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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Umunhum who wrote (9341)3/4/2004 5:16:54 PM
From: mishedlo  Read Replies (2) of 110194
 
As long as the gov't continues to deficit spend and japan is all too happy to buy the debt, then dollars will continue to enter the system. We don't need the consumer.

All that does is create more debt to be wiped out. It simply can not go away with falling wages and lost jobs. It just can't.
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Here are some posts on my board on this exact subject (giving money away to defeat deflation):

To Mish From GeekGod:
Why WOULDN'T the gov't print money and give it away if that happened? You think the politicians are going to sit there and do nothing while the great majority of voters are suffering? The only question is, who DOESN'T want them to do it, and how powerful are they? I say it's a minority in the U.S., plus a bunch of foreign non-voters. Yes, debtors will still suffer some, but the pain will be greater percentage-wise for the creditors. No one has control over the real economy, but the gov't decides how its money will be distributed.

Mish Reply to GeekGod:
Wealthy credit holders would hate it. It would transfer assets from the rich to the poor. The mammoth amount of printing that it would take would make the US$ worthless.
Banks, would not like it. They would be paid off in worthless $. Same too, credit card companies. Bondholders (primarily rich) would see the money they were paid back in as worthless. Right now we see the reverse: Laws being passed to keep people in debt even if they declare bankruptcy. To wipe out all of those debts on the scale you are proposing would indeed make the value of the US$ nearly worthless overnight. Perhaps global trade would cease. Who would want our dollars? We would have a hard time getting oil (which would cause us to invade Saudi Arabia no doubt), and besides I just do not see Congress passing a law giving away money. Now we already had a tax cut. Perhaps we just stopped collecting taxes period. Think anyone would vote for that?

Reply to Mish from Moz:
Which is why it won't happen.
Much of what has happened so far is to benifit the wealthy. Stock bubble - go long, stock bubble deflates - go short. Tax cut for rich. Massive federal debt to eliminate social programs, talk of cutting social security. Open up China and export jobs to drive up corporate profits.
The politicans will make promises to the prolitariate to get their votes, but follow through with actions to help the rich to get their campaign contributions. (and help build the wealth of the politican class.)

Reply From Mish to this board:
Political forces would prevent giving money away in mass to the poor to payoff debts. The wealthy would not stand for it. It would also cause unforseen international problems if it was even attempted. Who knows what happens 10 years from now, but for now all signs point to a long slow tortuous Japan Style deflationary scenario playing out.

Mish
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