EnumaElish said:One thing that the government can do is to speed up favorite government programs, while promising solid supply-side gains in the not too distant future.
Look at it as another regional war that needs troops and money immediately.
Thoughts? Comments?
The trick is raising taxes and lowering taxes strategically. Bush got it backward. Cutting taxes on the wealthy was stupid, reducing revenues while spending got 'way out of hand. If he wanted to stimulate the economy, he would have raised taxes on the upper-income group, while lowering taxes for the middle class. The middle class tends to spend about everything they make, and they spend it in ways that stimulate their local economies. Our system of taxation is highly regressive, such that people at the low-to-middle ranges of income pay a much higher percentage of their incomes in taxes. Our government(s) levy sales taxes, excise taxes, property taxes, fuel taxes, etc, etc. Advocates for the wealthy like to point to capital gains taxes, inheritance taxes, and income taxes as if the wealthy should not pay a fair share. Warren Buffet is a refreshing counter-example.wildman said:The US economy is potentially very inflationary right now. The last thing we need is more debt and raising taxes would really kill off economic activity.
Not true. Thousands of people are going bankrupt right now because they got low interest rates on their mortgage then the rates went up and they couldn't afford the mortgage payments. Government debts are the exact same way. The government will issue bonds at maybe 3%, then when those bonds mature, the interest rates might be up to 6%. In order to maintain the same level of debt, the interest being paid literally doubles. If the government had no debt in the first place, it wouldn't matter what bonds rates are because they wouldn't need to issue bonds.EnumaElish said:High debt doesn't "cause" recession any more than living in a big house with a big mortgage causes a productive family to go bankrupt.
When inflation goes up, interest rates go up. Canada had rampant inflation in the 1970s and simple GICs were paying as much as 10%. Mortgages on homes were around 15%. Your debt doesn't just magically disappear through inflation since the interest rates go up to match that inflation. Right now is a low teaser rate, but wait a year and it will go up to match the level of inflation the US has right now.A medium level of inflation may not be a bad thing for a highly indebted economy; the trick is to minimize the variation in the rate of inflation (the uncertainty component). A steady 5% per year increase in the overall price level may not be a bad thing.
What you're saying probably will happen. Banks probably will get a bailout, and the economy will recover. The alternative is to do nothing, let banks hold those bad loans, and end up looking like Japan and go into a 10+ year recession.Low liquidity clogs up the economy because productive investments cannot find financing -- but those investments are exactly those that fuel long-run economic growth. But with markets flushed with liquidity, bad investments also continue to fester. What is needed is a selective rule that weeds out the good from the bad investment; and unsupervised private financiers have proven to be bad in this -- they just could not turn away from lucrative profits at the expense of making bad loans. Someone has to hold the bag now, and I am guessing that direct government programs may be a better instrument at this than the Fed flushing out liquidity in an undirected way.
Mine was not the best example. Having stated that, fixed-rate debt does not have this repercussion. Moreover, debt can also avert or postpone a recession. The unqualified statement "debt causes recession" is too general to be useful policy advice.ShawnD said:Not true. Thousands of people are going bankrupt right now because they got low interest rates on their mortgage then the rates went up and they couldn't afford the mortgage payments. Government debts are the exact same way. The government will issue bonds at maybe 3%, then when those bonds mature, the interest rates might be up to 6%. In order to maintain the same level of debt, the interest being paid literally doubles. If the government had no debt in the first place, it wouldn't matter what bonds rates are because they wouldn't need to issue bonds.
Again, that would depend on whether the bulk of the debt is variable rate or fixed rate. In the early 2000s, when the interest rates were lowered to help out the stock market, "rational" people expected interest rates to go up in the near future, so they took fixed (or semi-fixed) rate mortgages.When inflation goes up, interest rates go up. Canada had rampant inflation in the 1970s and simple GICs were paying as much as 10%. Mortgages on homes were around 15%. Your debt doesn't just magically disappear through inflation since the interest rates go up to match that inflation. Right now is a low teaser rate, but wait a year and it will go up to match the level of inflation the US has right now.
A recession is a period of economic decline where there is a significant decrease in economic activity, such as a decline in gross domestic product (GDP), employment, and consumer spending. It is typically characterized by a decrease in production, a rise in unemployment rates, and a decline in the stock market.
There is no one-size-fits-all solution for fixing a recession, as it depends on the specific causes and factors contributing to the economic downturn. However, some common ways to address a recession include implementing fiscal and monetary policies, such as government spending and interest rate adjustments, to stimulate economic growth. Other methods may include tax cuts, job creation programs, and trade policies.
The duration of a recession and the time it takes to recover from it can vary greatly. In some cases, a recession may only last a few months, while in others it can last for years. The recovery time also depends on the severity of the recession and the effectiveness of the measures taken to address it. It is not uncommon for a full economic recovery to take several years.
While it is not possible to completely prevent a recession from occurring, there are steps that can be taken to mitigate its impact. This includes maintaining a stable and well-regulated financial system, monitoring and addressing potential economic imbalances, and implementing policies that promote sustainable economic growth. However, economic downturns are a natural part of the business cycle and cannot be entirely avoided.
The responsibility for fixing a recession falls on both the government and the private sector. The government is responsible for implementing policies and measures to stimulate economic growth and address any underlying issues that may have contributed to the recession. The private sector, including businesses and consumers, also plays a role in boosting economic activity by increasing spending and investment. Collaboration between the two is crucial in successfully tackling a recession.