It seems to me that a large part of our current economic woe is caused by the increased federal budget deficit and current account deficit - basically we’re in trouble because we’re borrowing insane amounts of money and spending it on foreign goods (including oil) (the “housing bubble” and associated “credit crunch” are symptoms of this, rather than a cause).
So, looking at all these so called “stimulus” plans being proferred by the President, congress, and all the wanna-be presidents - all of these plans are based on borrowing more money (tax cuts, or plain giveaways that will result in an increased budget deficit), in the hopes that consumers will spend it (and most spending seems to be on foreign goods these days). In other words, the plans all will make the situation worse.
Can some economic wizard please tell me I’m wrong, and that the various stimulus packages will really help our economy?
First, can you explain why do you think the budget deficit and the trade deficit are causing an economic slowdown? If I told you that the budget deficit shrank by close to 50% in the past year, why would a slowdown hit now? Can you explain why the housing bubble is related to foreign trade, in your estimation?
I’m not meaning to nail you on your response, but I am curious how you think these things are connected. I’ll be happy to chime in with my own views shortly.
Deficits tend to increase interest rates, as a given amount of money is bid for. The housing bubble came from the Fed’s lowering of interest rates, and the current crisis is a result of bad loans made due to lax regulation and misleading information on the true level of risk involved.
The deficit may get us into trouble due to the value of the dollar and influence exerted by those who buy our debt, but it is not the immediate problem today.