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Why the "big" next round of stimulus will probably fail "big" time. #thread
1 - A portion of the $2 trillion brave new money will flow straight to China and stay there.
1 - A portion of the $2 trillion brave new money will flow straight to China and stay there.
2 - Many people will have rediscovered the value of keeping more than $200 savings on hand. (=> consumer spending stays weak)
3 - Some will use their bailout checks to pay down debt, which doesn't stimulate consumption either.
3 - Some will use their bailout checks to pay down debt, which doesn't stimulate consumption either.
4 - Higher minimum wages and "green" plans will drive up the cost of living faster than incomes go up.
5 - All new stimulus money is debt that needs to be serviced in the future. It's deferred taxation and that will get priced in at some point.
5 - All new stimulus money is debt that needs to be serviced in the future. It's deferred taxation and that will get priced in at some point.
6 - Companies and "the rich" can (and will) pass on the cost of any new taxation, which adds to #4.
7 - Higher taxes/costs = higher inflation = higher interest rates. Higher interest rates will beget higher taxes.
7 - Higher taxes/costs = higher inflation = higher interest rates. Higher interest rates will beget higher taxes.
8 - Once this negative spiral is in motion it becomes hard to get out of it.
There is a point where more stimulus becomes a net negative. And our central plansters appear to be hell-bent on finding out where that point is.
There is a point where more stimulus becomes a net negative. And our central plansters appear to be hell-bent on finding out where that point is.
