prudentinvestor

Cycles, Recessions, and Looking Forward

You state ".. If the stimulus is three times the proposed size and it happens quickly....." then "On the other hand, if the stimulus is delayed, or adjusted down, maybe there's less chance..."

The author is suggesting that the more stimulus and the sooner it is scattered around, the better off we will all be.

It is surprising how many people think that stimulus is a net plus, not a zero sum game.

Fact is that stimulus has to be paid for at some time and by somebody. If the money is just printed, somebody's savings will shrink in real terms and that person will have less real purchasing power as a result. If the money is borrowed, somebody will pay more tax and that person will also have less purchasing power.

So, at the end of the day, stimulus is just borrowing from the future and/or redistributing purchasing power in an artificial way. Excessive borrowing from the future is what got us into this mess; so more of it is throwing fuel on a fire. Re-distribution of purchasing power by governments is what made the planned economies of the Soviet Union and Maoist China collapse.

So, in reality, proponents of stimulus are just betting that the short-term boost will more than offset the fundamental long-term damage done to the economy. Only time will tell if they are right or wrong.