Stimulus Watch: How the Devil Are They Going to Finance All of It?

As I watch the $900 billion stimulus bill wind its way through Congress, knowing this will be piled atop the estimated 2009 deficit of $1.19 trillion, the longtime banker in me keeps asking the same worrisome question: How the devil are they going to finance all this rubbish?

A report released Wednesday by the U.S. Treasury Department’s Borrowing Advisory Committee on the government’s borrowing plans gave me the answer I expected: With great difficulty.

Truth be told, recent market developments have already provided a warning - though I’m not altogether certain that message has been received. In fact, much of the market may be focusing on the wrong problem.

Treasury Debt Worries

According to a MarketWatch.com news story also released Wednesday, analysts are worried that the interbank market is becoming tighter again, since the three-month London Interbank Offered Rate (LIBOR) has risen from a low of 1.09% on Jan. 13 to 1.23% Wednesday, while the benchmark Federal Funds rate has remained in target range of 0.00% to 0.25%. They fear that banks are once again becoming nervous about the health and stability of their sector brethren, making them even more reluctant to lend to one another.

However, if people are worried about the creditworthiness of banks, they’re a lot more worried about the U.S. Treasury. The 10-year Treasury bond yield bottomed out at 2.07% on Dec. 17. Wednesday’s closing yield was 2.93%.

Thus, while LIBOR has increased by 14 basis points, or 0.14%, the 10-year Treasury bond yield, which is supposed to be less volatile than short-term rates, has risen by 86 basis points, or 0.86%.

This is not entirely a panic reaction by investors fearful that the U.S. government will go bust (although credit-default-swap spreads on the U.S government debt have widened recently, and are higher than on Germany). It also represents two other factors:

• The fear of inflation.
• And the increasing difficulty the U.S. Treasury is likely to find in financing its gigantic borrowing requirements.

The Treasury Borrowing Advisory Committee paints a bleak picture. The average maturity of Treasury debt has declined from the 60- to-70-month average that was the rule from 1986 to 2002, all the way down to the 48 months that’s been the norm of late.

And that’s at a time of exceptionally low real interest rates, which the Treasury could have locked in for decades to come if it had borrowed long-term. From 2001 to 2007, Treasury abolished the 30-year Treasury bond, financing only shorter-term during a period in which rates were low and the budget deficit was exploding upwards. We’re not talking great foresight here!

This tactic - borrowing short-term and hoping for the best - is still being used. All the existing issue maturities - in two, three, five, 10 and 30 years - are being increased and the 30-year issues are being moved from quarterly to monthly.

However, the advisory committee recognized that even these changes would not be enough to fund the U.S. Treasury’s borrowing requirement, which the Committee estimated could be as much as $3 trillion to $4 trillion between now and September 2010.

(In addition to the official budget deficit, the federal government’s various “investments” in the U.S. banking system, the automobile sector and elsewhere must be financed somehow).

A Mismatched Strategy?

The committee didn’t take the opportunity to recommend issuing 50-year bonds, which Britain has done very successfully, and which would have had the advantage of postponing the maturity beyond the problems caused by Baby Boomer retirements and medical needs (by 2059, the youngest Baby Boomers would be 95, so there won’t be many left). Instead, the government decided to issue seven-year bonds, hoping for some unexpected additional investor demand in the range between five years and 10 years.

The committee’s schedule will cause real problems with refinancing. The plan to issue $540 billion annually in two-year notes and $420 billion in three-year notes brings huge refinancing problems in 2011 and 2012, precisely when the budget deficit will still be gigantic and credit will be needed to finance the (hoped-for) early stages of an economic recovery. By keeping debt maturities so short, the committee raises the risk of serious market indigestion, which would force yields much higher and cause major damage to the economy.

This financing problem is the hidden side of stimulus packages. The federal budget deficit is likely to run around 10% of U.S. gross domestic product (GDP) in 2009 and 2010, and should continue close to that level for several years thereafter (because the government could not risk killing a fragile recovery by pushing too hard to get the budget back into balance).

With Treasury bond issue maturities being so short, producing large refinancing needs, the impact of such huge financing demands on the economy will be huge.

What’s the “Right” Size For the Stimulus?

Followers of the great British economist, John Maynard Keynes, like to brag about the supposed “multiplier” of government spending, by which $1 in spending produces, say, $1.50 of extra output. However, if the deficit-financing problems become severe, $1 of spending would produce less than $1 of net extra output. Indeed, too much stimulus could even reduce net output by driving up interest rates and “crowding out” private sector borrowers from the market. That would make the Keynesian multiplier negative.

As the winner of the 2008 presidential election, President Barack Obama has a right to alter spending priorities to reflect his victory and the desires of his supporters. At this point, however, I’m starting to believe that he should do so by replacing other spending on a dollar-for-dollar basis (raising taxes in a recession is also dangerous). Since the U.S. budget deficit - before any stimulus - is already predicted to be $1.19 trillion in the fiscal that ends in September, the economically ideal size of a stimulus package may well be negative.

original post

Comments

[tdillian:]

don't ya know?

they will fund this stimulus package with another stimulus package..

we have the biggest credit card bill... and its getting bigger by the minute..

