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Originally Posted by dippin
No one is saying that deficit generate lasting growth. But it is not supposed to. It is supposed to provide some growth in a tight situation.
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Are you saying the point is for us to fool ourselves? Why even waste time with something that will have negative consequences in the future, why not take our lumps and pay the price for lasting sustained growth? If what you believe is shared by the folks in Washington, then I agree with McCain - "generational theft". We should do what we know will work - long-term.
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And while the increase in the money supply had a great deal to do with the recovery, there are two important points:
- we are already at 0% fed rates. This is a liquidity trap, additional money will not help. Only fiscal stimulus will.
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The government can grow the M1 money supply by going into the market and simply buying back government bonds, notes, and T-Bills. The opposite of deficit spending. Oh, but one problem is that China holds so much of our debt and they may not want to spend their dollars in the US economy. Gee, we are in a endless negative cycle. At some point we have to pay the price.
They could also give back tax dollars to people who pay taxes, but we know that is not going to happen but let's give more money to failing banks, auto companies, home owners, and state governments like California. Screw those doing the right thing and those who can actually have a positive impact on economic growth.
---------- Post added at 05:24 PM ---------- Previous post was at 05:14 PM ----------
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Originally Posted by Rekna
There was an interesting story on NPR today about Japan's "lost decade". Essentially their real estate market crashed just like ours and through them into a recession. At first they tried to lower interest rates and even lowered them down to almost 0% but it didn't help at all. In the end they had to do lots of deficit spending to get out of the recession.
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Another problem with deficit spending is that often governments, and I bet NPR did not discuss this, sucks the energy (capital/resources/opportunity) from the private sector. an example from our Depression during the 30's
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And the industry might have indeed done that, if the government had not supplanted it. Roosevelt believed in public utilities, not private companies. He created his own highly ambitious infrastructure project--the Tennessee Valley Authority. The TVA commandeered the utility business in the South, notwithstanding the vehement protests of the private utilities that served that area.
Washington sucked up much of the available capital by selling bonds and collecting taxes to pay for the TVA or municipal power plants in towns. In order to justify their own claim that public utilities were necessary, New Dealers also undermined private utilities directly, through laws--not only the TVA law but also the infamous Public Utilities Holding Company Act, which legislated many companies out of existence. Other industries saw their work curtailed or pre-empted by government as well.
What about that oft-cited rising industrial production figure? The boom in industrial production of the 1930s did signal growth, but not necessarily growth of a higher quality than that, say, of a Soviet factory running three shifts. Another datum that we hear about less than industrial production was actually more important: net private investment, the number that captures how many capital goods companies were buying relative to what they already had. At many points during the New Deal, net private investment was not merely low, but negative. Companies were using more capital goods than they were investing in.
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