Posted on 08/24/2007 3:56:39 PM PDT by Toddsterpatriot
Because increased stimulation of consumer demand leads to increased revenue. Now are you honestly arguing that long term deficit spending is sound economic policy or that it leads to the strengthening on the dollar?
The charts showed that even as the deficit increased under Reagan, inflation dropped. The opposite of your claim.
Now are you honestly arguing that long term deficit spending is sound economic policy or that it leads to the strengthening on the dollar?
No. I'm honestly showing that your claim was wrong.
You claimed that it did. I asked you for proof. Did you find any yet?
I presented my theory. Present yours.
Reminds me of my contrarian thinking on monetary policy. The credit system is nearly completely stuck right now.. so much half dead companies and mortgage crap blocking the pipeline.
I think trying to cut interest rates will end up having the opposite effect. Money supply slowing down, ala Japan. And the deflation cycle.
My solution.. raise the rates until savers and investors start plowing money back into the market, tempted by the fat return. It will have the effect of dropping a MOAB on all those walking dead companies and bad loans to them and borrowers in over their heads.
But once the MOAB detonates we’ll get a big wave of bankruptcies.. but then when the rotting, half dead, diseased companies are gone, in their place the strong companies will expand, and new companies will rise up. And with the dead crap blown to bits, the water in the pipeline will start flowing just fine again.
So how much unemployment and shrinkage in GDP should we be willing to suffer to see if your idea is a good one?
I'm not sure to be honest, and Bernake would have to have huge balls to do that. Even myself armchair reserve chairman here.. its scary even thinking about it. My biggest fear is that the big money center banks have to be able to survive, or at least a couple of them. Which hopefully it will be citigroup as I bought shares in them mid-last week! Thinking once the weak die, the few big banks left standing should be able to charge fat spreads.
If the system is so bad it can't survive, then we might have to cut rates. My problem thinking about that seriously is I don't see how lower rates would get the foreign investors and americans to invest. So the solution then would appear to me to go for a Japan style... Massive, massive government borrowing.. and I would personally add fed governmetn printing money.. devaluing the currency seriously. For example if the USD fell 50%, a lot of manufacturing would be very attractive here. Why if you are in some third world country buy an imported Chinese car, when you can buy an American for almost the same price, yet American relatively good quality.
But I think the market would have problems with no actual savings coming into it, just new cheaper debt, rolling over older more expensive debt. But then those walking dead companies would seem to me to kill the pricing pressure of the healthy.
The point in this article that lowering the interest rates tends to be correlated with a rising dollar.. is a fascinating point. But I would say isn't that symptomatic of less new dollars coming into circulation aka less borrowing. The US actually needs our dollar to fall in value not rise! Well sorry to ramble on, but its all very complex and inter-related. Bernake is clearly the man of the hour for these next few months at least.
Only if the money is printed, not borrowed. Otherwise, I don't see an inflationary impact.
I have serious reservations about our current policy of deficit spending, however. I can't see how it's going to work to our benefit.
I have never said our deficit spending is a good idea. That's different than saying the spending is not inflationary.
We're not all that smart. This econ stuff can't be all that complicated if guys like us can follow it, the problem we got here is most likely that we're not explaining it right. Here's my shot at it.
Governments can get money in three different ways; by taxing, borrowing, and by printing money. Our gov't gets most of its money by taxes and it meets the shortfall by borrowing. These two methods do not increase the amount of money the country has, we just move a fixed amount of money from one set of pockets to another. Inflation only happens when there's more money chasing after the same amount of goods, which happens either when more bills get printed up or when interest rates are too low and a lot of money gets loaned out. This has nothing to do with federal budget deficits.
OK, what we're saying here is totally different than everything you've ever been hearing on NPR and CNN. That's fine because those guys are idiots and we're not; they're wrong and we're right.
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