Concerned about the new 900 billion dollar bailout

[DankNuggets]

you know what's not retarded? the economic stimulus that, unlike the one tax on last year, isn't going to individuals but to governments and the like.

I know we just got 500 million approved to be added to our budget, which pretty much doubled it.

As a state agency, we won't be spending a dime of that money on personel, it will all go towards our planning and letting budget.

That 500 million will allow us to effectively double the amount of road work we do this year, in the face of lower tax revenue and budget shortfalls.

That means we will have double the number of people employeed in way of contractors, who are hurting big time as far as construction goes. It's very simple, goes back to what worked before. We spend money on ourselves, paying laborers instead of playing business executives.

[Nycle]

@ jerome, glad to see you found out it was a rhetoric question, interesting responses.

You all need to stop thinking that the only way of funding this comes solely from printing money. That would imply you owe all debt to yourselves, which isn't true. You owe a substantial amount to the rest of the world which is still prepared to take in dollars or invest in America which (still) represents a beacon of economic stability and credibility. As long as everyone is happily taking in dollars into their foreign currency reserves, this'll also take away a large amount of inflationary pressure because huge amounts of dollars are taken away from the market as soon as they're printed. Just think of what will happen if China decides to dump its trillions of dollars in reserves back to the market, that will be the day the dollar falls. The US seems to have been abusing its economic hegemon to live beyond its means in a way that's unsustainable if continued. I hope the new administration won't indulge itself into senseless overspending, because economic stimulus packages today can only lead to a higher tax bill tomorrow. I'm a fervent supporter of fiscal discipline and frugality, and I see Germany setting the gold standard for such policies. Germany proves that fiscal discipline doesn't necessarily lead to a decrease in prosperity, and I think the new administration could draw lessons from it. Overspending, if it works at all, will only backfire in a later stage because too often we see governments not holding back on spending when tax revenues increase as a result of a stimulus package, voiding the possibility to decrease public debt that was accumulated with the bailouts and stimulus packages.

Right now it's the credit crisis, later on: the debt crisis. I think we're done with Keynes.

[Vatican Assassin]

After he created the federeral reserver Woodrow Wilson said:

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

~ Woodrow Wilson

[Nycle]

Central banking doesn't have to be a bad thing, if managed properly. Just to name one thing most (independent) central banks are good at: containing inflation, which is one of the biggest economic threats if it spins out of control.

[Izor]

Central banking doesn't have to be a bad thing, if managed properly. Just to name one thing most (independent) central banks are good at: containing inflation, which is one of the biggest economic threats if it spins out of control.

Again, gov't is terrible at managing money. How many times do I have to say this? Few of you have a reference point on this and everyone that does knows exactly what im talking about

[Vatican Assassin]

That's why Nycle said "independent" central banks. If you ask me government should print the money because why should we pay interest to someone else for something we can do ourselves?

[kthx]

Because it makes the money worthless?

Obviously you don't understand simple economics for any trade good, the more there is of a certain good or currency the less it is worth. So if we just print trillions of dollars and pay off all the other countries with, and trillions of more dollars and give everyone in America 500000 dollars to go buy things, then all the sudden bread starts costing 5000 dollars a loaf, and milk is 3000 dollars a gallon.

[Epinephrine]

If you think about it another way, there must be an expansion of the money supply in order to fight against constant and massive deflation.

Assuming the number of people keeps increasing and so do living standards (i.e. number of things you can buy), the money supply needs to also increase or else there isn't enough money to go around, thus triggering deflation. This in turn, makes people put money away, reluctant to spend any because it may be worth more tomorrow, thus hurting the overall economy.

The answer is something in the middle.

As to whether or not 'government' is bad at managing money, that in a way is a bit of a silly point. I think this last recession has proved, everyone in general is bad at managing money, whether it be corporations, fancy bankers, or individuals who lived way beyond their means and bought sub-prime mortgages or new credit cards in the first place.

