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shedfish

Massive Government Stimulus

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over the last week or so there have been reports of positive growth here and there - France, Germany, Japan.

am i mistaken, or are these among the more cautious governments, as regards to QE, wanton, unfocussed stimuli etc.

probably too soon to tell, but could this be an early pointer to the folly of certain governments?

does it work? or does it make things worse?

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over the last week or so there have been reports of positive growth here and there - France, Germany, Japan.

am i mistaken, or are these among the more cautious governments, as regards to QE, wanton, unfocussed stimuli etc.

probably too soon to tell, but could this be an early pointer to the folly of certain governments?

does it work? or does it make things worse?

Not going according to plan in Japan it seems.

It was expected that the stimulus would create a much bigger boost to Japanese GDP than it actually did, which suggests that consumer spending is tanking there (same in the US). The Japanese stimulus will be winding down in Q4 so I think the GDP will fall again if they don't use another stimulus package.

This is why the Nikkei fell on the news of the figures last night. The stimulus seems to have failed.

The Japan GDP figure is just a positive blip IMO.

Edited by MOP

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over the last week or so there have been reports of positive growth here and there - France, Germany, Japan.

am i mistaken, or are these among the more cautious governments, as regards to QE, wanton, unfocussed stimuli etc.

probably too soon to tell, but could this be an early pointer to the folly of certain governments?

does it work? or does it make things worse?

worse

link

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade - that it encourages that trade to the amount of six francs - I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.

Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.

Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.

When we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end - To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."

What will you say, Monsieur Industriel -- what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?

I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen. The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying - What would become of the glaziers, if nobody ever broke windows?

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Guest DissipatedYouthIsValuable

Well, I haven't had to fend off hordes of hungry pensioners and the repossessed.

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The Japanese have been doing this for 20 years now and they still haven't recovered from there debt bubble bursting.

So after 20 years of not recovering do you think it's going to work?

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."

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The Japanese have been doing this for 20 years now and they still haven't recovered from there debt bubble bursting.

So after 20 years of not recovering do you think it's going to work?

what if it is a recovery. Just not a recovery that requires gratuitous private credit expansion ? Instead an extented period of govt. intervention following the bursting of a massive credit bubble.

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over the last week or so there have been reports of positive growth here and there - France, Germany, Japan.

am i mistaken, or are these among the more cautious governments, as regards to QE, wanton, unfocussed stimuli etc.

probably too soon to tell, but could this be an early pointer to the folly of certain governments?

does it work? or does it make things worse?

It may work in a small, focussed area. It makes things worse everywhere else, by propping up lame ducks and starving non-stimulated industries not only of funds, but also of demand, which has been diverted to the stimulus.

Have you ever put up wallpaper? If a bubble creeps in, you can flatten it, only to find three bubbles popping up somewhere else under your wallpaper. Repeat until ... you give up and strip the whole thing down and start again.

Or, to be topical, people who are getting £2k for scrapped cars aren't spending their money on new white goods. So now the latter wants a stimulus too. The bubble under the wallpaper has moved, and that's one place a new one turned up.

Edited by porca misèria

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does it work? or does it make things worse?

if there is a genuine lack of money (i.e. units of exchange) to pass around then of course.

if there is non-utilised labour, then printing money to employ these people on capital projects (railways, dams, tunnels, bridges etc) increases your assets in line with your monetary base, so this is fine.

if you print money to temporarily hold down the interest rate, you are dissuading outside investment. investors prefer to keep money in low risk assets (commodities) and it drives a commodity bubble, this forces rates to rise.

only when rates rise (and those companies that were saved from the chopping block before - go bankrupt) can real growth happen. meanwhile you have an inflation problem on your hands.

will things get worse? GBP will fall thru the floor as soon as QE ends, rates will not be able to rise, government will not be able to issue debt, however it will be great for UK exporters (heard that before?).

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