1.What, if anything, should be done about the trade deficit? Please discuss.

2.In a recession share prices tend to be low and companies can be
bought at low prices and workers hired for lower wages. Given that
recessions are only temporary, what stops you from buying loads of
shares of companies in a recession and then during an expansion?

3.In the 1990s as output fell and unemployment rose in Japan the level
of interest rates cut to zero and the government ran large deficits;
output remained depressed. Does this show that stabilization policy is
ineffective?

4.Should measures of inflation include asset prices (such as stock  
prices and house prices), so that inflation targeting would require
the monetary authorities to act when asset prices fluctuate
dramatically?

1: Start a minor war overseas (possibly in the Middle East) and take
attention away from domestic issues.

2: Well, nobody ever knows for sure when things have bottomed out.

3: Yes.

4: Measures of inflation are always Government flavoured to show what
a great job they're doing. Surely, you don't expect any politician to
tell it as it is?

PS I've got a daughter called Samantha ... Is that you?

1) trade deficits occur only when EX < Imports, because EX-IM = CA (
current account). this shows that America is importing more than
exporting. This can only and only be reversed if America becomes a
aggregate net saver..i.e private households and the government start
saving monies. (Since EX-IM = National Savings - Investment). A
country like America is running trade deficits for decades, I dont See
it as a problem..but what worries me..is that some day in
future..America has to pay back! and that would be a problem since
people are used to get cheap foreign products and service.. America
can afford to run trade deficit as long as foreingers are happy to
finance the deficit..

2)The one thing:- uncertainty. How can any one predict when economy
will turnaround even if it is a temporary phenomena the problem with
stock market in recession is..the whole valuation models are built on
an assumed growthrate..when growthrate becomes uncertain..how can you
judge whether the stocks are under or over valued? ?..it takes a lot
of guts to invest in a stock market in those times..the normal human
behaviour is to take cover! and since bonds have atleast a fixed rate
of return..bond prices go up.. It is hard to say when will recession
end i.e how temporary is temporary? it may last one quarter to a
decade? If one buys stock today thinking that economy grows again from
next year..what happens if the recession is still there and stocks
fall even more? will he buy more ? for that to happen he has to have
infinite resource to make a killing.

3) The book I suggest you to read is 'Balance sheet recession' by
Richard Koo. The problem is it's national culture. though Japan has
been a graveyard for Monetarists, it is however true that the huge
fiscal pump priming has supported the fragile economy from collapsing.
The communitarism has stopped the effects of economic policies to
correct the problem. This is what makes American Economy truly great
because of its totally flexible attitude and bite the bullet when it
is necessary. Japan is almost a one party country (LDP) for elections
to be fought over economy..dont even think about it for another
decade..Since politicians have the garuntee that they will be back if
they dont do anything..then why will anybody do anything ?.
4) The price index as name suggest is a gauge for consumption
activity..Stocks are investments and they are overly volatile....
Coming to property: A very nice idea..but..the problem with real
estate prices are that if prices in one city or locality or a state
all have different fundamentals for property prices..Imagine : A
identical home in two states in Identical setting, they will sell for
2 different prices i.e. The prices are regional, Fed Targetting at a
National level will cool asset prices in one state but will overkill
the property market in some other state..moreover its awfully hard to
come up with a good national index for property prices..and to
determine the weight thats should be given for property in the main
index. ( no index is optimal, and are open to abuse by needless to say
who!)