The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

AP: Big government spending programs are turning out to have the opposite effect

Posted by iusbvision on June 7, 2009

Today the AP is saying exactly what we and others who understand economics and economic history have told you since before the election. Big bailouts and government spending and regulation fervor doesn’t work, it slows economic growth and it undermines investor confidence. Unfortunately only about 20% of economists truly understand economics as it takes the ability to spot and recognize patterns in what appears to be chaos.

This kind of stuff did not work during the great depression and it’s not working now [1, 2, 3, 4].The economy went soaring after the soldiers came home and government spending dropped by 2/3’s. While there was a great deal of spending during WWII, the non-military producing private sector continued to shrink until 1946.


Associated Press:

The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.

But this and other big government spending programs are turning out to have the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation.

That’s the Catch-22 threatening to make an awful housing market potentially worse and keep the economy stuck in a funk. Kick-starting the economy requires higher spending, but rising rates mean fewer Americans will be able to refinance their home loans. And some potential buyers will be shut out of the market by higher monthly payments they won’t be able to afford.

To understand how this is all connected, you have to think like a bond trader. Inflation is their enemy because it means the purchasing power of the dollars they receive when bonds eventually are paid off will be diminished. The only question is by how much.

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