Feb 06 07:54 AM

[Ian R. Camp...:]

I think Mr. Hutchinson is asking exactly one of the right questions. In my view replacing all but essential spending on meaningful U.S. government programs and redirecting any resultant ‘freed-up’ monies in current and subsequent year U.S. budgets to fixing the U.S. economy as best it can be fixed is the absolute ‘order of the day’. I don’t think this will happen any time soon as, based on the Stimulus Bill’s terms and tenure of debate on the bill as reported, I continue to observe that many U.S. Politicians must not really ‘get it’ – and seem to have an unfortunate parochial view of the U.S. and the world that may preclude them from ‘getting it’ in time to effectively and efficiently spend Stimulus $. If I am right in this, U.S. economic problems will go on for far longer than they need to, and the ‘end game result’ will be far worse for the U.S. than it needs to be.

Feb 06 08:32 AM

[kelm:]

This is an excellent article.

As many of us have been writing for some time - we, the US, are headed for a crisis far worse than what we have seen so far and it will be characterized by a devalued dollar, rampant inflation, high interest rates, and high unemployment. All of that does not have to come to be, but if we continue to fail at critically examining the fate other formerly wealthy nations have suffered we will ensure it's coming to pass.

Feb 06 08:50 AM

[investor88:]

Good question, which means uncertain times ahead.

Feb 06 08:59 AM

[the weakono...:]

I hate Keynes. That douche managed to convince the entire modern world that "you gotta spend money to make money" all the while contradicting himself in his own books.

Sadly, his message may have been right but modern interpretations of Keynesian economics don't work since we're off the Gold standard in money is much more liquid than it used to be. Introducing more money into the economy cheapens the dollar, and the taxpayers pay the interest.

Feb 06 09:53 AM

[Jason Rines...:]

I see why you are rated in the top 20 Kelp. Thanks for your insightful comments. I agree with you that devalued currency and inflation is how the stimulus will be paid for.


On Feb 06 08:50 AM kelm wrote:

> This is an excellent article.
>
> As many of us have been writing for some time - we, the US, are headed
> for a crisis far worse than what we have seen so far and it will
> be characterized by a devalued dollar, rampant inflation, high interest
> rates, and high unemployment. All of that does not have to come to
> be, but if we continue to fail at critically examining the fate other
> formerly wealthy nations have suffered we will ensure it's coming
> to pass.

Feb 06 09:54 AM

[secmaven:]

And after the domos in DC figure out how to fund the current year's 2.5 Trillion deficit what about the following year's deficit and the year after that, etc. etc. Buying Treasuries for "safety" in the long term seems very short sighted to me.

Feb 06 10:38 AM

[AndrewBaker:]

We can't pay for it is the simple answer: it's Monopoly money being thrown around to encourage people to do things in the hope that when the paper hits the fan in the future, not too much of the brown stuff will remain to splatter all over us. The British Prime Minister Gordon Brown boasted he had gotten rid of "boom and bust" when he was in charge of their economy, yet Britain is now suffering one of the biggest busts they've ever faced because of too much cheap money too easily gotten hold of. If in getting through this we learn to measure the quality of life instead of the quantity, maybe in the future some of us will say it's been worth it.

Feb 06 10:42 AM

[rrbatch:]

Good post, but the problem is likely to be far worse than the mere $800B stimulus bill. Within the package are perhaps 600,000 new government jobs, expansion of entitlements, and $80B for "State Fiscal Stabilization". None of these will go away quickly, if "stimulation" succeeds in increasing GDP (which I doubt).

By bailing out the most profligate states, BO establishes a precedent that the state politicians can spend anything they want, just pass the bill to the feds. So maybe we consolidate debt at the federal level, but the gross national debt will continue to grow as long as these policies prevail.

BO and his academic economist advisers probably think that by letting the Bush tax cuts on dividends, capital gains, and upper incomes expire in a year they will see a substantial increase in federal revenues. Won't they be surprised when this doesn't happen!

BO is trying to scare the public into pressuring Congress to pass his "stimulus" by claiming imminent "catastrophe". Lindsay Graham said yesterday on the Senate floor that "this bill stinks", and he's right. It's a pigsty with a shovel full of garbage for every Democrat constituency. If the bill gets killed, perhaps the Congress can evolve a more rational and temporary program to alleviate unemployment, but I don't hold my breath. If this bill passes, hold your hats for the inflationary cyclone that will hit.

Feb 06 10:53 AM

[Duude:]

Let's just fund it with 100 year zero coupon treasuries. For that matter, lets make that 100 trillion worth, send us all one three hundredths of the pie and call it a day. Let our not yet born offspring deal with the fallout of the banana republic we create.
Seriously though, the idea of bailing ourselves out with more of the same is stupidity at its best and insanity at its worse.....or is that insanity at its best and stupidity at its worse?

Feb 06 11:31 AM

[joes:]

The continued advice to look at the past for an answer to this problem could be a very bad idea. The logic by many commenters that we need to "examine the fate of other formally wealthy nations" is conservative thinking at its worst. Thinking you can find the answer to a problem by simply not doing what others have done is unsound thinking.

This is going to be a "search and create" mission, we have created all of the wealth that exists today since the beginning of civilization and we will create more wealth going forward. The sooner we redefine wealth to match out place in time, exchanging diamonds (valuable only because people are gullible) for free time, as an example, the better off we will be.

Feb 06 11:43 AM

[jksisco:]

It will take nothing short of a miracle for any of this to actually work out, with more than just a passing eye at upcoming elections in 2010, Congress is demonstrating on a daily basis why they should be attending 12-step programs instead of legislating. I would feel more confident if 5th graders were working on this stimulus, if indeed we actually need one. I fear a larger, more despotic government than I do an economic depression. This is major power grab by our government in my opinion, since as recent history shows, they are the entity most responsible for this current situation. Funny, how everyone called Ron Paul a kook, well look whose laughing now.

