To: Crimson Ghost who wrote (68027 ) 1/30/2001 8:36:30 PM From: Zeev Hed Read Replies (4) | Respond to George, about a year ago or so, I wrote a post (which I cannot find) in which I "warned" about the dangers of excessive budget surpluses, such surpluses could precede an economic slow down, and even a recession.. We have had a very long period without such surpluses, so it is difficult to check the historical records (at least I do not have them handy). The rationale, however is quite simple, a budget surplus means that the government is taking out more money from the economy that it is injecting back in, thus in essence reducing end demand, particularly in periods where economic growth slows under the level of surplus growth. Thus, if the surplus this year is going to be let say $200 Billions, but the economy grows only at 2%, the whole economic growth is absorbed by the surplus, and eventually, demand will sag. Recessions by themselves are also adjusting mechanisms, and psychological factors in the birth of recessions are almost as important as "money flows" into and out of the economy. Right now, if consumer confidence does not decline much further, the reduction in rates should inject sufficient funds to compensate for the "inventory correction" we have, IMHO. If consumers lose confidence and start cutting on spending (thus rebuilding their own balance sheet with the "tax reduction" lower interest rates provide), sure we could get into a recession.
