Popeye_Card wrote:To me, sending out tax rebate checks is like trying to start a broken lawnmower by pushing in the choke again.
Consumer spending is a major driver of this economy. If personal income growth has been lagging (I don't know if it has or has not), then a tax rebate is a very good way to stimulate spending without increasing the structural deficit.
IMO, the economy has slowed down because too much money flows out of the system (overseas), and the pay for upper management is too high.
There is no money flowing of out of the system. Capital flows to wherever investors think it is a good investment. So far, many investors feel that US treasury securities are a good investment, because the dollars that flow out of here when we buy imports comes back to us as financing for Medicare, our military, and other federal programs for which our government must borrow.
IMO, the economy has slowed down because too much money flows out of the system (overseas), and the pay for upper management is too high.
There is no money flowing of out of the system.
When there are more goods imported than exported, and we're spending billions of dollars to bomb and then re-build a country that is not ours, there's a significant amount of money flowing out of the system that isn't taxed and brought back into the system.
IMO, the economy has slowed down because too much money flows out of the system (overseas), and the pay for upper management is too high.
There is no money flowing of out of the system.
When there are more goods imported than exported, and we're spending billions of dollars to bomb and then re-build a country that is not ours, there's a significant amount of money flowing out of the system that isn't taxed and brought back into the system.
I believe Hungary Jack's point is that the money to fund this difference has to come from somewhere. Normally it comes from foreign investment in our capital markets, and nobody complains about foreign investment fueling a stock market run-up.
BTW with Treasury rates where they are, this is an attractive time for the government to be borrowing money.
IMO, the economy has slowed down because too much money flows out of the system (overseas), and the pay for upper management is too high.
There is no money flowing of out of the system.
When there are more goods imported than exported, and we're spending billions of dollars to bomb and then re-build a country that is not ours, there's a significant amount of money flowing out of the system that isn't taxed and brought back into the system.
Imported goods are taxed by state and local governments (and in some cases, luxury goods carry federal taxes). The hard currency that leaves the US when we buy foreign goods comes back to us as purchases of US treasury securities to fund our government spending. The currency that stays in the foreign country helps the country buy our exports.
A good chunk of the military spending is on salaries for military personnel, and for equipment produced in the US. Much of the money spent on contractors in Iraq is for US companies.
The US economy is not a closed system. It is not so much how capital flows in and out of the country that determines economic growth, but how many times the capital turns over (velocity).
The main reason we're in this problem now is because the policy for the past 25 years has been to overstimulate the economy at any sign of slowness. We've had deficit spending, low interest rates and especially easy credit pretty much unabated. Now the bankers who made stupid loans are getting burned, the consumers who bought more than they could afford are getting squeezed, and the government has a debt burden it will never be able to pay off.
So of course the first answer our leaders in Washington resort to is to apply more stimulus... record levels of stimulus... $140-billion-stuffed-into-the-pockets-of-businesses-and-consumers-in-the-desperate-hope-that-they'll-spend-the economy-into-better-health stimulus. The problem is the biggest one ever faced (post gold standard) by government and the Fed and their answer is the biggest stimulus package ever created. What else did you expect?
The stimulus package will achieve two things. First, it will slightly slow the onset of the impending economic disaster. Second, it will guarantee that the eventual fallout is much worse. The logic behind the package seems to be that consumers are being overly cautious with their spending, so encouraging them to spend more temporarily will help us avoid a temporary slowdown. Of course this misses the point that we have huge systemic problems as a result of years of excessive money creation via government and private sector debt accumulation. We should be recognizing that we're heading for an era of much lower consumption in he US and rebuild our economy to cope with that fact, rather than financing one final consumer spending binge.
I don't think that the people behind this plan are truly clueless idiots. There are political agendas to be satisfied in this election year and the financial sector is desperate for a little cover that will let them pawn some of their own long term problems off on the American public. Politicians are jumping at the opportunity to buy votes. They're already foaming at the mouth in their partisan politicking about how the other side wants to give the money to the wrong people and how their plan is to give you, their constituents, the most money first.
Meanwhile, rapid money supply growth (the inflationary, unsustainable key to our growing economy over the past 2 and a half decades) is hitting a wall. With consumer, homeowner and corporate debt expansion hitting a wall for reasons of insolvency who else can borrow the country to prosperity besides the US government? And that may be the real reason this plan enjoys the support of the Fed and Wall Street. If the Government borrows another quick $140 billion, then that'll will help pick up where the private sector has begun to collapse.
But who's going to finance the additional debt? Take a look at the recent Major Foreign Holders data from the Treasury and you'll see that most countries are decreasing their treasury holdings. Banks are selling off treasuries too. Hedge funds have loaded up via the carry trade, but they are reaching their own credit limits. Is anyone left out there who's willing to buy another $140 billion in US government debt? The Fed is the money creator and lender of last resort and they've been very creative in inventing new ways to inject money into the financial system lately. Perhaps they'll just inject new money into the treasury if nobody else shows up at the weekly auctions.
Inflation (the real stuff, not the imaginary numbers reported by the BLS), a crumbling dollar, declining living standards, foreclosures, bankruptcy filings by companies and individuals, are all on the increase as the era of overstimulation reaches is glorious end. The signs are everywhere, yet the mainstream media fails to recognize the cause of our problems or the logical flaws in the plans for more stimulus. So bend over America. You're about to get stimulated one last time.