Feb 06 12:12 PM

[econjunkie:]

Ok, our debt load has expanded beyond our means and needs to contract. I see the US trying to pull a limp bizkit on their liabilities: "keep rollin rollin rollin..."

US: "Hey China, can we sell you some debt?"

China: "Uh, we already have a truck full, but just this once."

Ad infinitum.
Only good things can happen. [that might have been too sarcastic]

Feb 06 12:12 PM

[hanson001:]

Good post. I didn't know the 10 year had went up almost 100 basis points since December.

It bewildered me when the government stoped issuing the 30 year bond.This took place when long-term interest rates where trending down whick confused me to no end. Good thing they came back out with it in 2006.

Another weird thing is how the dollar has rallied as the government has issued all this new debt and the short-term rates (three and six month bills) are at historic low and almost yielding nothing. This doesn't make economic sense. I can only think the markets are saying that other economies will face a tougher time than the U.S. For example, the Euro is going for $1.28 and I remember not months ago it was in the $1.50 plus range.

The low yields of government bonds scare me. The risk is not priced in much like the junk bond and higher grade corporate bonds a couple of years ago. I look for the fed to monetize the debt because they will have to. How much of our paper do the Asians really need at this low yield? How long can the Treasury crowd out private borrowing, keeping the yields higher for corporate debt to the point that I wonder if they can make a profit with borrowing cost so high.

Seems like interest rate would be through the roof by now.

Feb 06 12:20 PM

[Rob Viglione:]

Taxpayers are only one segment of the population paying for this in the long run (and taxpayers are a decreasing segment, at that!), but savers and the lower classes will suffer the worst from inflation and dollar debasement.


On Feb 06 09:53 AM the weakonomist wrote:

> I hate Keynes. That douche managed to convince the entire modern
> world that "you gotta spend money to make money" all the while contradicting
> himself in his own books.
>
> Sadly, his message may have been right but modern interpretations
> of Keynesian economics don't work since we're off the Gold standard
> in money is much more liquid than it used to be. Introducing more
> money into the economy cheapens the dollar, and the taxpayers pay
> the interest.

Feb 06 12:27 PM

[Rob Viglione:]

Interesting notion regarding the 50-year treasuries. The excessive and perpetual public spending is a severe issue, in itself, but the term structure of the debt burden is particularly worrisome.

The entire country has been leveraged as if it were one gigantic ARM. The problem is that it is almost certain that long term inflation will be higher than the previous decade or so.

Feb 06 12:30 PM

[firstproman:]

Great write-up sir. The answer to the question "how will they finance it all?" seems to be Debt Monetization. I can't help smiling a bit when I imagine the reaction of U.S. bond holders when this happens. The one bright spot for the US dollar is that most of the other major currencies will probably be imploding faster so the US dollar may actually GAIN against some! As for bond yields, I won't be surprised if we have historical high yields sometime in the next 1-2 years.

Feb 06 12:42 PM

[RonC:]

1 dollar produces 1.50 ,but borrowing 1 dollar costs us 1.50 to pay it back so we get nowhere.

Feb 06 01:27 PM

[RonC:]

1 dollar spent produces $1.50 in economy but 1 dollar borrowed costs us $1.50 to pay back.Duh.

Feb 06 01:29 PM

[58robbo:]

i'm generally critical of government spending but i think obama and co are holding out for hyper inflation. while i think that the stimulus will be one gigantic 'bridge to nowhere', i think his primary concern is to stabilise asset prices and deal with the technically insolvent private sector by devaluing the dollar. this hyper devaluation should help with the trade deficit too and minimise the 'de facto' debt (if that makes any sense). i don't support the bailouts but perhaps it is preferable to being bought out by china, russia, india and the saudis at firesale prices. the downside being massive raw material/commodity inflation along with wage stagnation. materially we will all suffer but if i'm to be totally honest i think we've been way too liberal in our consumption of precious resources anyway. conversely from a human resource point of view, we've priced and entitled ourselves out of the market. hopefully this will force us to make better use of everything. obviously this won't go down to well with holders of US treasuries and i expect that we'll lose the privilege of being the reserve currency. my fear though is that we adopt a world currency and in so doing lose our autonomy (perhaps a bit far fetched). anyway i thought i'd add what i think might be on the minds of the powers that be and hopefully get some ideas

Feb 06 03:24 PM

[robert.b.fe...:]

Winning the election does not give President Obama or the democrats the right to do anything except to participate in the debate. We can not finance our massive debt with more debt. Sooner or later real money will be required. We will be better off doing nothing than passing this monstrosity in the Senate. This bill can't be salvaged better to scrap it and start over.

Feb 06 03:45 PM

[CJJ:]

I'd love to know how many economics texts and silly books written by these intelligent minds you've all read to come to your conclusions. I'm also amazed at how certain many of you are in the future, except usually your predictions are going to happen somewhere down the line....After all you can only be certain what will happen, timing is not possible to pin down.

If global warming is in fact occurring(quite debateable) and humans are to blame(even more debateable) its probably all the hot air being spewed these days over the global economy.
Its like watching a car crash and then seeing 1000 people come over and argue about whose fault it was instead of helping the people in the crash.

Like people who think its a national sin not to vote...maybe you all should ensure that everyone is an economist so even the everyday citizen can add their two cents while the issue goes no where.

Money is made UP! Once you all realize that perhaps you'll see the US defaulting isn't really an issue, its how it defaulted. Its does other countries default, etc, etc, etc. This is a Global Economy now. That isn't changing over the long haul. The US may not be #1 forever but it certainly isn't just going to go away.

