DiscussMormonism.com

I never thought anyone in government would propose spending that kind of money right after a $700 billion bailout. This is all borrowed money of course, and we're essentially expecting the next couple of generations to pay it off.

FOXNews.com
Tuesday, January 27, 2009

WASHINGTON -- Democratic leaders in the House have dropped federal funding for new contraceptive services and ongoing programs to stop sexually transmitted diseases from the $825 billion economic stimulus bill due to hit the floor Tuesday.

The decision came after President Obama called Democratic leaders to tell them that the $200 million set-aside does not comport with the objectives of the job creation package.
http://www.foxnews.com/politics/2009/01 ... -stimulus/

Most economists agree that the red ink is both unavoidable and appropriate. To prevent a steep recession becoming a depression, governments must step in to forestall financial collapse and counter the slump in private demand. Financial markets seem to agree. Yields on government bonds in most rich countries are extremely low as shell-shocked investors clamour for the safety of public debt….

Unfortunately, the political cost of bailing out bankers and the huge sums involved mean that many politicians in rich countries are loth to spend heavily. History suggests that is a mistake. Failure to mend a broken financial system quickly means a longer recession; it also renders fiscal stimulus much less potent. Contrast Japan, which had numerous fiscal-stimulus packages in the 1990s, but failed to emerge from its slump until its debt problem was finally dealt with, with South Korea in 1997, which spent 13% of GDP on a large, speedy bank-rescue package.

The fiscal costs of that error can be enormous. In a recent paper Carmen Reinhart of the University of Maryland and Ken Rogoff of Harvard University estimated that the big banking crises of the post-war period, on average, raised real public debt by more than 80% of GDP. Most of that rise came not from financial rescues but from prolonged recessions and the fiscal expansions designed to combat them. Even this year, half the deterioration of the rich world’s deficits has stemmed from economic weakness.

If fiscal stimulus is no substitute for financial clean-ups, it is an important support at a time of slumping demand. But much depends on how well the plans are structured. All the big economies foresee some tax cuts, particularly for individuals. (Only a few, including Canada and Russia, plan to cut corporate taxes.) But the focus of the global fiscal boost is on spending, particularly on infrastructure.

Economic theory suggests that makes sense. When firms and consumers are gripped with uncertainty, government spending is a surer way to boost demand. Consumers and firms might save the money. The empirical evidence, however, is less than conclusive. Economists’ estimates for the “multiplier” effect of government spending and tax cuts vary widely, with equally reputable studies showing opposite results. More important, the scale of the global slump means that historical multipliers may not mean very much. That suggests a broad strategy—involving both tax cuts and spending—is prudent.

Less sensible, however, is the distribution of stimulus between countries. America’s fiscal package, at $800 billion or more, will be by far the biggest in absolute terms and one of the biggest relative to the size of its economy. Lamentably, rich creditor countries, such as Germany, are doing much less. In the emerging world China’s boldness is laudable, and fat reserve cushions have also given other emerging economies more room. But many will find their ability to borrow constrained by investors’ flight from risk—and the surge in public debt in the rich world. In its latest estimates, the Institute of International Finance, a bankers’ group, expects private-capital flows to emerging economies of only $165 billion this year, down more than 80% from 2007.

If politicians dither over bank rescues, if countries that can stimulate safely do not do enough, and if fearful investors shy away from emerging markets, the odds of a lasting recovery of the global economy seem slim. And that, in turn, will mean far bigger rises in public debt. A multi-year downturn could easily send government-debt ratios up by 30% of GDP or more.

This need not be calamitous. Governments can work off huge debt burdens without default or high inflation. During the second world war, for instance, Britain’s gross debt burden rose above 200% of GDP; America’s topped 120%. During the 1990s, fast growth and fiscal prudence allowed countries from Ireland to Canada to cut their debt levels sharply.

The difference this time is that the rich world already faces the costs of an ageing population, which promise a fiscal burden many times greater than even the darkest scenarios for the financial crisis. Right now fiscal activism is indispensable, but the consequences will be bigger and longer-lasting than many realise.
http://www.economist.com/finance/displa ... d=13035552

Regarding the contraceptives, Pelosi’s thought was that state governments would be able to balance there budgets more easily if people on welfare had fewer kids. The government could buy a lot of birth control pills just for the price of one Medicaid-funded birth. In general, are you in favor of family planning among people who can’t afford birth control pills, much less afford kids?

Gadianton wrote:And why is buying a house doing the "right thing"?

i don't think you need to worry too much,

Analytics wrote:One thing to keep in mind is that for every dollar that somebody borrows, somebody else is saving a dollar. The $36k your buddy borrowed to live his lifestyle was paid for by $36k that somebody else saved in a collateralized debt obligation. That is the big paradox of this whole thing. If people quit borrowing and actually start paying stuff off, what are the people they pay the money to going to do with it? They don’t want to spend it—they want to save it or invest it. But they can’t do that unless somebody else wants to borrow it.