Fed prediction: It's going to keep sucking for awhile

I agree. Look at the jobs I see every day lost. The parking garage where my gym is, in the city. Pay into a ticket machine, get ticket, put ticket into another machine to raise the arm. There's one job gone.

At the gym, there is a fingerprint scanner to allow entry. There's still a person there, but with much less job responsibilities (so therefore either less hours or less employees).

Technology is awesome. Its also killing jobs.

 

Even if it did put us in Greece or Iceland territory -- we're not Greece or Iceland. We're not even close. Japan carries much more debt than either of those two, and no one bats an eye. Their creditors are fine with it.
I'm all for a balanced budget in the long-run. In the short-run, though, I'm all for more stimulus.
Borrowing more money is fine. We'll be better off in the long-run when we get our economy back where it needs to be, because it will increase tax receipts. We have to take a short run hit for long run gain.
There's a time for austerity -- now is not it.

 

The long-run gain isn't coming, partially because of structural changes to the economy and partially because of the debt load. We are already paying debt interest equal to 4% of our GDP every year. And that number is being held down by obscenely low interest rates on our debt, most of which has short-term maturity. The economy just isn't going to be able to grow fast enough to outpace that, when it's in such awful shape now. Right now, we're at mediocre growth and 9.6% unemployment despite the government borrowing $1.4 trillion a year to stimulate it. It's almost impossible to see a path from there to lower unemployment, and solid growth with no borrowing propping it up, especially if the debt load keeps getting bigger.

People do bat an eye at Japan's debt. Japan hasn't seen much economic growth in the last 20 years, and the average Japanese household has been steadily losing ground in terms of purchasing power.

I get the idea of "stimulate with borrowing in bad times, pay it back in good times." But when you've failed to pay it back for several consecutive booms, you've sealed your fate and can't afford to borrow your way through the next bust. And by trying to do it for too long, you are only making things worse in the long run.

 

I agree completely that people have screwed the pooch by not paying back borrowing in the past. Agree completely.
But we can survive more borrowing. The problem with the first round of stimulus was that it really wasn't so much stimulus as it was water treading because so much had to go to helping states. We need actual stimulus.
And, the economy, obviously, doesn't HAVE to grow at a higher rate than our debt financing for us to be able to pay it back. First, just paying down the balance would decrease the amount you have to pay interest on, and decrease debt as a percentage of GDP, right? Also, we could, you know, raise taxes, or cut spending to find the money from elsewhere to pay down debt.
And, again, stimulus increases tax revenue. It doesn't pay for itself, by any stretch of the imagination, but increased receipts make the picture rosier down the line that it looks now.

 

If you raise taxes or cut spending (which I agree with doing), you are removing stimulus from the economy just the way that borrowing adds to it. I'm all for doing it, because I believe it will make things better in the long run, but it will make things *suck* in the short run. Suck on a level that makes the current sucking look like a walk in the park.

Cutting spending or raising taxes means taking money out of people's pockets, cutting jobs, and removing programs that support jobs. It's reverse stimulus. If we can't afford to do that now, we can't afford to do it anytime in the next decade or so, because it doesn't look like things are going to be any better anytime soon. Might as well do it now.

 

I meant that, later, after the economy recovered, we should raise taxes and cut spending.
Now, raising taxes on the absolute wealthiest wouldn't hurt as long as that money was used basically for direct employment -- otherwise, just wrack up the national debt in the short run. Hold off on the raising of taxes and cutting of spending until after the economy recovers, then, definitely do that.

 

How long, in your opinion, can we afford to borrow at those sorts of rates if the economy doesn't improve to the point we can stop?

 

I don't know, honestly. I don't know that we can do five more tries at stimulus. But, if we do it right, it seems like we shouldn't NEED five more tries.
The thing with not doing stimulus is there's an opportunity cost, right? Long periods of economic struggles make national debt much harder to pay off, because a) it cuts down on revenues, and b) you're constrained in what you can do by not wanting to make things worse. If, on the other hand, you can shock the economy back into working at full tilt, than you have more freedom to pursue austerity measures (because the private sector is healthy enough to handle it), plus, you don't miss out on the boosted tax receipts you get from a healthy economy.

 

Yes. The point of stimulus is that early in the recession, you want to avoid changes that will be more expensive to reverse when things go well.

If a company slows down factory production, they can ramp it back up pretty quickly. If they shut down the factory and sell all the parts, it'll be much more expensive to get restarted and they might not want to do it even if the economy recovers.

I hate, hate, hate using personal finance for macroeconomics, but in this case I think it's apt. If you lose your job but you'll get another one in six months, then you borrow some money to keep from losing your house, because you can make it up later and you don't want to have to go through the expense of getting a new house.

If you don't get another one in six months, one year, two years, etc., then eventually you can't keep borrowing anymore and have to accept your new, lower-cost lifestyle.

We're past the early days of the recession and almost two years into the recovery. There's serious reason to believe that the "full tilt" isn't coming anytime in the next half-decade *at least*. Maybe longer. It's time to accept the new normal and quit throwing good money after bad.

 

This is economic, not political. Please don't make it about that. (Did you notice where I called for tax increases to pay down the debt?)

 

I don't see why it makes sense to expect that, or why it makes sense to believe that a second round of stimulus won't have a significant impact on our GDP. Not trying to be a jerk -- just don't understand where you're coming from.

If it's from the fact that the first stimulus didn't do a whole lot, that's because the first stimulus, thanks to having to make up for failing states, didn't really increase overall government spending much, to the point that an austerity-centric country like Germany had a larger increase in government consumption than the US, despite the first stimulus.


(source: NY TIMES)
So, I just think that REAL stimulus deserves a chance.