Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (3145)	1/11/2001 9:01:01 AM
From: Yorikke	Read Replies (1) \| Respond to of 33421

For a very good analysis of Debt's , both public and private, effects on the economy one might read some of the recent policy notes by the Levy Economics Institute. In particular I recommend 'Can The Expansion Be Sustained? A Minskian View' by L. Randall Wray. levy.org Also 'Drowning in Debt' by Wynne Godley. levy.org These articles make it clear that in today's economy the accumulation of Government surpluses in any situation other than beyond full employment is dangerous to long term economic expansion. We seem to have moved between excesses. First the very high deficits of the Regan-Bush era, and now record surpluses. Each brings its own difficulties. In the short run (less than one year) it would seem almost impossible to reverse the trends that have started to developed. Political infighting will be fierce and will prevent it. Surpluses will continue, Tax cuts will be a major battle ground, as will increased government spending: rendering effective fiscal policy nearly impossible. The Fed holds on to its Goldilocks goals (2% growth and 2% inflation) and insists that it can do it with only interest rate moves. As has been noted in the past few posts, attitude and expectations are a key factor here. If the private sector, consumers in particular, perceive hardship ahead and begin to pull back and reduce their debt loads the driving force of this economy's investment capital will shrink as well. In this economy, if the urge to save becomes strong, government is deadlocked, and the trade situation and the dollar remain the same, the Fed can go to near zero (as in Japan)and we may not see the injection we will need. It can be argued that dropping the dollar will reverse the balance of payments, but it will also reverse the flow of foreign capital; one move conteracting the other. These are interesting concepts discussed in the cited articles, and at first glance counter intuitive, at least from my perspective. But after a few reads I feel confident that they express not only very sound macro-economic theories, but entail some quite simple models that have been very accurate in describing how events would play out -- and, perhaps, provide a clear view of what lies ahead.