Monday, November 10, 2008

Second Stimulus Package will just be more inflation



Are Americans waking up to the fact that a second stimulus check will simply be negated by more inflation? Maybe if we posted cute pictures of cats, and explained that the government is giving you a cookie, but will then eat the cookie with inflation. Maybe that will help Americans understand.

3 comments:

Gray said...

I don't think this is a given. I haven't looked at the numbers, but I think it's a reasonable guess that no stimulus package can outweigh the loss of credit on the markets. The banks have less leverage now, and this should result in a shrinking of the volume of money in circulation. Some pundits are even warning of a possible deflation. Honestly, I don't think basing personal financial plans on the inevitability of inflation would be a good idea now.

Chris said...

Thinking long term. What will the government due after they stimulated the economy. They will reach a point where they will be faced with two choices.

Raise interest rates to fight off inlfation, which will kill housing even further, and destroy the economy.

stimulate further and fuel inflation to new heights killing the economy with cost of living increases.

You are correct that right now the dollar is undergoing an artificial rally and that this is a longer term problem. However, I do see that the next administration will be in a no win situation after inflation begins to run rampant after the next years worth of economic stimuli, low interest rates, and the printing press overheats.

Gray said...

"However, I do see that the next administration will be in a no win situation after inflation begins to run rampant after the next years worth of economic stimuli, low interest rates, and the printing press overheats."

"No win" is really a bit too pessimistic, imho. After all, the US also got out of the Great Depression. And while I'm not one of those who believe economics is a real science (still much voodoo in it), it still is true that we know more about the economy nowadays than in the 30s. I'm sure this is only a temporary downturn. Only question is, how long will it last?


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