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No Amount Of Stimulus Will Work

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No Amount of Stimulus Will Work

Economist Paul Krugman is back at it, whining for more stimulus. If you can stomach it, please consider What didn’t the vice president know?

But never mind the hoocoodanodes and ayatollahyaseaux. What’s important now is that we don’t compound the understimulus mistake by adopting what Biden seems to be proposing — namely, a wait and see approach. Fiscal stimulus takes time. If we wait to see whether round one did the trick, round two won’t have much chance of doing a lot of good before late 2010 or beyond.

The above is not much more that an "I told you so" referback to Stimulus arithmetic (wonkish but important).

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.†Let’s hope I’ve got this wrong.

Krugman Wrong Again

Well Krugman did get it wrong. On many counts. For starters, the unemployment rate is headed to something like 11%, not 9%. At the time, I called for 9.8% by August. We are at 9.5% as of June. Please note that "no one could possibly have foreseen that" even though all I did was project the then current situation forward by 6 months.

Krugman says "Fiscal stimulus takes time. If we wait to see whether round one did the trick, round two won’t have much chance of doing a lot of good before late 2010 or beyond."

It seems to me that if fiscal stimulus takes time, it cannot do much good now no matter how big the stimulus is. More importantly, if fiscal stimulus takes time (assuming one believes it accomplishes anything at all), then what is the case for more stimulus now? Perhaps it just hasn't worked yet.

Krugman falls back on his wonkish formulas about multipliers and how fast they work. The truth is the real world does not give a damn about what economists think multipliers should be, or for that matter how any economic formulas are supposed to work in theory.

Stimulus Plans Raise National Debt For Dubious Benefits Now

In the real world, artificial stimulus may not accomplish anything at all other than driving up national debt. That pretty much sums up what transpired in Japan.

Oh sure, if the government gives away enough money, government could easily cause hyperinflation, in theory. However, that would not create any economic activity that anyone wants. Nor will it be tried because it would destroy banks.

Moreover, all this talk of multipliers is nonsense. If government spends money in a manner that private industry would not, the multiplier is far less than 1, and perhaps even negative.

Case in point: There are numerous road construction and repaving operations where I live. The thing is, most of the roads did not even need repair. Money came in for roads, Obama said use it or lose it, so the roads were "fixed". Now what?

They can "fix" every road in the country that does not need fixing and as soon as the roads are fixed, we will be back at square one, in need of still more stimulus, with Krugman whining for still more.

There is an economic benefit for fixing roads that genuinely need fixing, however, all that does is push up the curve a bit. Then what?

Ludwig von Mises on the Endgame

Flashback February 2, 2006: Inflation: What the heck is it?

Ludwig von Mises describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

The FED should have been listening to Mises all along. Instead they have put their faith in "productivity miracles", "new paradigms", and their own hubris. Those actions have accomplished nothing other than delay the eventual day of reckoning.

No Amount of Stimulus Will Work

The problem with Keynesian clowns is they never look ahead to when the stimulus stops. By definition "stimulus must end" and as soon as it does, unless the stimulus created lasting new jobs, there will be nothing to show for it other than debt.

And interest must be paid on that debt. And that interest has to come to come from somewhere, either more taxes, or printing money and cheapening the dollar. That means there is a price to pay down the road for stimulus today. Keynesian clowns act as if there is no price down the road.

Since you cannot spend what you don't have (without long-term negative consequences), the key to a solid recovery comes from a buildup in savings, lower taxes, and letting consumers keep more of their money (as opposed to government deciding how and when it should be spent).

In short, no amount of artificial stimulus can possibly work because government cannot allocate capital in an efficient manner (repairing roads that do not need to be repaired is proof enough). This is something that academic wonks trapped in their ivory towers apparently will never understand.

Creating a better business climate, with less government waste, will work. However, the right plan will take time and patience, traits that Government bureaucrats and academic wonks both lack. Unfortunately, but not unexpectedly, we are moving in exactly the wrong direction as noted in Obama's "Cap and Trade" Energy Plan Will Cost Jobs.

There is a price to be paid for reckless expansion of credit and we are paying the price now. All artificial stimulus does is prolong the agony. The greater the stimulus, the greater the period of future agony, just as happened in Japan. Ironically Keynesian and Monetarist clowns shouted for more stimulus all the way, and they are doing so again now.

Yep.

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There has to be a plan to pay back the debt or it's collapse.

No plan to pay the money back has ever been sort because it would kill growth. The growth we have has been debt funded now the money has run out.

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There has to be a plan to pay back the debt or it's collapse.

No plan to pay the money back has ever been sort because it would kill growth. The growth we have has been debt funded now the money has run out.

State failure - 100% guaranteed.

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When will these idiots learn that there is no magic bullet that will get us out of the mess?

Money Printing is being hailed as miracle cure-all and it's a load of tosh.

The only way out is to let assets deflate to fair value, default debts that can't be paid and build back up from that base level (which is likely to be a lot lower than where we are at now).

Painful and politically unacceptable, hence our bunch of leaders will do anything to avoid it and take the easy option of promising miracles to a public dumbed down by the mass media. In the meantime they are making the magnitude of the eventual crash even worse with their half-baked measures.

