Re: Layoffs

"ken" <kuboken1@xxxxxxxxx> wrote in message
news:af863c26-50b5-4fb4-beb0-2b3fc63c917f@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
On Feb 2, 11:38 am, "Joe Finn" <J...@xxxxxxxxxxx> wrote:

Ken: I don't see how the current "stimulus plan" will actually stimulate
anything. I don't see that problems caused by borrowing and spending can
be
solved through more borrowing and spending. If the stimulus money comes
from the sale of treasury bonds it would be the equivalent of a loan. In
other words, every dollar I spend on a t-bill is a dollar I can't spend on
economic stimulation. If, on the other hand, the stimulus money comes from
a
printing press, all you'll get is inflation and a multi trillion dollar
deficit, no? A cut in tax rates would probably be helpful over time but
that may not be seen as a politically viable option right now.

You are right, it doesn't make any sense at first.

And I also don't know what the current stimulus plan would do. I was
only speaking in general in terms of pure economic theory, which of
course, we all know is questionable anyway.

The key issue is total debt outstanding. In purely theoretical terms,
it doesn't matter where the debt resides; in the private sector or
public sector (typically corporations or government).

When a crisis like this happens, banks stop lending to corporations
out of fear, and corporations stop borrowing, also out of fear of a
deflationary collapse. In this case, total debt outstanding can
plunge downward, and since debt is part of aggregate economic demand,
it can cause a complete deflationary, economic collapse like we saw in
the 1930s.

Back then, GDP went down like 30% or 50% or whatever, and unemployment
went up to 25%. This is what we are trying to avoid.

So for the government to step in and borrow money to increase
aggregate demand is a good idea to help the economy into a soft
landing (or a less harsh depression).

As for the fed creating money, this also is done to offset the
deflationary force of banks and the 'shadow banking system' suddenly
cutting lending to the private sector. We do know that despite all of
this, there is a lot of cash in the system. But the cash is unwilling
to go into commercial paper, industrial loans etc...

So it's OK for the government to issue bonds and for the government to
use the money to lend to the corporate sector. And as for the Fed
'monetizing' the debt by purchasing government bonds or private sector
debt (like mortgages and commercial paper), that is OK too so long as
it does so to offset the collapse in the velocity of money.

In that case, again, as is the case with the government borrowing to
stimulate the economy, it's OK so long as it is used to just fill the
credit gap created by this 'crisis'.

If the government does any of this that offsets the deflationary gap
created by the current crisis, then yes, it can be inflationary and
can cause problems.

Anyway, the issue will be total debt outstanding. Even though the
federal deficit looks like it's going to go up a lot, deficit, or
borrowing in the private sector will probably go down much more so it
won't be as problematic as it may seem.

But again, this is all just theory. We shall see what happens. In
any case, the key issue right now is for us to avoid a deflationary
depression like we saw in the 1930s. That is priority number one.

This is why, by the way, that despite all these huge numbers being
thrown around, gold is still trading below $1000/ounce. People
recognize the tremendous deflationary forces upon us.

Ken





Thanks, Ken I still think lower tax rates will be the most helpful
intervention at this point. ....joe

--
Visit me on the web www.JoeFinn.net




.

Relevant Pages

  • Re: social secuirty bankruptcy in 2010?
    ... Fund may redeem them at its discretion at any time for par value. ... money comes from the US government, ... when the Trust redeems its bonds the money comes for the US ... Borrowing from SS and not paying the debt back through ...
    (soc.retirement)
  • Re: Government Debt versus Private Debt
    ... all of which is base money. ... I thought, just like the rest of us, the government ... > strongly influences the market rates on Treasury securities through ... > since its deficit spending matches its borrowing, ...
    (sci.econ)
  • Re: Layoffs
    ... I don't see that problems caused by borrowing and spending can be ... If, on the other hand, the stimulus money comes from a ... So for the government to step in and borrow money to increase ...
    (rec.music.makers.guitar.jazz)
  • Re: (OT) Renaming Nobamas package
    ... since less than 12 cents on the dollar are spent on actual stimulus and 88 cents are spent on DemonCrap wish list items like abortion and ACORN. ... First, there is no evidence that governments ever stimulated anything, so trying to stimulate again seems like a colossal waste of time and money to me. ... Government should build roads and bridges to facilitate the movement of good and services, it is the movement of these goods and services that actually stimulates the economy, and failure to provide infrastructure stiffles the movement, which constricts economic growth. ...
    (alt.autos.toyota)
  • Re: Refuting supply-side economics
    ... >>In the case of the government borrowing money at interest, ... >>from their tax dollars when all tax dollars are exchanged for government ... > Taxing or borrowing represent equal cost to the tax payers. ...
    (sci.econ)