On the Potential of the Stimulus

[DrYB/C]

1. California Finds Public-Works Spending No Unemployment Cure-All
http://www.bloomberg.com/apps/news?p...iMeWU&refer=us

2. Stimulus Projects May Be Slow, CBO Says
http://www.washingtonpost.com/wp-dyn...012003980.html

3. American Recovery and Reinvestment Act of 2009
http://appropriations.house.gov/pdf/...ll01-15-09.pdf

A debt deflation of this magnitude can’t be stimulated away.

To solve our current problem, debts must be made manageable via:
a. a rational form of debt forgiveness across the entire economic spectrum, or
b. orderly bankruptcies spread out over an extended period of time.

I’m betting on disorderly bankruptcies for most, orderly bankruptcies for few, over a (relatively speaking) short period of time.

On a lighter note:
1. http://pacocalderon.net/modules/myal...d=2341&cid=128

[grapejelly]

Re: On the Potential of the Stimulus

the stimulus will make the situation worse and longer-lasting because it takes money away from productive actors and wastes it unproductively. The more stimulus, the worse it will get.

It plays into the hands of big government statist types. Economists are mostly trained in this school of thinking and get their daily bread by sticking to the party line. So you get mostly economic idiocy out of the media and schools and so forth.

[vinoveri]

Re: On the Potential of the Stimulus

the stimulus will make the situation worse and longer-lasting because it takes money away from productive actors and wastes it unproductively. The more stimulus, the worse it will get.
.

GJ,
I agree with this in principle, but am trying to understand it in the context of the seemingly bottomless pit of the fiat currency well. Since there is no real capital, but only fiat $ that can be produced at will and to any extent, and which is buoyed only by inexplicable confidence of foreign investors and legal tender laws domestically, how is money wasted that wouldn't have been created w/o the crisis ? I can of course see my money "wasted away" by the inflation resulting from the increase in supply of greenbacks.

[grapejelly]

Re: On the Potential of the Stimulus

GJ,
I agree with this in principle, but am trying to understand it in the context of the seemingly bottomless pit of the fiat currency well. Since there is no real capital, but only fiat $ that can be produced at will and to any extent, and which is buoyed only by inexplicable confidence of foreign investors and legal tender laws domestically, how is money wasted that wouldn't have been created w/o the crisis ? I can of course see my money "wasted away" by the inflation resulting from the increase in supply of greenbacks.

Let me give you an example.

I am an employer. Looking for capable employees at say $15 per hour for a skilled task.

The gubmint is paying $18 per hour for a similar task. With benefits and you can laze around and still get paid. The job could be through a contractor, doesn't matter.

Now, I have to pay $18 per hour and compete with that. I can't so I'm out.

This is what goes on with hundreds of thousands of make work jobs driving up what should be FALLING labor rates.

I have said this before. All government efforts are directed at RAISING prices of things like assets and labor...things that should be FALLING in order to let the market do its thing.

Government stimulus raises costs and drives out private employment. You can see how. This is one of many bad, bad effects OTHER than just currency depreciation.

[Sharky]

Re: On the Potential of the Stimulus

Since there is no real capital, but only fiat $ that can be produced at will and to any extent, and which is buoyed only by inexplicable confidence of foreign investors and legal tender laws domestically, how is money wasted that wouldn't have been created w/o the crisis ? I can of course see my money "wasted away" by the inflation resulting from the increase in supply of greenbacks.

Just because money is fiat doesn't mean that real capital doesn't exist. If I have $1,000 of savings in the bank, and no debt, that money is real capital. The fiat money that can produced at will can only come into existence through debt.

Since the proposed "stimulus" package is clearly inflationary, what happens is that the newly-created (fiat) money reduces the value of my savings. So as a business owner and net saver, my money doesn't go as far as it would otherwise -- I can't grow my business as fast, I can't hire more employees, I can't afford as much new capital equipment, I can't pay the employees I have as much as I would like, etc.

Fiat money has no intrinsic value. The only reason it has value is because it is transferred (some would say "stolen") from the other holders of the currency -- in particular, from the net savers, who also tend to be the more productive.