Thoughts on the Stimulus Package

Some thoughts on the stimulus package. First of all, it is a proven maxim of mainstream economics that government spending must go up in a recession. If not, you run the risk of a depression. During a depression, the state for sure needs to spend more money. Otherwise the depression never ends.
I assume that these Chicago School freemarketeer morons have thrown all this out, and believe insane things like in a recession or a depression, you should slash government spending. That’s simply madness. The Friedmanites are the equivalent of religious fundamentalists. I would say that what they are preaching is unscientific, except that the dismal science is not much of a science in the first place.
So the stimulus is a great idea. That the Republicans oppose it on the grounds of excess spending just shows how insane they are. All sane economists agree that a stimulus package is needed right now, and most think that this package is too small, if anything.
As far as the tax cuts are concerned, I am getting really tired of all this tax cut crap. According to Republicans, tax cuts are always necessary. In good economic times, we need to slash taxes. We can’t possibly raise taxes in an economic boom! That would ruin the expansion. Truth is that all sane economists agree that an expansion is the one time that you can successfully raise taxes without causing problems.
The Republicans are right that raising taxes in the middle of a recession or depression is a bad idea. So you don’t do it. Liberal economists agree with this too. So how to you increase government spending in bad economic times? Well, the state is supposed to borrow the money.
The tax cuts in this plan are ridiculous. As a socialist, I have little interest in tax cuts. if you defund the state, there will be little money for the socialist programs that we socialists love so much. It’s impossible to promote any kind of reasonable socialist project while one is continuously cutting taxes willy-nilly. There won’t be any funds to pay for the project. Defunding the state via tax cuts is a de facto anti-socialist project.
My main beef with this stimulus thing is that there needs to be a massive debt write-down. That’s all there is to it. This debt, in all of its forms, is simply unpayable.
Some readers may not understand what a debt write-down is. Say you bought a home for $500,000. With the collapse of housing prices, it is now worth $300,000. Ballooning mortgage payments mean you can’t pay your mortgage and you are going to lose your home. In a debt write-down, the amount you owe on your home would be written down from $500,000 to $300,000. True, the bank loses money, or at least does not get as much money in the future as it would have otherwise. So the banks take a hit on any write-down of debt.
So the debt now afflicting our society, in all of its multiple and nefarious forms, needs to be written down, particularly the mortgage debt. The banks hate writing down debt. They fight it with tooth and nail and never quit.
They lose money in debt write-downs and banks have corporate charters that demand that they function as profit-maximizing organisms. Failure to do so can lead to stockholder revolts and replacement of the bank’s top management.
So this stimulus, in not writing down debt, lets the banks off the hook. And unless a debt write down occurs, I’m afraid that the economy is going to go down hard. And take the world economy with it. So really, these bankers are maybe going to take down the US economy and after that, the world economy.
And no, I don’t believe bankers = “Jews”. On the old blog we went over the notion of whether or not the Jews run the banks anymore. They no longer run the banks in Europe, where they ran them for 100 years or so. The Holocaust, horrible as it was, insured that the Jews no longer ran the banks of Europe. European banks are now run by a deracinated corporate class of European citizens, with no ethnic group predominating.
Asian banks, also big players, are run by Asians. The Jews in the US did make a run for commercial banking in the 1920’s, but Gentile solidarity (anti-Semitism) stopped that plot in its tracks. Gentile bankers simply got together and decided to refuse to sell their banks to Jews. When Jews practice ethnic warfare in a society, the only way to fight back is Gentile solidarity, or anti-Semitism.
I do not think that the anti-Semitism should go beyond the ethnic warfare of the Jews. If the Jews are not killing or physically harming Gentiles, Gentiles may not kill or physically harm Jews.
So US banks are now a deracinated corporate mishmash of ethnic groups, with no group predominating.
Why does the debt need to be written down? Because it is unpayable. And when people are busy paying down frankly unpayable debt, there’s no money left over to buy things, invest, etc.

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11 thoughts on “Thoughts on the Stimulus Package”

  1. Oh well, there’s plenty of money to go around.
    What you look at is debt as a percentage of GDP. On that basis, we don’t have a serious debt or deficit problem at all. Government is supposed to run a deficit and borrow money. That’s normal economics. Sure, it can get too much in the whole, but we are not anywhere near that yet.
    You’ve been listening to too much rightwing crap from Pete Peterson and the rest about how we can’t afford these debts and deficits. It’s not true. And there’s plenty of money to pay for all the Social Security and all. This whole thing about there not being enough $ to pay for retiring baby boomers is the biggest lie of them all.
    OTOH, what Bush did in running up these totally insane deficits was just wrong. If you’re going to spend $, you ought to do so reasonably. One thing we could do right away is raise taxes back to their pre-Reagan level, especially on the wealthy. Then we could get a lot more income coming in to the government.
    So you’re a young woman, eh? I thought you were older for some reason. You must be pretty smart if you seem to have the mind of someone much older.

  2. My generation will have to pay for all of this, as well as supporting you in your old age, ever think of that?
    Their generation will all be dead soon, and good riddance. Hurry up and get into your coffins you worthless bastards. Let the powers that be finish you off once and for all.

