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Thursday, September 23, 2010

Savings vs Deficit spending, which is better for economy

Special thanks to Harry Yee for sending me this link.
Below is a snippet from the article, click on the text to read.

The foundation of the Obama stimulus plan is easy to understand, and to Chris and lots of smart people, it appears to make sense. Once again, its goal is all about raising growth right now by shifting money around, without durable incentives for expansion -- what we call "Static Impact." It seeks to shift hundreds of billions of dollars in U.S. and foreign savings to government and consumer spending. The Treasury is borrowing $862 billion in funds that families and governments don't need to use now, and hence are saving. The federal government is then spending part of it quickly and returning the rest, through programs like the "Making Work Pay" tax rebates, to consumers most likely to spend it. The rationale is that all the extra outlays in these two categories will raise GDP far more than if all of that money had flowed to places where savings go, into corporate bonds, stock offerings, CDs, or bank deposits.





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