[ExI] Debt tsunami

[Rafal Smigrodzki]

On Mon, May 4, 2009 at 6:41 AM, Brent Neal <brentn at freeshell.org> wrote:
> On 4 May, 2009, at 3:13, Rafal Smigrodzki wrote:
>
>> ### Or translated: A 21% increase (i.e. the "change") in budget
>> deficit over politics as usual after only 100 days in power. And a
>> projected deficit of 9.270 trillion (yes, trillion, not billion) by
>> 2019.
>>
>> Nine trillion dollars is big money. Not exactly record-breaking as USG
>> accounting trickery goes (the title here goes to unfunded SS
>> liabilities, about 44 trillion dollars) but still impressive.
>
>
> This may be exactly the right thing to do. In a deflationary cycle, you
> -want- an inflationary fiscal policy to prevent a downward wage-price
> spiral. No doubt, I'd be a lot more comfortable with this if we'd managed to
> sock more money away in the Clinton-Bush years. You know, like good
> businesses/people/gov'ts ought to do - save during the fat years to prepare
> for the lean. But with Bush II dumping dollars into the desert like a
> madman, alas, it was not to be. We'll have to hope that the investments
> we're making now will pay off well enough to cover the bill later.

### Has anybody ever shown a deflationary wage-price spiral in real
life? This is some sort of Keynesian bugaboo they cooked up from
theory, never seen in practice, and said it'd be really bad. Pouring
value tokens into an economy does not create value, and if value of
some products goes down and therefore their price (ceteris paribus)
goes down as well, artificially propping up prices of valueless items
only ensures further misallocation of resources into provision of
those items. What makes you think that if the government lead by one
either faction was pumping money into the desert over 15 years or so
(I am referring to the artificial stimulation of home building which
took place frequently in the deserts of Nevada, or in the swamps of
Florida) is now going to magically switch to supporting valuable
spending?

Keynesianism is so incredibly bizarre it's hard to argue against but
somehow seemingly smart people like Krugman see to believe in it.

Rafal