[DankNuggets]

so the idea is (trying to remember HS economics ) the fed will sell bonds to try to shrink the money supply? damn too high to remember atm.

[Epinephrine]

To US government has two options:

1) Borrow more money in the international capital markets

The problem with this is, there are only so many lenders in the world, and only so much money to go around. Will the USA really be able to borrow this much money at this time of crisis? And if they do, will they basically crowd out every other major organization/nation that wants to also borrow money? This could have large fundamental effects on the world economy

2) Print more money

The problem with this is, massive inflation, as already indicated by Izor.

[Vatican Assassin]

The government doesn't print money in America, the Federal Reserve does, a private institution from which the American government will borrow the money at interest. I wasn't talking about whether or not more money should or printed right now, which it obviously shouldn't.

[Jerome Scuggs]

for what reasons is deflation bad? assuming that the value of the dollar isn't permanent, wouldn't all prices re-adjust over the board to new values, in the long-run? or is the short-run "chaos" the thing that people are worried about?

btw, a la jerome's rule of governments... Kucinich and a few other Democrats are beginning to pick up on the shady-ness of the federal reserve... and their solution? government control!

[Epinephrine]

for what reasons is deflation bad? assuming that the value of the dollar isn't permanent, wouldn't all prices re-adjust over the board to new values, in the long-run? or is the short-run "chaos" the thing that people are worried about?

btw, a la jerome's rule of governments... Kucinich and a few other Democrats are beginning to pick up on the shady-ness of the federal reserve... and their solution? government control!

Deflation is bad because it means that the value of things you're currently holding will continuously rise as long as you don't use it. So it encourages people not to spend, and so the economy slows down continuously as less and less money circulates in the economy. As well, with deflation, it is hard to make long-term investments, because the price you pay for something now, will be LESS in the future, so why invest in anything. Invest meaning anything from stocks to just capital investments.

[Nycle]

for what reasons is deflation bad?

I had to read that twice before realizing you had actually asked that question. Come on jerome, anyone who had an economics 101 class knows that deflation is detrimental to an economy just like disproportionate inflation is. Epi explained it well; people will postpone their purchases and investments because they think they can get more in return with the same amount of money if they wait. And we all know what will happen to economy if people stop purchasing or investing...

For the importance of price stability I'll refer you to this stupid but educational video from the ECB.

[Cops]

I had to read that twice before realizing you had actually asked that question. Come on jerome, anyone who had an economics 101 class knows that deflation is detrimental to an economy just like disproportionate inflation is. Epi explained it well; people will postpone their purchases and investments because they think they can get more in return with the same amount of money if they wait. And we all know what will happen to economy if people stop purchasing or investing...

For the importance of price stability I'll refer you to this stupid but educational video from the ECB.

I can't believe I had to watch that video to explain basic economics, wow.

I think Jerome's looking at the short-term effects of deflation, prices go down, thus you invest. If this was any sort of 'normal' economic situation I'd agree that when the prices of houses, goods, and services go down it's a good time to invest. Unfortunately the Market doesn't seem to be bouncing back as quick as it would have in the past, so instead of this being the result of a single bad quarter or year it really is an economic shit storm. The problem I see is that this 'crisis' is purely psychologically driven, consumers generally don't feel assured enough to go out and buy. Everyone's sitting back holding their cash waiting for either the government to create some consumer confidence, or for prices to go so low they can get more bang for their buck.

If this was several years ago and we experienced deflation, specifically in the housing market I would invest. Many Canadians made a shit load of cash on their homes by investing at the right time. Unfortunately for young couples, business professionals, and recent college graduates the market is too unstable to invest, especially in a starter home. Not because your home would lose significant value (prices have come down a lot), but because there is absolutely no job security.

edit: For many they'll only invest when they can see the rainbow through the rain clouds, and it's hard convincing people that there is a rainbow out there... It's out there, it's just not as close as we'd like it to be.