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We need more, not less, deficit spending to keep the economy afloat, David Levy argues. "We're...
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Friday, June 11, 2010, 3:32 PM ETWe need more, not less, deficit spending to keep the economy afloat, David Levy argues. "We're going through a period of enormous weakness in business investment, household investment," he says, and "we should do... much more long-term federal investment." Deficit hawks are "taking the Hooveristic, Euro-masochistic type of approach."
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You CANNOT grow the economy during a period of Winter in the Business Cycle -- which is what deflation is. The government can throw money at growth -- but it is just taking on more debt. This isn't a problem IF the government is not already indebted. But governments ARE currently so indebted that national bonds are now becoming JUNK BONDS. The market is saying you are going to default and we won't buy your bonds without heavy risk premiums because we think you are going bankrupt.
And now we're supposed to take on more debt, throw more money into the Black Hole of deflation, because the inflationists are afraid of deflation. Well, we partied, we spent money that didn't belong to us, and now comes God's Wrath. God (the Law of Nature) doesn't care if you are ready of not. Your time has come to face the heavy burden of your actions.
You don't get to change the rules of Nature simply because you are, today, afraid of what is coming.
1. China - $895 billion (+17% vs. March 2009)
2. Japan - $785 billion (+14%)
3. UK - $279 billion (+117%)
4. Oil exporters - $230 billion (+20%)
5. Brazil - $164 billion (+30%)
6. Hong Kong - $151 billion (+91%)
7. Caribbean Banking Centers - $148 billion (-31%)
8. Taiwan - $125 billion (+67%)
9. Russia - $120 billion (-13%)
10. Luxembourg - $85 billion (-20%)
And the Fed ... $777 billion
Cut taxes and people will store the money from the tax cuts (liquidity trap) to bridge the recession. Corporations already don't pay much taxes anyways and would behave just like individuals and don't invest much as demonstrated by the large cash balances held by businesses these days resulting mostly from labor cost savings.
Massive governement expenditure is the only fast way out of the recession. Public debt is not an issue as long as the debt incurred is used to generate more demand and cash receipt that will be used to pay down and service the debt. The plan launched by the government last year has not achieved its objectives to reduce unemployment because it was too small as a result of the Obama administration compromising right and left to make everybody happy with the result of making everybody unhappy.
People and pundits don't remember that Hoover put the country in deep depression after listening to Mellon's suggestion to "purge the rotteness" and cut public expenditure. It took WWII to get the country out of the hole. People who don't learn from their mistakes, are destined to repeat them.
But wait, this country voted Bush in office twice and keep listening to pundits and politicians like Beck and Cantor. What do we expect?
The usual supply side that subtly or openly most of the posters above advocate has never worked
If Japan wakes up, then it's not getting any more US "protection" in the Pacific. It's like protection racket.
If the UK wakes up, it will simply wake up to another nightmare of its own. Better keep sleeping.
If the oil exporters wake up, what do they wake up to? The Euro?