So do with that information what you will but worrying your little minds over how the US will pay for the stimulus, while you may feel is a good question, is of little importance.

Placebo effect...Look it up...Unlike economics, it is actually proven by science.

Feb 06 06:41 PM

[look closer:]

'In the end the federal reserve will be abolished and the U.S. Mint will issue new currency directly into the marketplace.'

Feb 06 07:16 PM

[James H. Wang:]

Good point. We seem to be hoping that the economy will magically recover as soon as we find the "right" stimulus package.

It'll be painful to take a hit and a recession, but until we actually clean house (allow banks to fail) and stop pretending, we can't start trying to actually go about the task of fixing our economy instead of pouring (borrowed) money on it and hoping it'll grow.

Feb 07 03:18 AM

[morph366:]

Good article.
You mention the Keynesian multiplier effect and in very simple terms it can be quantified as 1/marginal propensity to save. It follows that the higher the percentage that goes into the denominator (the marginal propensity to save) the lower the actual multiplier value

The effectiveness of any stimulus has to reckon with the fact that there is a trend developing - as evidenced by recent reports regarding consumer credit contraction - that people are saving more in the Keynesian sense which is that less of their income is being used on current consumption.

The cruel irony or paradox is that the virtue of thrift will diminish the impact of the stimulus package. It will prolong the recession but arguably on the other side of this recession the US economy may have the benefit of a larger pool of genuine savings again.
The even more cruel irony is that this new private pool of savings would be at great risk of evaporation if the re-inflation scenarios being touted by many come to pass.
But as readers who have seen the "Life of Brian" will recall we should perhaps take our inspiration from the song "Always Look on the Bright Side of Life"

Feb 07 06:02 AM

[Dave Wrixon:]

You guys just don't get it, do you?

Issuing Treasuries simply isn't a problem.

The Fed will buy them!


On Feb 06 10:38 AM secmaven wrote:

> And after the domos in DC figure out how to fund the current year's
> 2.5 Trillion deficit what about the following year's deficit and
> the year after that, etc. etc. Buying Treasuries for "safety" in
> the long term seems very short sighted to me.

Feb 07 08:10 AM

[Dave Wrixon:]

Didn't anyone tell you Bernanke has got an AMEX card?

Feb 07 08:11 AM

[RobRay:]

On/Off (?) topic question: Is it better for Government dollars (funny money: not counterfeit, but backed by nothing) to bail out banks (TARP) before they fail, or depositors (FDIC) after banks fail?

Feb 07 08:50 AM

[Jim Hawthorne:]

Great article, Martin! Thanks!

There is also another question that needs to be addressed: While we flay away looking for just the right stimulus package to 'get the economy going again', I wonder if we're not missing the fact that perhaps we are the middle of a seismic shift. There seems to me to be a new and pervasive emergence of thrift, frugality, and risk avoidance that just might spell the end of our debt-driven pseudo-prosperity!

Perhaps there is no stimulus package along the lines of those suggested that will work in the long run because we are trying to re-inflate a consumer debt load that consumers no longer want to assume???

Feb 07 09:09 AM

[B smith:]

So given that as individuals, we can be against the spending, but it looks like it is going to pass. So how should we best invest to go with the flow of the difficulties in funding the new debt? Commodities, iron ore, oil and nat gas, land? Will hard assets be revalued with the inflated dollar or some new currency, and thus remain a constant? If we experience high inflation, with high unemployment, is it dollar inflation, or materials inflation. Seems like cash then is an enemy, and we should borrow, invest in hard assets and pay back the debt with inflated dollars later?

Feb 07 11:50 AM

[1RuleNoRules:]

Pay for it all with TAX CUTS.

Aurthur Laffer suggested that taxes as with all else is subject to the law of Diminishing returns. In the famous Laffer curve, written on a napkin, he suggested that reducing taxes could increase revenue because we had past the point of increasing returns and now would be experiencing diminishing returns with every tax increase. From what I have heard and read, tax cuts by Kennedy, Reagan, Bush, Gulianni sales tax cut and Whitman's NJ state income tax cut all saw greater returns in the near term. Correspondingly, tax increases have seen declines in revenue for as far as I can remember as reported by the media after the fact. We will not see any significant improvement until we as a nation wrap our collective heads around this fact. This is what Reagan ran on. This is what Reagan won on. Reagan was right and nearly everyone else was wrong and we still don't get it. No one believed Reagan. He won on his charisma and the strength of his belief. We are on the wrong side of the Laffer curve then tax cuts are win-win....for everyone but liberals. The stimulus should be solely comprised of tax cuts, large across the board, no winners, no losers, corporate, personal and retroactive. How does it go, every calamity hides an opportunity. The opportunity here is to fix the tax code.

Feb 07 02:20 PM

[Jonathan1975:]

The question of financing is real and important, but just as important is where does America want to invest its money. For far too long, we have become a nation that has dumped money into supporting a corporate agenda that more closely resembles a monarchy rather then a democracy. Executive pay, particularly CEO pay, has ballooned astronomically over the last 35 years while worker pay has barely kept up with inflation. The author has pointed out once again just how inept the Bush administration and the Republican party has been over the last 8 years--unfortunately, the alternative is the Democratic party which provides little comfort that anything is likely to improve in the near future. The reality is the country is in a gigantic hole and even if Obama were the greatest president ever it would take a decade plus of brilliant leadership and a lot of luck to pull the country out of this mess.
Unfortunately, instead of ideas all I hear is the same old propaganda with the Republicans trying to convince us that if only the rich could pay zero taxes the world would be saved, and the Democrats calling for a revisit to "A New Deal" except that they forgot Roosevelt actually was dealing with a depression not a recession and Roosevelt actually tried to create jobs, not just tax cuts with a couple of poorly funded school and highway projects thrown in to give the illusion that the Democrats represent the working class. There has never been a time when the US needed a new party then today.

