[dennisw]

blam, I have a question, what do you think would happen if the US federal government reversed course and announced massive budget cuts as opposed to spending worse than a drunken sailor? I’m talking about (fantasy talk I know) rescinding the balance of the “stimulus” and returning the money to the Treasury, sending all returned TARP funds (and interest) to the Treasury, reversing course on Obamacare, cutting all discretionary and non discretionary spending, nothing spared. I tend to believe the markets would actually respond favorably, that fiscal discipline would be greatly repected. What do you think?

You would get a deflationary depression or severe recession that is deflationary. Because you will have destroyed trillions of dollars. This makes all surviving dollars worth more. Inflation is when your dollars are decreasing in value and buying power

Maybe the deflationary "cleansing route" is the way to go and maybe it is inevitable but we are always putting off this day of reckoning by bubbles and extreme stimulouses....you are mentioning just a part of the overall 0bama-stimulous

[moose2004]

Thank you for the info, I guess I am talking about a “Darwinism Flush” the more I think about it. I left out all the toxic assets that the Fed and large banks still have on their books, should we “flush” these as well, take our medicine now and get it over with? I know it would hurt badly in the short term, but wouldn’t it get us out of the woods quicker? Obviously you can tell I’m no economist.

[April Lexington]

I’m not so sure. The Stimulus did nothing to stimulate the economy. So... why would massive fiscal cuts be recessionary?