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PeakTrader said...

kmg says: "Why is Government spending rising so much, despite the loss in government jobs?"

That's what government does. Spend more for less.

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PeakTrader said...

"...was really the "hope and change" that Obama was planning on."

Obama must be very surprised about all the undesirable negative effects of his economic policies.

However, that's what happens when you're an economic illiterate.

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PeakTrader said...

Here's what I wrote on Feb 2nd, 2009 on how to prevent a contraction in 2009, and achieve a V-shaped economic recovery (a $5,000 tax cut, or $750 billion for the 150 million workers at the time, would've been better):

How to prevent an economic contraction in 2009 (currently, roughly a 2% contraction is projected in 2009):

1. Obama should change his stimulus plan to a $2,000 tax cut per worker (e.g. a tax holiday), 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, increase saving, spur consumption of assets and goods, etc. This plan will have an immediate and powerful effect to stimulate the economy. 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 eliminate 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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PeakTrader said...

This chart shows how quickly a recovery can take place with 6% real growth (compared to 3% and 2% real growth rates), similar to the recovery of 1982-83 (the chart shows a 6% V-shaped recovery beginning in mid-2010, but it could've started in mid-2009, or earlier, at the recession trough, or the downturn in 2009 could've been milder).

http://voices.washingtonpost.com/ezra-klein/ouyputhap2.jpg

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PeakTrader said...

Also, note, a large tax cut would not only strengthen household balance sheets, it would strengthen the banking system.

Large tax cuts worked under Kennedy in '61, Reagan in '81, and Bush in '01.

The private sector, instead of the government or public sector, needed the stimulus.

And when a strong recovery is underway (that's generating a virtuous cycle of consumption-employment), then taxes can be raised to slow the expansion and maintain sustainable growth (or a "Goldilocks economy").

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PeakTrader said...

Larry, strong recoveries normally follow severe recessions.

The economy can't be jolted into a strong recovery when one foot is on the accelerator and the other foot is on the brake.

It's been an expensive and slow recovery, which we couldn't afford, because of the enormous debt.

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PeakTrader said...

Obama's first tax cut amounted to about $15 a week (all his tax cuts were too small and too slow).

Then we got massive new regulations and massive new spending programs.

Then states had to raise taxes, fees, fines, fares, tolls, etc., because of the slow recovery.

The train wreck continues...

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PeakTrader said...

Larry, Obama was president over most of FY 2009.

Obama and Congress went on a huge spending spree in 2009 and 2010 (many were complaining about "spending fatigue").

And most of Bush's TARP was paid back.

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http://www.blogger.com/comment.g?blogID=28997633&postID=7967022656480759574