Feb 07 03:21 PM

[PauvrePapillon:]

From His Most Beloved and Exalted Excellency Barack Hussein Obama, JD, the FIBPOTUS (9 January 2009):

"There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy."

Public response from over 300 economists:

“With all due respect Mr. President, that is not true.”

“Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.”

Signed by economists:

Burton Abrams, Univ. of Delaware
Douglas Adie, Ohio University
Ryan Amacher, Univ. of Texas at Arlington
J.J. Arias, Georgia College & State University
Howard Baetjer, Jr., Towson University
Stacie Beck, Univ. of Delaware
Don Bellante, Univ. of South Florida
James Bennett, George Mason University
Bruce Benson, Florida State University
Sanjai Bhagat, Univ. of Colorado at Boulder
Mark Bils, Univ. of Rochester
Alberto Bisin, New York University
Walter Block, Loyola University New Orleans
Cecil Bohanon, Ball State University
Michele Boldrin, Washington University in St. Louis
Donald Booth, Chapman University
Michael Bordo, Rutgers University
Samuel Bostaph, Univ. of Dallas
Scott Bradford, Brigham Young University
Genevieve Briand, Eastern Washington University
George Brower, Moravian College
James Buchanan, Nobel laureate
Richard Burdekin, Claremont McKenna College
Henry Butler, Northwestern University
William Butos, Trinity College
Peter Calcagno, College of Charleston
Bryan Caplan, George Mason University
Art Carden, Rhodes College
James Cardon, Brigham Young University
Dustin Chambers, Salisbury University
Emily Chamlee-Wright, Beloit College
V.V. Chari, Univ. of Minnesota
Barry Chiswick, Univ. of Illinois at Chicago
Lawrence Cima, John Carroll University
J.R. Clark, Univ. of Tennessee at Chattanooga
Gian Luca Clementi, New York University
R. Morris Coats, Nicholls State University
John Cochran, Metropolitan State College
John Cochrane, Univ. of Chicago
John Cogan, Hoover Institution, Stanford University
John Coleman, Duke University
Boyd Collier, Tarleton State University
Robert Collinge, Univ. of Texas at San Antonio
Lee Coppock, Univ. of Virginia
Mario Crucini, Vanderbilt University
Christopher Culp, Univ. of Chicago
Kirby Cundiff, Northeastern State University
Antony Davies, Duquesne University
John Dawson, Appalachian State University
Clarence Deitsch, Ball State University
Arthur Diamond, Jr., Univ. of Nebraska at Omaha
John Dobra, Univ. of Nevada, Reno
James Dorn, Towson University
Christopher Douglas, Univ. of Michigan, Flint
Floyd Duncan, Virginia Military Institute
Francis Egan, Trinity College
John Egger, Towson University
Kenneth Elzinga, Univ. of Virginia
Paul Evans, Ohio State University
Eugene Fama, Univ. of Chicago
W. Ken Farr, Georgia College & State University
Hartmut Fischer, Univ. of San Francisco
Fred Foldvary, Santa Clara University
Murray Frank, Univ. of Minnesota
Peter Frank, Wingate University
Timothy Fuerst, Bowling Green State University
B. Delworth Gardner, Brigham Young University
John Garen, Univ. of Kentucky
Rick Geddes, Cornell University
Aaron Gellman, Northwestern University
William Gerdes, Clarke College
Michael Gibbs, Univ. of Chicago
Stephan Gohmann, Univ. of Louisville
Rodolfo Gonzalez, San Jose State University
Richard Gordon, Penn State University
Peter Gordon, Univ. of Southern California
Ernie Goss, Creighton University
Paul Gregory, Univ. of Houston
Earl Grinols, Baylor University
Daniel Gropper, Auburn University
R.W. Hafer, Southern Illinois University, Edwardsville
Arthur Hall, Univ. of Kansas
Steve Hanke, Johns Hopkins
Stephen Happel, Arizona State University
Frank Hefner, College of Charleston
Ronald Heiner, George Mason University
David Henderson, Hoover Institution, Stanford University
Robert Herren, North Dakota State University
Gailen Hite, Columbia University
Steven Horwitz, St. Lawrence University
John Howe, Univ. of Missouri, Columbia
Jeffrey Hummel, San Jose State University
Bruce Hutchinson, Univ. of Tennessee at Chattanooga
Brian Jacobsen, Wisconsin Lutheran College
Jason Johnston, Univ. of Pennsylvania
Boyan Jovanovic, New York University
Jonathan Karpoff, Univ. of Washington
Barry Keating, Univ. of Notre Dame
Naveen Khanna, Michigan State University
Nicholas Kiefer, Cornell University
Daniel Klein, George Mason University
Paul Koch, Univ. of Kansas
Narayana Kocherlakota, Univ. of Minnesota
Marek Kolar, Delta College
Roger Koppl, Fairleigh Dickinson University
Kishore Kulkarni, Metropolitan State College of Denver
Deepak Lal, UCLA
George Langelett, South Dakota State University
James Larriviere, Spring Hill College
Robert Lawson, Auburn University
John Levendis, Loyola University New Orleans
David Levine, Washington University in St. Louis
Peter Lewin, Univ. of Texas at Dallas
Dean Lillard, Cornell University
Zheng Liu, Emory University
Alan Lockard, Binghampton University
Edward Lopez, San Jose State University
John Lunn, Hope College
Glenn MacDonald, Washington
University in St. Louis
Michael Marlow, California
Polytechnic State University
Deryl Martin, Tennessee Tech University
Dale Matcheck, Northwood University
Deirdre McCloskey, Univ. of Illinois, Chicago
John McDermott, Univ. of South Carolina
Joseph McGarrity, Univ. of Central Arkansas
Roger Meiners, Univ. of Texas at Arlington
Allan Meltzer, Carnegie Mellon University
John Merrifield, Univ. of Texas at San Antonio
James Miller III, George Mason University
Jeffrey Miron, Harvard University
Thomas Moeller, Texas Christian University
John Moorhouse, Wake Forest University
Andrea Moro, Vanderbilt University
Andrew Morriss, Univ. of Illinois at Urbana-Champaign
Michael Munger, Duke University
Kevin Murphy, Univ. of Southern California
Richard Muth, Emory University
Charles Nelson, Univ. of Washington
Seth Norton, Wheaton College
Lee Ohanian, Univ. of California, Los Angeles
Lydia Ortega, San Jose State University
Evan Osborne, Wright State University
Randall Parker, East Carolina University
Donald Parsons, George Washington University
Sam Peltzman, Univ. of Chicago
Mark Perry, Univ. of Michigan, Flint
Christopher Phelan, Univ. of Minnesota
Gordon Phillips, Univ. of Maryland
Michael Pippenger, Univ. of Alaska, Fairbanks
Tomasz Piskorski, Columbia University
Brennan Platt, Brigham Young University
Joseph Pomykala, Towson University
William Poole, Univ. of Delaware
Barry Poulson, Univ. of Colorado at Boulder
