Stimulus bill question

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csstudent's picture
csstudent
Status: Bronze Member (Offline)
Joined: Dec 22 2008
Posts: 48
Stimulus bill question

I have a question about the economic "stimulus" bill that is currently making it's way to Obama's desk.  I was just reading this article:

http://www.newsweek.com/id/184599

where the author argues that tax cuts are a bad thing to have in the bill.  His argument is that currently, if people get more money that they'll do something rational with it like save it instead of rushing out to spend it.  My question is this - if people save money and put it in a bank, isn't that also helping the economy?  Wouldn't that give banks more money to lend out because of the fractional reserve banking system?

Thanks. 

Morpheus's picture
Morpheus
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Joined: Dec 27 2008
Posts: 1200
Re: Stimulus bill question

Css.

I am inclined to think that it's a little too late. I know that sounds pessimistic but we're at a point where our biggest creditor wants collateralization for T-bills, our private central bank is flooding the economy with cheap money, tax receipts are plunging and gov't costs are skyrocketing. 

I don't believe that we have a liquidity issue. Rather it is a solvency issue. And if that is the case then tax cuts IMHO would be the worst possible medicine. Not having tax cuts isn't going to save anything, but cuts right now would be gasoline on the fire. 

bb_gun's picture
bb_gun
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Posts: 7
Re: Stimulus bill question

i am not certain, but i believe the rationale of increasing immediate consumption is a short-term objective of the stimulus designers. before the abrupt economic downturn, production levels were temporarily fixed and no one knew exactly when "reckoning day" was coming or how people would respond. in short, there is now a surplus of goods and services. the idea behind the stimulus is to drastically increase consumer demand. when inventories grow too large and services are not needed, production slows down (people get laid off and machines get turned off). 

 if i am reading into your comment correctly, i see your point. saving would increase the amount of money for banks to loan, thus expanding credit. the problem is that nobody wants to borrow money.i do not have any figures, but i would think mortgages and the refinancing of mortgages accounted for a substantial portion of the money creation process. housing prices are falling and people are realizing they do not have as much wealth as they once thought. i don't think many americans care about the short term production issues (which are probably linked to monetary and debt issues of their own) associated with the stimulus's target. they are concerned with their own problems right now, like affording their future.

sunson's picture
sunson
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Joined: Jan 29 2009
Posts: 42
Re: Stimulus bill question
MGhandi wrote:

Capital as such is not evil; it is its wrong use that is evil. Capital in some form or other will always be needed~Mohandas Ghandi

Off Topic: if your signature and your screen name refers to the person in your picture - then it should read "Gandhi" and not "Ghandi" :)

http://en.wikipedia.org/wiki/Gandhi

 

Craigmandu's picture
Craigmandu
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Joined: Feb 10 2009
Posts: 24
Re: Stimulus bill question


Quote:

i am not certain, but i believe the rationale of increasing immediate consumption is a short-term objective of the stimulus designers. before the abrupt economic downturn, production levels were temporarily fixed and no one knew exactly when "reckoning day" was coming or how people would respond. in short, there is now a surplus of goods and services. the idea behind the stimulus is to drastically increase consumer demand. when inventories grow too large and services are not needed, production slows down (people get laid off and machines get turned off). 

I have some issue with that thought as a way to enhance our specific economy, given the amount of goods/services that are outright imported from other areas.  In order for immediate economic stimulus to come in our nation by way of increased spending, the spending would have to almost completely filter back to industry in this country.  And right now, except for a few areas, there is completely and totally too much imported goods/services to be able to greatly enhance our own economy via spending.

Am I wrong somehow on this?

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