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marginallymanic
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| Posted: Thu Nov 20, 2008 8:40 am Post subject: |
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I agree with that Jazz
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Monty Burns
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| Posted: Thu Nov 20, 2008 11:49 am Post subject: |
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MM, I think trying to micromanage stimulus money based on who "needs" it is a bit presumptuous, unless your crystal ball works better than mine.
People in debt might or might not choose to spend a bit more if they had extra money in their pocketses....they might spend it or they might hack down some of that debt they're fighting.
But isn't the point to help PEOPLE keep the wolf away from the door....not to prop up "the economy" for the sake of GDP numbers?
The key point for me is that the economic blow is softened, whether that's indirectly because the economy is better so their income is better therefore they can carry their debt better, OR directly by simply having an extra source of money to get by, the end result is the same.
I agree with your point about big infrastructure to a certain extent - yes, they can help, but again, they need to be projects that would've been done anyway.
As you say, practically speaking I guess it's a moot point, there is lots of stuff that needs to be fixed anyhow - and roads here are certainly worse than the US.
The more important thing for me is to get the money into the hands of people quickly....it's all great to say a bridge project will inject money into the economy - that doesn't help the guy who won't get to work on the bridge that won't even begin construction for 12 months and in the meantime he's 60 days behind on his mortgage.
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Monty Burns
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| Posted: Thu Nov 20, 2008 11:57 am Post subject: |
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Also - I don't blame people for being enraged at the "fatcats".
I don't have a big problem with huge paycheques per se....but I thought the deal was they were supposed to be for exceptional leadership.
I frankly don't see any of that from the Detroit 3 CEO's (I think "Big 3" is a misnomer these days...)
Nardelli, in particular, has been a disaster for Chrysler - micromanage everything and put finance people in charge of everything, including product design. Yikes.
On another note....no surprise but looks like the feds will not be able to avoid a deficit - but if it turns out to be $3.9 billion in 2010 and $1.4 billion in 2011, I can live with that.
http://www.reportonbusiness.com/servlet/story/RTGAM.20081120.wdeficits1120/BNStory/Business/home
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marginallymanic
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| Posted: Thu Nov 20, 2008 1:01 pm Post subject: |
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IMO, getting money into the economy is pointless, unless it goes around and around, paying down debt is not going to do that.
Besides which, in the case of the US, their citizens have not been paying their way for at least eight years, they have been financing their standard of living with debt, and screwing their grandchildren. Now is not the time to reward that.
That is why so many people are against mortgage assistance. They do not want to subsidise your McMansion.
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Monty Burns
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| Posted: Thu Nov 20, 2008 1:36 pm Post subject: |
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IMO, I think if people have an extra source of income, it will help sustain spending - that's the key point.
If their cash flow dries up - even if "the economy" is getting "an injection" then they're going to cut back spending in order to try and meet their existing obligations.
If they get an extra direct source of cash, then yes they're still obviously (hopefully) going to meet those obligations first but they will be less inclined to cut back spending.
Which is my point. They have to pay those obligations first no matter what....the question is will they have anything left over that they could potentially spend?
If yes, well, they might save it or reduce debt further...but they may also spend it, which is human nature. Either way, the economy is kept on a more even keel which is what matters.
If John Smith gets a direct cheque, unless he stuffs it under his mattress, its going somewhere and will help shore up the economy somehow.
Remember that people paying down debt is still stimulative...it means that somewhere, a bank or financial institution will have a bigger stockpile of capital to lend out for someone else to borrow.
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marginallymanic
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| Posted: Thu Nov 20, 2008 1:58 pm Post subject: |
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"it means that somewhere, a bank or financial institution will have a bigger stockpile of capital to lend out for someone else to borrow."
That's kinda debatable right now. Actually always was. The theory of banking being that if you lend ten bucks, you get it all back in new deposits, and can then lend another nine, and on and on ad infinitum.....the problem only comes when you lend $9.70 instead of $9.00.