Benjamin Powell, Suffolk University
Edward Prescott, Nobel laureate
Gary Quinlivan, Saint Vincent College
Reza Ramazani, Saint Michael's College
Adriano Rampini, Duke University
Eric Rasmusen, Indiana University
Mario Rizzo, New York University
Richard Roll, Univ. of California, Los Angeles
Robert Rossana, Wayne State University
James Roumasset, Univ. of Hawaii at Manoa
John Rowe, Univ. of South Florida
Charles Rowley, George Mason University
Juan Rubio-Ramirez, Duke University
Roy Ruffin, Univ. of Houston
Kevin Salyer, Univ. of California, Davis
Pavel Savor, Univ. of Pennsylvania
Ronald Schmidt, Univ. of Rochester
Carlos Seiglie, Rutgers University
William Shughart II, Univ. of Mississippi
Charles Skipton, Univ. of Tampa
James Smith, Western Carolina University
Vernon Smith, Nobel laureate
Lawrence Southwick, Jr., Univ. at Buffalo
Dean Stansel, Florida Gulf Coast University
Houston Stokes, Univ. of Illinois at Chicago
Brian Strow, Western Kentucky University
Shirley Svorny, California State
University, Northridge
John Tatom, Indiana State University
Wade Thomas, State University of New York at Oneonta
Henry Thompson, Auburn University
Alex Tokarev, The King's College
Edward Tower, Duke University
Leo Troy, Rutgers University
David Tuerck, Suffolk University
Charlotte Twight, Boise State University
Kamal Upadhyaya, Univ. of New Haven
Charles Upton, Kent State University
T. Norman Van Cott, Ball State University
Richard Vedder, Ohio University
Richard Wagner, George Mason University
Douglas M. Walker, College of Charleston
Douglas O. Walker, Regent University
Christopher Westley, Jacksonville State University
Lawrence White, Univ. of Missouri at St. Louis
Walter Williams, George Mason University
Doug Wills, Univ. of Washington Tacoma
Dennis Wilson, Western Kentucky University
Gary Wolfram, Hillsdale College
Huizhong Zhou, Western Michigan University
Lee Adkins, Oklahoma State University
William Albrecht, Univ. of Iowa
Donald Alexander, Western Michigan University
Geoffrey Andron, Austin Community College
Nathan Ashby, Univ. of Texas at El Paso
George Averitt, Purdue North Central University
Charles Baird, California State University, East Bay
Timothy Bastian, Creighton University
John Bethune, Barton College
Robert Bise, Orange Coast College
Karl Borden, University of Nebraska
Donald Boudreaux, George Mason University
Ivan Brick, Rutgers University
Phil Bryson, Brigham Young University
Richard Burkhauser, Cornell University
Jim Butkiewicz, Univ. of Delaware
Richard Cebula, Armstrong Atlantic State University
Don Chance, Louisiana State University
Robert Chatfield, Univ. of Nevada, Las Vegas
Lloyd Cohen, George Mason University
Peter Colwell, Univ. of Illinois at Urbana-Champaign
Michael Connolly, Univ. of Miami
Jim Couch, Univ. of North Alabama
Eleanor Craig, Univ. of Delaware
Michael Daniels, Columbus State University
A. Edward Day, Univ. of Texas at Dallas
Stephen Dempsey, Univ. of Vermont
Allan DeSerpa, Arizona State University
William Dewald, Ohio State University
Jeff Dorfman, Univ. of Georgia
Lanny Ebenstein, Univ. of California, Santa Barbara
Michael Erickson, The College of Idaho
Jack Estill, San Jose State University
Dorla Evans, Univ. of Alabama in Huntsville
Frank Falero, California State University, Bakersfield
Daniel Feenberg, National Bureau of Economic Research
Eric Fisher, California Polytechnic State University
William Ford, Middle Tennessee State University
Ralph Frasca, Univ. of Dayton
Joseph Giacalone, St. John's University
Adam Gifford, California State Unviersity, Northridge
Otis Gilley, Louisiana Tech University
J. Edward Graham, University of North Carolina at Wilmington
Richard Grant, Lipscomb University
Gauri-Shankar Guha, Arkansas State University
Darren Gulla, Univ. of Kentucky
Dennis Halcoussis, California State University, Northridge
Richard Hart, Miami University
James Hartley, Mount Holyoke College
Thomas Hazlett, George Mason University
Scott Hein, Texas Tech University
John Hoehn, Michigan State University
Daniel Houser, George Mason University
Thomas Howard, University of Denver
Chris Hughen, Univ. of Denver
Marcus Ingram, Univ. of Tampa
Joseph Jadlow, Oklahoma State University
Sherry Jarrell, Wake Forest University
Robert Krol, California State University, Northridge
James Kurre, Penn State Erie
Tom Lehman, Indiana Wesleyan University
W. Cris Lewis, Utah State University
Stan Liebowitz, Univ. of Texas at Dallas
Anthony Losasso, Univ. of Illinois at Chicago
John Lott, Jr., Univ. of Maryland
Keith Malone, Univ. of North Alabama
Henry Manne, George Mason University
Richard Marcus, Univ. of Wisconsin-Milwaukee
Timothy Mathews, Kennesaw State University
John Matsusaka, Univ. of Southern California
Thomas Mayor, Univ. of Houston
W. Douglas McMillin, Louisiana State University
Mario Miranda, The Ohio State University
Ed Miseta, Penn State Erie
James Moncur, Univ. of Hawaii at Manoa
Charles Moss, Univ. of Florida
Tim Muris, George Mason University
John Murray, Univ. of Toledo
David Mustard, Univ. of Georgia
Steven Myers, Univ. of Akron
Dhananjay Nanda, University of Miami
Stephen Parente, Univ. of Minnesota
Douglas Patterson, Virginia Polytechnic Institute and University
Timothy Perri, Appalachian State University
Mark Pingle, Univ. of Nevada, Reno
Richard Rawlins, Missouri Southern State University
Thomas Rhee, California State University, Long Beach
Christine Ries, Georgia Institute of Technology
Nancy Roberts, Arizona State University
Larry Ross, Univ. of Alaska Anchorage
Timothy Roth, Univ. of Texas at El Paso
Atulya Sarin, Santa Clara University
Thomas Saving, Texas A&M University
Eric Schansberg, Indiana University Southeast
Alan Shapiro, Univ. of Southern California
Frank Spreng, McKendree University
Judith Staley Brenneke, John Carroll University
John E. Stapleford, Eastern University
Courtenay Stone, Ball State University
Avanidhar Subrahmanyam, UCLA
Scott Sumner, Bentley University
Clifford Thies, Shenandoah University
William Trumbull, West Virginia University
Gustavo Ventura, Univ. of Iowa
Marc Weidenmier, Claremont McKenna College
Robert Whaples, Wake Forest University
Gene Wunder, Washburn University
John Zdanowicz, Florida International University
Jerry Zimmerman, Univ. of Rochester
Joseph Zoric, Franciscan University of Steubenville

