borrowing, reduced debt.
The Bernake/ Friedman helicopter printing press theory.
And what we should probably do to stop deflation.

*b) give to the rich bankers first, so they stay rich, first, and only later they loan out some to others.
or, c) give to biggest consumer borrowers first, so the irresponsible get the most benefit.