Hey Dave, a couple rebuttal points here. Actually, when the gov't floods our economy with money (when people say the gov't is increasing the money supply), what they are actually doing in practice is BUYING back gov't debt. That floods the economy with new money that can be used for other investments. When they turn off the taps, they are SELLING gov't debt to take money out of the markets. Manipulating debt and interest rates are the Fed's two main tools for influencing the economy.
So currently they are actually paying the debt down to help more money circulate. In addition, they are lending money to banks at very cheap over night rates to make it easy for those banks to lend out at a profit. That also increases money supply.
The other point I wanted to make is related to your concern that there is a disconnect between GDP growth and rising unemployment. How is this possible, you might say, unless GDP growth is really just an accounting ruse by the Fed? Well, it is possible and is happening in actuality. What's happening is productivity growth at unprecedented levels. Less people are doing the same and more work. I only have to take one look at my workload to realize that I am producing more for less money than I made last year and the year before. So yes, it is entirely possible for GDP to continue to grow while the unemployment rises in the short term. However, I have to agree with you on one point. Over the medium to long term, if unemployment continues to rise, then eventually that will impact consumer spending, which will increasingly impact all sectors of the economy, leading to GDP contraction. |