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jazzbro
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| Posted: Thu Nov 20, 2008 5:33 pm Post subject: |
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Yeah, I'm afraid a lot of direct stimulus dollars right now would simply go to saving/debt re-payment and the banks would NOT re-lend the money because they're busy de-leveraging themselves. |
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marginallymanic
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| Posted: Sun Nov 23, 2008 7:23 pm Post subject: |
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Gordon Brown, Britain's Labour PM agrees with you Jazz.
"Cuts in Vat are to form a key plank of Gordon Brown’s emergency economic rescue package to be unveiled tomorrow.
The temporary reduction in sales tax, currently at 17.5%, will be one of a range of measures designed to stimulate consumer spending.
The Treasury refused to confirm the scale of the cut, to be in force by Christmas. However, under European Union (EU) regulations, Vat cannot be lowered below 15%.
A 2.5% Vat cut would cost £12.5 billion a year, making it by far the biggest element of Brown’s £15 billion-plus “fiscal stimulus”. It will be the first time that any government has cut the sales tax.
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After considering a range of schemes, ministers concluded that Vat cuts would be the most effective way of stimulating the economy because they provide a direct incentive for consumers to spend. They hope that once the tax is restored to its previous level — after up to two years — the economy will already be on the road to recovery.
http://business.timesonline.co.uk/tol/business/economics/pbr/article5213582.ece
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Monty Burns
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| Posted: Mon Nov 24, 2008 1:36 am Post subject: |
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I would certainly be cool with a VAT (GST ) cut, sure it would get people spending. (I think)
Back to the other point, there's nothing "theoretical" about banks needing their existing debtors to pay so that they have something to lend out to someone else. The fear of debt default, of course, is one of the critical problems a lot of banks are facing right now.
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marginallymanic
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| Posted: Mon Nov 24, 2008 8:33 am Post subject: |
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marginallymanic
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| Posted: Mon Nov 24, 2008 8:38 am Post subject: |
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And there is nothing theoretical about:
Increasing loans = more money supply = inflation (good within reason)
Decreasing loans = less money supply = deflation (always bad)
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marginallymanic
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| Posted: Mon Nov 24, 2008 8:41 am Post subject: |
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“The most recent private sector forecasts suggest the strong possibility of a technical recession the end of this year, the beginning of next,” Mr. Harper said.
“Yes, I am surprised at this. I am also further surprised, more importantly, by deflationary pressure that we're seeing around the world. This is a worrying development, one of the reasons why it may well be necessary to take unprecedented fiscal stimulus.”
G and M today
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jazzbro
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| Posted: Mon Nov 24, 2008 10:31 am Post subject: |
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Boy, you certainly can find doom and gloom if you simply wake up in the morning these days. You have to wonder how much the press/media is feeding this. Perhaps they will tire of bad news stories soon (?). Hopefully.
This is a good read;
http://online.wsj.com/article/SB122748912533552007.html |
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jazzbro
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| Posted: Mon Nov 24, 2008 10:42 am Post subject: |
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Interesting article. The conclusion is that we are headed for inflation. Despite the recent price pressure in the opposite direction, it could turn out to be true.
I don't understand all this stuff but it seems to me like the US gov't will have to provide massive stimulus in the face of massive - though somewhat unquantified - credit disappearance. They undershoot with the stimulus, it doesn't work and we have deflation. They overshoot and, as the article says, we have inflation. The numbers are so huge and nebulous though... Gawd, this is depressing!!! |
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Monty Burns
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| Posted: Tue Nov 25, 2008 1:17 am Post subject: |
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MM, thanks for the article, interesting read.
With all due respect, though, it seems to me that them arguing about the technical definition of inflation (with credit or without) is a bit beside the point.
I'm just a simple guy but I would be truly astounded if we're heading for inflation anytime soon, especially if energy prices remain more or less stable...and as we saw, even when energy prices skyrocketed, it didn't cause inflation to take off like in the 70s.
I don't imagine - at least I hope - that Harper was actually surprised at the current turn of events, though I suppose he has to say that given his comments during the election.
In any case, he's in the blessed position of having a lot more options to fight smaller problems than many of his compatriots...if he felt like it, he could reduce the GST to zero for a year or two, and the increase in the national debt would still be acceptable on a debt-to-GDP basis.
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