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The Stimulus Is Already Slowing The Economy

hypocritexposer

Well-known member
Do you think that the steepening yield curve is the result of foreign central banks growing uncertain about how deteriorating fiscal position?

If so, it logically follows that the Barack Obama's stimulus program -- far from getting the economy "moving" again -- is already slowing things down.

Arnold Kling: This is all based on a Keynesian type of macro analysis. As we know, most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy.

According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now, with multiplier effects following afterward, when the economy will need little, if any, stimulus.

Kling thinks this makes a strong argument for tax cuts, rather than spending, in terms of getting money into the economy now. Read his whole post here >

yieldcurveexpansion.png


http://www.businessinsider.com/how-the-stimulus-is-already-slowing-the-economy-2009-6#comment-4a2453d8796c7aa3003fb6e3
 

Richard Doolittle

Well-known member
It's pretty simple really. Deep down, everyone is worried about taxes going up so spending and investment is curtailed. With the uncertainty we are facing, people are keeping what money they have pretty closely held.

It actually multiplies throughout the economy in similar fashion in times like this. When profits go down, companies raise prices and reduce package sizes. Consequently, the consumers feel like they're getting screwed and actually buy less than they would if they felt like they were getting a good deal.

If the opposite approach were taken, both in business and in Government, profit margins and tax revenues would increase.
 
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