Poll: Tax Rebate checks paying off debt

CBS MarketWatch ^ | August 20, 2003 | Carolyn Pritchard

[Starwind]

If I take-out a mortgage loan, by your calculation at what time is the money "spent," if ever? The home, a "good," is sold in a "one-time transaction with no further obligation," from the standpoint of the seller.

The money loaned is 'spent' when the escrow company transfers the money to the builder. The home is a good, sold (under a contract of sale typically) from the seller/builder to the buyer - a one-time event albeit drawn out over several weeks. Upon completion of the contract of sale, the builder/seller and buyer have no further obligation to each other (save warranty stuff). The buyer has an ongoing obligation to make payments on his loan to the bank.

Think about this:

Someone borrows money from a bank at say 1% interest. But they buy neither good nor service. They put the money in their mattress. Money is multiplied because it was loaned, but velocity (for those particular bills) stops.

or...

Person A borrows money from a bank at say 1% interest. But they turnaround and loan that money to a home buyer (Person B) at 6% interest - Person A pocketing as profit the 5% difference. Person A borrowed money, multiplied by the loan from the bank, but spent nothing and added no velocity. However, Person B borrowed money, multiplied nothing (because Person A is not a fractional reserve bank) but increased velocity when Person B spent the money on a home (bought in a one-time exchange cash-for-good transaction with the builder).

[JohnGalt]

I was simply taking the position that no serious conservative economist believes that the Bush tax cuts will have a large impact on the economy either way. Bush made a mistake of claiming his tax cut was supply side and demand side.

By muddying the waters he makes it that much harder for politicians to push for true supply side tax cuts.