So it's all just your fucking word play. Let me ask you, if there is a 100 billion dollar recesionary gap in the economy, there is a MPC of 0.5 (for now, just assume everyone has the same MPC), then will not a increase in government spending of 50 billion dollars close it?

Yes or no?

If yes, then we agree on the only thing I was talking about. I have no fucking say on the "true" nature of recovery. I'm only going  to stick with what I learned, and the objective measurement of the economy, rGDP, how much shit we produce.

I can go on and say how this is to expediate the return to consumer confidence (if the economy is doing as or nearly as good, and they're still getting pay checks, they will think their life time wages are the same, and will return. Plus, if the stock markets rebound, their wealth will increase again), but still, that's beyond my point.

Can not, an increase in G, increase GDP?

I don't give any shit about whatever else you say. Our economics classes don't try to theorize what's "true" recovery. My true recovery is to get the country to produce as much as it can before the recession. Output=Income. If the output is the same, income is the same, people feel that their life time wages are secure. In addition, there'll be a recovery in asset values. Therefore, eventually, Consumer consumption will go up, in which case we can cut back on government spending.

And yes, consumer confidence is indeed "illusions". Even though nominal wages are the same, people spend less than they could. We want them to spend just as much as they would before the recession. You may say that it's rational or reasonable to start saving whenever there are bad times. This is the Paradox of Thrift.

Bah, fucking fucked up. I didn't mean to say banks loan from their reserves, the reserves are what they have to keep as a minimum.

But now you're confusing me O.o banks aren't allowed to loan from their reserves. All you're describing is illegal action.

It shouldn't be infinite, but it should be approaching a limit.

http://en.wikipedia.org/wiki/Money_multiplier#Formula

So... I'm also confused why you're mixing money demand (and supply) with the logic of the money multiplier, they should be seperate, although they are closely related.

And maybe it's because I haven't taken economics for long, but according to the model, it denies inflation as a result of demand shock, and subsequently inflationary policy. I do see an inflating of interest rates in the long run, in conjunction with the increasing of national debt.

If there is lowered investment, then there will simply be a recesionary gap, which is deflation. If the government properly cuts back on spending, it shouldn't "keep going up"

What does the gold standard have to do with anything? In fact, it's a shot in the foot for a monetarist to want to go back to the gold standard... unless you're denouncing any discretionary policy, fiscal or monetary.

But the gold standard has nothing to do with government... the government doesn't engage in a large ammount of seniorage. It finances its defecit spending by borrowing, not printing.

According to the daily mail the workers in Greece actually get of very well.Very early retirment and so on but then again its the daily mail.

Although some of these countries do have very high debt...It does not mean they are in great shape. Others, have good ways of dealing with it.

• Japan is considering quantitative easing to lower their debt...To the tune of devaluing the Yen by 30%. They are worried that Japan may experience horriffic hyperinflation soon, and crash the country. Japan is essentially at the tipping point of being forced to do something drastic to fix their massive public sector debts...And it won't look good. The reason that Japan's debt is so high, yet it hasn't had to go the Greek route is due to the yield on Japanese bonds. In Greece, it's 7%, as their status is junk. In Japan, it is 1.6%. That means that Japan can borrow roughly 4 times as much money, for the same cost of interest.
• Speaking of bond prices, Portugal is about 5% now, which is an underlying issue of their crisis.
• Singapore has 0% of its debt financed by foreign investors. Also, despite its massive amount of debt, it ironically has massive on-hand foreign cash reserves, so the debt is grossly overstated.
• Belgium has had a massive amount of its public debt financed domestically as well. They also have one of the highest tax rates in the world, at 57.3% after social security.

Essentially, public debt's problem is the interest rate at which it needs payed back. For example, if the US bond rate is 3.5% (and I own a bit of US public debt via my stock investments, FYI), then it means that the US would need to finance about ~$350 billion/yr for interest repayments. However, if we as bad as Greece, and got dropped to junk status, that debt may require twice the interest rate, making it $700 billion/yr for interest repayments. That has to be balanced in some way, so then the US begins austerity measures, and we revolt ala the Greeks.