www.cato.org/special/s.../

Feb 07 06:12 PM

[PauvrePapillon:]

“I call upon all responsible, productive people to work hard and sacrifice so that we can redistribute their incomes to those who will never be able to find a decent job because they refuse to buy into bourgeois middle class values like staying in school or learning a trade or finding a husband before starting a family but are, nevertheless, the Ones We Have Been Waiting For because they will get on a bus and go vote for me whenever and wherever I need to send them.”

His Most Beloved and Exalted Excellency Barack Hussein Obama, JD, the FIBPOTUS

Feb 07 06:14 PM

[kingaj12:]

The main problem is how to restore private investor flows into consumer and commercial loans. The stimulus package is just a bandaid, and even then it won't be enough to stop the bleeding.

Feb 07 07:29 PM

[mr freddo:]

Right now our debt stands at 10-11 trillion. By financing on the shorter durations the treasury is picking up some good deals albeit short term. Two year is less than 1%, 10 year at 2.93% . One percent of 11 trillion is $110 billion.

Imagine in 10 years when the debt has swelled to 30 trillion and rates have increased to 5 to 8%. Just the cost of financing the deficit will be $1.5 trillion to $2.4 trillion.

Obviously at some point their won't be enough buyers on this planet to soak up that kind of money.

Feb 08 01:29 AM

[Al-USA:]

One very effective way to pay for this will be to "soak the rich". According to another article from SeekingAlpha.com the tax rate on the "rich" went fro 20% to 94% from 1929 to 1945. With money out of the richs' pockets and into the economy, the velocity of money increased dramatically and the state was set for future USA prosperity and world dominance which continued without interruption up to recent days.

In any event, during a depression the rich are the only ones with spare cash so there is no other solotion if you want to save Capitalism from the righteous passions of the masses.

seekingalpha.com/artic...

