U. S. Budget Deficits

For the Next 10 to 25 Years.

Keynesian Economics, 2010.

 

Before the recent crisis, consumers were spending more than their income on a macroeconomic level. The macro-economy in 2007 was pushed to the maximum activity. Even then, we had government budget deficits & unemployment was not at full employment. There were, still, inadequately funded social services & entrepreneurial/consumer services that were a part of normative economics of public good.

My conclusion, the economy was not booming even with (Keynesian) budget deficits. Not even the 'maxed out' consumer can spend enough to bring 'full employment'. During the next 10 to 25 years, a balanced budget would devastate the economy and budget deficits will & should continue. Present budget deficits will only slightly prop up the economy. Furthermore with pending spending obligations, this portends even worse economic situations to come.

 

Comments by Joseph Stiglitz:

 

http://www.pbs.org/nbr/site/onair/gharib/joseph_stiglitz_nobel_prize_winning_economist_101004/

Before the recent crisis, consumers were spending more than their income on a macroeconomic level. The macro-economy in 2007 was pushed to the maximum activity. Even then, we had government budget deficits & unemployment was not at full employment. There were, still, inadequately funded social services & entrepreneurial/consumer services that were a part of normative economics of public good.

In my analysis, the economy canít grow, since about 70% of the economy is consumers.The Federal Reserve and other regulators are changing the fractional reserve ratio from 3% to 7%, a 43% contraction of the money supply.Consumer spending levels are insufficient.

Only government deficits spending for the next several years will sustain the economy.The multi-trillion dollar government fiscal deficit will be funded by the ravenous hunger of the markets for Treasury Securities. Even if the interest rates increase, the rates are still very low.Increasing interest rates could have a positive effect on the fixed income markets benefiting seniors and other segments of the economy and stop the Treasury bond bubble.Ten year rates reached a high almost 4% and now are about 2.5% (October, 2010).

 

Commodity prices are rising.Since spring, 2010, agricultural and other commodities have move up significantly.The CRB Commodity Index has increased from about 245 to 300, an 18% increase.Even more recent, as of October, 2010, silver is up over 30%, gold is up 30%, coffee is up 80%, copper, palladium, platinum, grains and soybeans are much higher, This was a contributing factor to the recession.Higher commodity prices soak up more money that wonít be spend in the rest of the economy.

My conclusion, the economy was not booming even with (Keynesian) budget deficits. Not even the 'maxed out' consumer can spend enough to bring 'full employment'. During the next 10 to 25 years, a balanced budget would devastate the economy and budget deficits will & should continue. Present budget deficits will only slightly prop up the economy. Furthermore with pending spending obligations, this portends even worse economic situations to come.

In my opinion, put the money in the hands of the people.According to the Keynesian multiplier, government spending is one more than tax cuts.However, in the hands of the people, the money is put in the economy more quickly, if not near instantly.

 

Options:

 

  1. Slash taxes by 80% to 90%.
  2. Give all taxpayers $10,000.On average, this is the same dollar amount as the slashing of taxes.
  3. Give money to Social Security recipients.
  4. Give money to the impoverished.
  5. Extend unemployment benefits.
  6. (Options 3 through will be instantly spent, immediately circulating in the economy.

 

The purpose is to have the money immediately put in the economy.

 

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