PeakTrader.com

[administrator]

PeakTrader:

JBH, there’s no structure in your statements. And, you make false assumptions. For example, banks are holding $2.5 trillion in excess reserves, which hasn’t been put into circulation. Also, there hasn’t actually been that much deficit spending. There’s less tax revenue and more spending on the unemployed. When the economy actually recovers, and more people are employed paying taxes, budget deficits will shrink dramatically.

I stated in Feb ’09 (it should be noted, the U.S. had increasingly larger trade deficits, through the mid-2000s, where U.S. consumers bought foreign goods and foreigners bought U.S. Treasury bonds. Not enough of those dollars were “refunded,” in the form of tax cuts, to allow the spending to go on):

1. Obama should change his stimulus plan to a $5,000 tax cut per worker (or $700 billion for the 140 million workers at the time, including through the earned income tax credit), along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets [i.e. catch-up on bills, pay-down debt, spur consumption of assets and goods, etc.]. This plan will have an immediate and powerful effect to stimulate the economy and strengthen the banking system. When excess assets and goods clear the market, production will increase.

2. Shift “toxic” assets into a “bad bank.” The government should pay premiums for toxic assets to recapitalize the banking industry and offset the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost “animal spirits,” and inflate toxic assets.

3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.

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