Krugman: Spend Now, Save Later

[axt113]

HappySqurriel said:

axt113 said:

You're worried about hyperinflation, when the problem is actually deflation happy, your way right now would have us looking like we did in the 1930's, you don't do it in a recession, you do it when you are in a period of growth, Bush and the GOP squandered that chance during the last expansion with Tax cuts and wars and other spending along with low interest rates.

Right now if people pull spending, there won't be any rebuilding of the economy, let me explain it to you, companies if they can't sell their goods and services, won't hire, wont invest and won't buy from other companies, in fact they'll cut more jobs and trim back production, those people out of work won't buy and companies will further trim back, you'll get a vicious cycle downwards.

I’m not really cautioning against inflation or deflation, I’m arguing against a massive debt-drive economic crisis (or collapse). The debt-to-gdp ratio of the United States is (roughly) 90% right now, the deficit is (roughly) 10% of GDP, and there is little reason to believe that the deficit is under control (or could be reduced in the near future if anyone wanted to reduce it). With how ineffectual stimulus spending has been, it is highly likely that the US debt to GDP ratio will hit 200% before the deficit is addressed at the current pace. If investors actually start expecting their return on bonds to cover the risk the high debt levels of the US will create an awful feedback loop because every 1% increase in interest rates will translate into a 1% to 2% increase in the debt-to-gdp ratio; and the only options the United States would have are extreme spending cuts or monetizing of debt.

 

See that's where I disagree, government expenditure has been extremely effective, you forget how bad it nearly was, we had a bad recession yes, but the economy is growing, albeit slowly, we didn't have a depression, we didn't have an economic collapse, so the government spending succeeded.

The big debt buyers for this country aren't stupid,  heck some of the biggest debt holders is the government, and others are countries who are dependent on our economy, so the concern about the high risk levels is overblown, they'd kill themselves along with us, so it won't happen.

Right now we have to prioritize recovery over the deficit.