Inflation, Deflation, and a Potential Second Stimulus

http://www.thenewamerican.com/index.php/economy/economics-mainmenu-44/3677-inflation-deflation-and-a-potential-second-stimulus

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The Obama administration is pushing for a second “stimulus” package as the amount of money flowing in the U.S. economy contracts at a pace not seen since the Great Depression, according to international news reports.

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“It’s frightening," International Monetary Research founder Tim Congdon told the Telegraph. "The plunge in M3 has no precedent since the Great Depression.” He blames regulators pushing banks to raise capital asset ratios for the crunch as well as the failure of the U.S. economy to “properly” recover. “The US has just tried the biggest fiscal [stimulus] experiment in history and it has failed,” he said, referring to the original $800 billion “recovery and reinvestment” package.

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“The US has just tried the biggest fiscal [stimulus] experiment in history and it has failed,” he said, referring to the original $800 billion “recovery and reinvestment” package.

EPIC FAIL!!

I agree with you guys, but there are tons of people including this administration that think the stimulus was a huge success. I know a guy that says without the stimulus package this recession would have been worse that the great depression. So basically these people who support the stimulus package are saying it helped keep us from going even deeper into the recession. This is not my point of view, but I am stating the other sides point of view.

jahan, I have heard this from folks also, even some 'experts'. Part of the problem is their claim: "It would have been worse w/o the stimulus." This is what Bennett kept saying in defense of his support for TARP. How to you debunk such a nonsensical claim? If you have a grasp of how economics really work it is fairly simple. The stimulus/bailouts merely delayed the storm, they did NOT kill the storm. And by delaying it they have made the storm that much stronger. What these 'experts' failed to comprehend is how government intervention caused the bubble in the first place. Lets look at the housing bubble/burst that was caused by three primary things: 1)The government giving Fannie and Freddie (GSEs) special privileges to buy up existing mortgages and bundle them to be sold to the likes of Bears Sterns, Goldman Sachs, and Lehman Brothers. This allowed the banks that originally approved the mortgages to approve more mortgages to borrows with bad credit and no means to make the mortgage payments long term. This was in reaction to item #2. 2)The government, under Bill Clinton, reenacted the Community Reinvestment Act (CRA) that put pressure on lenders to approve loans to people that under 'normal' conditions they would NEVER give. This did two things; It artificially drove the housing prices up by injecting new buyers into the market, and made the burst inevitable. 3)The Federal Reserve kept interest rates at/below 1%. This drove people to get loans for greater amounts, to refinance existing loans with credit card debt added to the new loan, thus 'freeing' up more debt to be incurred by the borrowers. This increase in debt, along with the unsustainable climb in housing prices that were never allowed to correct themselves, lead to the PREDICTED burst. It wasn't predicted by all the 'experts' who missed the bubble/burst until it was too late, the same people who are now claiming the stimulus/bailouts were needed and 'saved' things from being worse. One would think that those who have been so wrong in the past would be minimized on advice for the future, but in our screwy economic/political climate, they are still being lauded as 'experts' and can be found on every main stream media outlet, the White House, and Congress.