Feb 08 12:21 PM

[rosey99:]

It does seem as if taxes have been going more or less down for the last thirty years or so, and that public and private debt have been going more or less up for about the same period. The so called "Laffer Curve" has its limitations. It seems pretty obvious that taxes will now go up in a big way. If taxes do increase it will likely harm the pace of recovery, but I for one cannot see any other way to reassure potential buyers of US Treasuries, or to pay for that most wondrous generation - the boomers. The myth that lower tax rates lead to greater revenue, and that the Laffer Curve is equally applicable to all situations is obviously false. If Reagan ran for office today he would probably lose. There is a growing awareness these days that the increasingly extreme ideological conservatism of the last 30 years is a failure. Death by hubris I suppose. And while I hope the pendulum does not swing too far and too fast the other way, it will be refreshing just to talk about something other than tax cuts for a change.

Feb 09 12:46 AM

[Vox Rationalis:]

1rulenorules wrote: "From what I have heard and read, tax cuts by Kennedy, Reagan, Bush, Gulianni sales tax cut and Whitman's NJ state income tax cut all saw greater returns in the near term."

I find this very funny, because it shows you haven't done much reading at all. It's simply not true for Reagan's tax cuts, nor for Bush's tax cuts. Do the research. In the first two years after the 1981 tax cuts, income tax revenue fell by 14.3% in real terms. By the time of the 1986 tax reform, income tax revenue had almost regained the 1981 level, while real GDP had grown by almost 20%. Similarly, income tax revenue fell dramatically following the 2001 cut, and it took 5 years for revenue (measured in real terms) to regain pre-cut levels.

(derived from EROP tables B78, B80, and B60)

By the way, are you suggesting that NY's sales tax revenue went up BECAUSE the rate was reduced? And that NJ's income tax revenue increased BECAUSE of a rate reduction? Seriously? Have you even thought about this?

"Correspondingly, tax increases have seen declines in revenue for as far as I can remember as reported by the media after the fact."

Again, funny because your memory is demonstrably faulty. Take, for example, the Clinton tax increase. In real terms, income tax revenue increased by more than 32% in the five years following that tax increase, compared to -1.5% in the five years after the 1981 cut.

"We are on the wrong side of the Laffer curve then tax cuts are win-win....for everyone but liberals."

You would have done well to start that sentence with "If," because it's clearly not true. You're again invited to provide a shred of evidence to the contrary.

"The stimulus should be solely comprised of tax cuts, large across the board, no winners, no losers, corporate, personal and retroactive."

Heard today that 15% of the previous "stimulus" checks was spent. What a great idea that makes this - replace private debt with public debt, and let our children worry about it.

Feb 09 11:41 AM

[Duude:]

BS Detector:

Your meter is broken and is now churning out BS. Must be a liberal clog of demagoguery in your pipes.

Here are the income tax receipts during the Reagan years. Note that the Reagan cuts weren't enacted till 1982.

In Billions:
1982 347
1983 326
1984 355.3
1985 395.9
1986 412.1
1987 476.5
1988 495.7

Best to do a little reading before you post.


On Feb 09 11:41 AM BS Detector wrote:

> 1rulenorules wrote: "From what I have heard and read, tax cuts by
> Kennedy, Reagan, Bush, Gulianni sales tax cut and Whitman's NJ state
> income tax cut all saw greater returns in the near term."
>
> I find this very funny, because it shows you haven't done much reading
> at all. It's simply not true for Reagan's tax cuts, nor for Bush's
> tax cuts. Do the research. In the first two years after the 1981
> tax cuts, income tax revenue fell by 14.3% in real terms. By the
> time of the 1986 tax reform, income tax revenue had almost regained
> the 1981 level, while real GDP had grown by almost 20%. Similarly,
> income tax revenue fell dramatically following the 2001 cut, and
> it took 5 years for revenue (measured in real terms) to regain pre-cut
> levels.
>
> (derived from EROP tables B78, B80, and B60)
>
> By the way, are you suggesting that NY's sales tax revenue went up
> BECAUSE the rate was reduced? And that NJ's income tax revenue increased
> BECAUSE of a rate reduction? Seriously? Have you even thought about
> this?
>
> "Correspondingly, tax increases have seen declines in revenue for
> as far as I can remember as reported by the media after the fact."
>
>
> Again, funny because your memory is demonstrably faulty. Take, for
> example, the Clinton tax increase. In real terms, income tax revenue
> increased by more than 32% in the five years following that tax increase,
> compared to -1.5% in the five years after the 1981 cut.
>
> "We are on the wrong side of the Laffer curve then tax cuts are win-win....for
> everyone but liberals."
>
> You would have done well to start that sentence with "If," because
> it's clearly not true. You're again invited to provide a shred of
> evidence to the contrary.
>
> "The stimulus should be solely comprised of tax cuts, large across
> the board, no winners, no losers, corporate, personal and retroactive."
>
>
> Heard today that 15% of the previous "stimulus" checks was spent.
> What a great idea that makes this - replace private debt with public
> debt, and let our children worry about it.

Feb 09 05:58 PM

[bosun.j:]

Who's your buddy. who's your pal? It's the Banksters!

Feb 10 05:01 AM

[mr freddo:]

Thank you for an interesting article. I was at a dinner at Claremont College recently with 6 of their economics professors. They were unanimous in their belief that the stimulus would be inefficient at creating jobs but would crowd out capital and have an overall negative effect.

Why is Treasury so married to short term debt? Because the rates are better?

With Eastern Europe now poised to bring down Austria and the European banks, fear is rising and panic is reaching late 2008 levels. I think we will see another short term rush into the dollar and treasuries. With all its problems, the dollar and treasuries are still the preferred safe haven for world investors. Oh, and gold too, although the price of gold will be manipulated by central banks to keep it from taking off.

Feb 22 02:46 PM