Ultimately, Keynesian economics has failed the world at a horrific rate. Keynes forgot to take one thing into consideration: politicians are human. That is, they like to make themselves look good by promising great things backed by Keynesian promises that the debt will never be outstanding for a long time, but in reality, they leave repayment to their predicessors. Eventually, every country with large debts will have to pay the piper, and it won't be pretty.

I know its politically suicidal to mention it all the time on the boards, but the simple fact is that the government cannot fund all of the social services that it provides. Many countries use a pay-go system for social security and health care which is a dangerous practice, as the money isn't actually saved and invested to ensure it is there for those that paid in....When our baby boomers retire en-masse, it will destroy our system...Simply because the money isn't there.

The government does involve itself in seigniorage in the US.

It's very simple: ask yourself where the borrowing comes from for our deficit spending. It is funded by bond purchases by other countries, in thier currency.

So if they buy $1 trillion of our bonds, and they use the remninbi (as China is our largest stakeholder of US debt), we will then finance our debt by printing that $1 trillion in USD for our economy...Inflating our currency. So it does engage in seignorage, it's just a matter of following the trail.

Our wages are much lower than the EU average. Greece, Portugal and Spain really should leave the EU. More damage than good.

Asking me if Government spending can increase GDP is a lot like asking if A used car salesman takes out a loan to buy his own cars from a dealership does that increase his buisnesses revenue.

Does it increase his revenue?  On the books it does.  In reality though, it doesn't change anything.  It's no different then asset trading and things Enron did.  It doesn't fix or change anything.  It just looks good and slows down the REAL recovery that won't disapear as soon as you pull out the carpet of government spending.  It DOESN'T cause a recovery in asset values, and it doesn't cause consumer consumption to rise.  It just increases GDP... and in some cases pushes Consumer demand foward but in doing so ends up delaying the recovery even more.  For example when they offered all those tax credits to buy cars and stuff like that.  All it does is push demand foward, and make it so demand crashes when you pull that incentive away.  There is no way to "cut back on government spending once demand comes back" because the demand is artifically created by the government spending... it's not really back.  It's gone once you lower said government spending.  Just how my taking out a loan so people buy my cars with my money doesn't increase consumer demand.  It increases consumer purchases... but once I stop giving out free cars i'm back to where I was!  It's purely artificial.

Heck, look at the Great Depression and FDR... and notice that what took us out of it was NOT government spending but rapidly increased foreign demand... FDR killed all local buisness.  If WW2 didn't happen, he'd of destroyed our economy worse the Hoover.

This is why pretty much no Economosts believes in Neo Keynesian Economcis anymore.  You know, it actually SLOWS the real recovery.  You end up with recessions after the government spending stops.

I'm wondering if Akvod even knows why a recession occurs. He seems to think he knows how to solve them (government spending), but it seems he hasn't discussed why they even occur in the first place.

Errr... can you buy bonds with foreign currency? That's not what we learned when we learned the demand and supply curve for currency, and current/financial account.

I've provided a few reasons. But there are two ways, demand shock, and supply shock.

The most common way a supply shock can occur is when an input becomes more expensive. This explains how the SRAS curve eventually shifts leftwards and causes inflation, IF we engage in inflationary policies beyond the LRAS (wages go up). The biggest example is the oil crisis decades ago.

With supply shock, we face stagflation, and our econ class didn't really focus much on it, only concluding that you either have to reduce the inflation at the cost of productivity, or increase productivity at the cost of inflation.

Demand shock can occur in a lot more ways. It can occur due to loss of consumer confidence, which itself is caused by a shit load of things. It can be caused by the loss of wealth/assets (eg a stock market crash, or a fall in real estate values), it can also be caused by a lowering of investment, say, when companies borrow money and can't pay them back, freezing credit.