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426795-124487207213678-Faisal-Humayun.JPG

Denninger had that graph too.. at first I thought he had a different one showing it already negative.

Edited by aa3

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http://www.financialsense.com/editorials/f.../2009/0330.html

THE MARGINAL PRODUCTIVITY OF DEBT

Why Obama’s Stimulus Package Is Doomed to Failure

by Antal E. Fekete,

Professor of Money and Banking

San Francisco School of Economics

March 30, 2009

...But what is happening to the unprecedented tide of new money flooding the economy? Well, it is used to pay off debt by the people who are desperately scrambling to get out of debt. Businessmen in general are lethargic; every cut in the rate of interest hits them by eroding the value of their previous investments. In my other writings I have explained how falling interest rates make the liquidation value of debt rise, which becomes a negative item in the profit/loss statement eating into capital that has to be replenished as a consequence. Worse still, there is no way businessmen can be induced to make new investments as long as further reductions in the rate of interest are in the cards. They are aware that their investments would go up in smoke as the rate of interest fell further in the wake of “quantitative easingâ€.

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Why don't we just print unlimited bits of paper that will pay back the bits of paper we bailout with.

In fact, who gives a toss about wood chippings or pixels anyway. :unsure:

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Denninger had a graph awhile back that showed that statistic going negative. Debt growth actually contracting the economy.

That would not surprise me and I was thinking that given recent event the graph would be out of date. Are you able to find it?

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That would not surprise me and I was thinking that given recent event the graph would be out of date. Are you able to find it?

Oops I just found his post and he had the same graph. Here is the link to his post on it:

http://market-ticker.denninger.net/archive...her-Eye%21.html

He does say this:

That "event horizon" is dangerously close and may have been crossed. An exact measurement of this point, and determination of where it lies, is not possible. However, we know for a fact that a new dollar of debt has generated as little as ten cents worth of GDP as recently as the last year - and this was before you committed to pump nearly $2 trillion of new debt into the economy with your current budget.
Edited by aa3

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Isn't printing money / QE just a confidence trick? I mean, the Gov and BoE was a 1 trick pony (IR manipulation) but they invented a new trick (QE) to make it look like they knew what they were doing. It wouldn’t have looked very clever for them to be seen as the ‘do nothing party’ when they had already decided to pin that one on the Conservatives!

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Oops I just found his post and he had the same graph. Here is the link to his post on it:

http://market-ticker.denninger.net/archive...her-Eye%21.html

He does say this:

Thanks, it would be good to get a more up to date chart, I will do some digging tonight to see if there is one out there. For me I think it articulates my feeling that it is simply not possible to stimulate our way out of this mess as this thread states.

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take the easy option of promising miracles to a public dumbed down by the mass media.

Sorry to be pedantic, but they don't need to promise miracles - the public has yet to realise that one is needed. Honestly. Most people I talk to have absolutely no idea how f***ed things are. They think it's a spot of bother, over by Christmas or something...

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Isn't printing money / QE just a confidence trick? I mean, the Gov and BoE was a 1 trick pony (IR manipulation) but they invented a new trick (QE) to make it look like they knew what they were doing. It wouldn’t have looked very clever for them to be seen as the ‘do nothing party’ when they had already decided to pin that one on the Conservatives!

It's amazing the magical mystical interest rates don't appear to work and Mystic Merv said they dealt with everything.

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Guest KingCharles1st
There has to be a plan to pay back the debt or it's collapse.

No plan to pay the money back has ever been sort because it would kill growth. The growth we have has been debt funded now the money has run out.

In the absence of knowing what else to call it- I'm going with F I N A N C I A L R E S E T

Now if only I could make it flash too ;)

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F I N A N C I A L R E S E T

Exactly - it may go a little something like this:

"Hey Hu Jintau, how's that trouble in Urumqui? Good, good. Listen, that $3 trillion dollars we owe you. Sorry, we're not going to be able to make it."

Then what? War?

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Exactly - it may go a little something like this:

"Hey Hu Jintau, how's that trouble in Urumqui? Good, good. Listen, that $3 trillion dollars we owe you. Sorry, we're not going to be able to make it."

Then what? War?

Hand shake and a cup of tea.

After all it's only worthless paper with ink on it.

Perhaps we could offer some crayons?

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F I N A N C I A L R E S E T

Now if only I could make it flash too ;)

WE could all pretend it's flashing

& not tell anyone that it is.

Thus with a simple inspired idea, she saved the world from ruin

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Guest spp

There is a big fight going on V deflation right now.

This Stimilus does not work so U.S prints more, U.K prints more, Euro bank prints more etc...

Repeat, Repeat, Repeat...

Has there ever been a time in history where so many banks have printed money simultaneously??

How do you guys think this is going to play out?

Some good interviews from Faber on this subject today.

Wednesday, July 8, 2009

Marc Faber recommends Gold and Silver against the Dollar

http://www.youtube.com/watch?v=LKzv74aleDE

http://www.youtube.com/watch?v=3TWDQObd9M8

http://www.mcalvany.com/podcast/

We now have a new bubble...the bailout bubble...the biggest bad a$$ of them all IMO.

Is this the end of FIAT money?

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