right now only 6% or 48 billion dollars of stimulus money has been spent so unless it is discovered that this sum is larger than that spent by previous administrations on the same thing, I don't know why it should be so damaging that the economy is increasingly bubble-fied with inflation. Is it possible that monetary policy is the reason for these effects and not fiscal spending? Nevertheless I tried looking but I couldn't find any stats on this -help anyone?
Several things are making this crisis endure, the largest of which is poor monetary policy. By keeping interest rates artificially low and engaging in "quantitative easing," the Fed is making it impossible for the market to clear. Other, non-monetary, interventions include bailouts of industries that should have gone under and been restructured instead (the auto and financial industries).
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The economy has been bubblefied for a lot of reasons, not least of which, many people have fled out of investments and into cash, and when oil tanked, people pulled out of commodities as well.
The stimulus itself is not the problem, the US government creates massive amounts of inflation outside the stimulus amounts. In fact, Ron Paul claims they have created almost $2 trillion in off the books money.
Don't forget the effect that policy has on the decision making of all market actors. We're seeing the predictable consequence of intervention, and how it is building up to the next crisis.
If you find something evil that wobbles, push it. - Gary North
The problem with all of these government actions is not the action per se, but the uncertainty over what the government will do.
Right now, small-business owners do not know whether or not they can hire anyone new because they do not know what their health care costs of that new person (who they will need to train) will be in six months. That is just one example - a bank does not know who is truly bearing the risks of its assets, nor does it know what the rules for foreclosing on homes will be next year, and bond holders holding what was once first-in-line corporate bonds do not know the new rules for bankruptcies.
The government is not "creating new risks" - risks are things individuals can deal with. The government is creating uncertainty, and no one can make plans until the government stops spending money, and stops looking like they might spend more money.
If the stimulus were all spent, it would be just money thrown in the ocean, and the economy could deal with that. The fact that the money is not spent creates uncertainty on what it will be spent on, and what regulations will accompany it.
liberty student:In fact, Ron Paul claims they have created almost $2 trillion in off the books money.
crap, what were these projects?!
fakename:right now only 6% or 48 billion dollars of stimulus money has been spent so unless it is discovered that this sum is larger than that spent by previous administrations on the same thing, I don't know why it should be so damaging that the economy is increasingly bubble-fied with inflation. Is it possible that monetary policy is the reason for these effects and not fiscal spending? Nevertheless I tried looking but I couldn't find any stats on this -help anyone?
Okay, I think I have the answer. Monetary policy pumps credits to the producers (what Mises called "fiduciary media," or money substitutes not backed entirely by "money proper") which arbitrarily, and artificially, lengthens the structure of production, making it more capital intensive, or more "roundabout." This condition implies a divergence between the money rate and natural rate of interest, and can only continue under two conditions (only one of which is truly sustainable): either A) forced savings by the population, or B) increased inflation. If the ratio between consumption and savings changes, in favor of consumption, the economy must contract; or in other words, the phases of production must consolidate, widening and shortening this process. As the prices of consumer's goods rise relative to producer's goods there will be a reallocation of the original means of production towards the former. Again, this would make the economy less capital intensive, lowering productivity and resulting in a loss in wealth.
If the inflation goes directly into the consumer's pockets, without a proportional increase in their savings rate, the same situation would occur. There would be an increase in consumption and savings, but in purely nominal terms; the ratio would remain the same. What's important though, is that it would act or resemble a situation where time preferences have fallen as an increased supply of savings in the form of money would lower interest rates, unless the bankers new better (lol). Time preferences have not really diminished, and as such, there is no reason to believe that they will increase their "propensity to save."
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