  3. You’re only 22? Wow.
    I’m not sure you are supposed to pay the debt down. As the economy grows and grows, debt can grow and grow too. It’s the % of debt as a % of the GDP that is important, not absolute numbers. As far as that goes, we are doing great. I’m not an economist though. I just know that the whole debt thing is not what it’s made out to be.

  4. Dear Robert
    It just isn’t true that capitalist economies can’t climb out of recessions or depressions without government help. It just takes too long. Before 1930, there were many economic downturns, and eventually things returned to normal. When Keynes said that in the long run we are all dead, he was argueing against the laissez-fairists of his day who always were saying that in the long run the economy will recover.
    If government is small, it can’t behave procyclically during a recession because its share of GDP is insignificant. That was the case in the 19th century. The larger a government is, the more it can aggravate a recession by cutting its expenditures.
    If a government borrows from its own people, then future generations will inherit the debt, but they’ll also inherit the credits. Both the taxpayers and the bondholders will be in the same country, althoug they won’t necessarily be the same persons.
    The US has been living beyond its means for many years now. If a country imports more than it exports for an extended period, as is the case with the US, then it accumulates a debt to foreigners, regardless of what the government does.
    Savings – Investments = Exports – Imports is a fundamental equation of economics. Americans save very little, so the equation is negative on the left, which means that it must also be negative on the right side, that is, imports must exceed exports. One reason why Americans have been saving so little is the wealth effect of the housing bubble.
    The wealth effect is the reduction in savings that occurs when there is asset appreciation. Let’s take an American who owns his house. It is worth 300,000 and he owes 50,000 on it. The market value of his house goes up to 400,000, so he decides to borrow 50,000 and use the house as collateral. After his borrowing, his equity still is larger than before, 300,000 instead of 250,000. Still, he has become a borrower, that is, a dissaver. The more households borrow, the lower the national savings rate, which is defined as total household income minus total household expenditure. Because of the wealth effect due to the housing bubble, the savings rate in the US during the 2000’s has been practically nil, hence the huge trade deficit.
    Suppose that an economy could produce 500 billion, but is producing only 450 billion, then there is a GDP gap of 50 billion. If a government runs a deficit of 20 billion to stimulate the economy and it works, then the economy will expand by 50 billion and that will in turn increase government revenues that will reduce the deficit. Deficits that promote economic growth are like business loans that increase the sales of a company. Those increased sales will enable the company to pay off the loan and an economic recovery will enable the government to turn its deficit into a surplus. Deficit spending during a recession can eventually pay for itself. It is quite simply silly to compare deficits during boom times with deficits during slumps.
    Debts shouldn’t be partially cancelled, as you suggested, but tottering banks should be nationalized. It is only by nationalizing banks that the government can insure that aid to banks won’t be siphoned off by managers. If the government is to save te banks, then it should be running them until their financial health has been restored, after which it can reprivatize the banks. Responsibility and control should go together. If the state is responsible for the banks to avoid their failure, then it should also have control over them, and full control can only be attained through nationalization.
    Nationalizing an ailing financial sector has been done before, for instance by Sweden in the 1990’s. It is the only way to go if we want to protect taxpayer’s interests. If you are financially responsible for some relatives, you can’t just hand them cash, you also have to direct their finances to insure that they don’t waste your cash on things like booze and gambling. Nationalizing insolvent banks is also a way of punishing shareholders and managers for their reckless behavior. Of course, banks that are solvent should be left alone.
    Funny how all these conservatives were saying during the Reagan years that deficits don’t matter. I guess that deficits don’t matter if they are caused by tax cuts for the rich.
    Regards. James

  5. nice post. i am pretty sure that you’re right. i bet you have seen the graph of USA debt over on the naked capitalism blog. if you have not…you will want to check it out. it’s basically an exponential curve. there seems to be no way out.
    food + fuel + ammo. that’s the formula for success in the upcoming years.
    btw…i used to comment on your previous blogger site using my real name, randy. glad you got on wordpress, it’s a very cool piece of software and i hope they’re not the corporate cocksuckers that google are.
    i will link you the debt graph in case you have not seen it: http://www.nakedcapitalism.com/2008/07/has-deleveraging-even-begun-not-for.html

  6. I agree. And go with the Keynesian model. In a depression, nobody is spending and everybody is saving. Businesses are being conservative and so are consumers. Tax cuts won’t help, because people will just put it in their pockets. Instead, the government should force the dollars in the economy to be put to immediate use through legislation.
    In a stronger economy, then you can back the Government off a bit.

  7. Robert, the bill did nothing to help with operating costs of mass transit systems. Some lines and service will close, and the systems are already stretched to the max and beyond.
    Part of the eternal automobile bailout, I presume. Forcing people to buy cars.

