Tuesday, February 10, 2009


Does borrowing money to fund a recovery make the recovery less likely?

As you can tell by now, I am of two minds regarding the stimulus. I have serious reservations about the excessive use of debt (if only our debt to GDP ratio had been closer to 40% instead of +65% at the beginning of this crisis - thank you George!). I am also concerned about the U6 number of 15% (true unemployment - forget the ~7% number being thrown around). I don't know what the best answer is short term and I definitely don't know what the best answer is long term.

The problem is that I don't think anyone else knows either.

1 comment:

Bubba the Hutt said...

My favorite part of the article was:

A limit to the stimulus…

Maybe there is a limit to the amount of impact that governments can have in loosening the credit markets. It would be terribly ironic if the very act of fighting to push down the interest rates might be pushing them back up again.

Question is…how far will rates rise? That all depends on how much the government borrows to pay for more stimulus.

Moral of the story: there is a limit to the amount of stimulus that will be effective, because after some point…the additional cost of borrowing will push rates back up