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View Diary: Why deficits don't matter - the reality of government finance (116 comments)

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  •  well (0+ / 0-)

    QE is actually stimulating the economy. The government spends money and raises that money from the financial markets buying selling bonds (since it is running a deficit). Normally this would cause interest rates to rise. BUT the Federal Reserve instead buys the bonds indirectly providing a willing buyer and thereby keeping rates low (and of course printing money to buy the bonds).

    The bonds the Fed buys do not fatten the banks (other than on some trading level). The Fed issues a bond, the bank buys the bond, the Fed buys it back (effectively). The Fed is essentially buying (indirectly) back most of the debt being issued by the government currently, so the net impact on bank balance sheets is minimal.

    Inflation is a monster slow to rouse, but very difficult to tame once unleashed. It will consume the pensions of the savers ... but of course that is the plan. Everyone will get SS, but it won't buy what you though it would buy.

    We are now in a currency devaluation war. Every country wants to devalue its currency. (Note: a large percentage of the trade deficit - up to 50% some months - is due to energy imports). Also for modern manufacturing to be cost competitive with low wage countries it has to be incredibly automated (few jobs). Some will definitely come back, but there is a limit.

    Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

    by taonow on Sat Nov 10, 2012 at 07:10:44 AM PST

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    •  The US gov could stimulate by getting money into (1+ / 0-)
      Recommended by:

      the hands of folks directly.

      The buy back of bonds is a free give away to banks, and to the extent that banks might need liquidity, this could be  achieved through bottom up methods.

      •  My father preached this fifty years ago. (2+ / 0-)
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        katiec, psyched

        He was a child of the Great Depression and he remembered well the effects of the public works projects. In fact, the whole generation of adults that I knew as a child believed in this approach.

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Sat Nov 10, 2012 at 08:25:55 AM PST

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      •  We used to spend 5-6% of GDP (0+ / 0-)

        on infrastructure, last year we spent 1.3% about 195 billion, which is about 4 to 5 million jobs. in a 15 trillion dollar economy 5% is 750 billion. We could create an additional 10 to 13 million jobs.

        Without that New Deal policy every recession sees a jobless recovery, 1990, 2000, and the current great recession. From 1938 to 1988, recessions were shorter and shallower, only in 3 years did GDP go worse than negative 2%.

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Sat Nov 10, 2012 at 02:25:05 PM PST

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    •  Nonsense (1+ / 0-)
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      QE has had little or no stimulative effect on the economy. If you think it has had such an impact, then let's see some evidence. I don't see a shred of it.

      Also, you don't have to worry about the Chinese getting out of dollars until they decide they don't want to trade with us  any longer. But hey, if they do that, we'll just have to make things here, ourselves. Maybe Detroit will come back!

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