  8. Consider this analogy. You were a school teacher, right? What if, say, you subtracted points from the highest performing students in the class and gave them to the lowest performing students in order to even things up? This is what would happen:
    Meritocratic classroom setting:
    Xiulang 98 A+
    Avi 97 A+
    Matt 70 C-
    Jose 60 D-
    Tanisha 40 F
    Darnell 36 F
    After socialistic adjustment:
    Xiulang 73 C-
    Avi 72 C-
    Matt 70 C-
    Jose 60 D-
    Tanisha 60 D-
    Darnell 66 D
    Point totals are the same. They are simply being redistributed from the top to the bottom.
    Not very impressive, is it?
    The students with high aptitudes would no longer want to study because they nothing to strive for, while the students with low aptitudes would simply leech off the efforts of the more able. The calibre of the entire class suffers as a result.

  9. Robert Lindsay wrote without irony:
    “The Jews in the US did make a run for commercial banking in the 1920’s, but Gentile solidarity (anti-Semitism) stopped that plot in its tracks. Gentile bankers simply got together and decided to refuse to sell their banks to Jews.”
    “So US banks are now a deracinated corporate mishmash of ethnic groups, with no group predominating.”
    According to Ivor Benson’s “This Age of Conflict”, Cosmopolitan (Euro Jewish banking dynasties)
    had superceeded the Anglo-American (gentile) banking dynasties in the USA in wealth and power.
    The Federal Reserve System Board of Governors who have took office during the presidency of George W. Bush.
    1.) Ben S. Bernanke Chairman of the Federal Reserve, Faith: Jewish
    2.) Donald L. Kohn
    Vice Chairman of the Federal Reserve, Faith: Jewish
    3.) Kevin M. Warsh, Governor, Federal Reserve Board, Faith: Jewish
    4.) Randall Kroszner, Governor, Federal Reserve Board, Faith: Jewish
    5.) Elizabeth A. Duke, Governor, Federal Reserve Board, Faith: unconfirmed/unknown Bush appointee, former Chairman of the American Banking Association, Fannie Mae National Advisory Council.
    There are two vacancies.
    Former Governor Frederic Mishkin, Faith: Jewish
    Mishkin was confirmed as a member of the Board of Governors of the Federal Reserve on September 5, 2006 to fill an unexpired term ending January 31, 2014. On May 28, 2008, he submitted his resignation from the Board of Governors, effective August 31, 2008, in order to resume teaching at Columbia Business School.
    And their accomplices…
    Eric S. Rosengren, Federal Reserve Bank of Boston President and CEO (2007-) Faith: Jewish
    Timothy F. Geithner, Federal Reserve Bank of New York President & CEO (2003-20 Jan 2009), Faith: Jewish
    Charles I. Plosser, Federal Reserve Bank of Philadelphia President and CEO (2006-), Faith: Jewish
    Jeffrey M. Lacker, Federal Reserve Bank of Richmond President and CEO (2004-), Faith: Jewish
    Gary H. Stern, Federal Reserve Bank of Minneapolis President and CEO (1985-), Faith: Jewish
    Thomas M. Hoenig, Federal Reserve Bank of Kansas City President and CEO (1991-), Faith: Jewish
    Richard W. Fisher, Federal Reserve Bank of Dallas President and CEO (2005-), Faith: Jewish
    Janet L. Yellen, Federal Reserve Bank of San Francisco President and CEO (2004-), Faith: Jewish
    Sandra Pianalto, Federal Reserve Bank of Cleveland President and CEO (2003-), Faith: Catholic
    Dennis P. Lockhart, Federal Reserve Bank of Atlanta President and CEO (2007-), Faith: unknown, Lockhart held various positions, both domestic and international, with Citicorp/Citibank (now Citigroup) between 1971 and 1988 and Heller International
    Charles L. Evans, Federal Reserve Bank of Chicago President and CEO (2007-), Faith: unknown
    William Poole, Federal Reserve Bank of St. Louis President and CEO (1998-), Faith: unknown
    Institutions and individual involved in the creation of the Federal Reserve System created in 1913.
    Rothschild Banks of London and Berlin (Rothschild and world economy)
    Lazard Brothers Bank of Paris Jewish
    Israel Moses Sieff Banks of Italy Jewish
    Warburg Bank of Hamburg, Germany and Amsterdam
    Kuhn Loeb Bank of New York Jewish
    Lehman Brothers Bank of New York Jewish
    Goldman Sachs Bank of New York Jewish
    Chase Manhattan Bank of New York (Controlled By the Rockefeller Family)
    According to the 2001 Census, 2 out of every 100 Americans are Jewish. That’s one out of 50. What are the chances all Federal Reserve Governors and regional Presidents are so predominantly Jewish? This doesn’t count the other functionalists, toadies and lackeys.
    1/50= .02
    Draw your own conclusions. but one thing is certain, the fiscal and monetary policy of the Federal Reserve, her banks and the people that control and direct it is a disaster of greed and incompetence.

  10. Controlling the Federal Reserve is not the same thing as running the banks of the world. Lehman Brothers had 2 Jews among its top 10 executives. It’s hard to see how that makes it Jewish-owned. Goldman Sachs and Lehman Bros are gone, thank God.
    The Jews don’t run the banks in the US, Europe or certainly the world anymore. Even David Duke admits the Jews don’t run the banks. What more authority do you need?

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