Sunday, September 18, 2011

50% Chance of Recession (or perhaps Depression?)

It's unfortunate that we've had to wait until a year before the next presidential election to get the American Jobs Act. There's no reason, except for politics, why we couldn't have gotten this $450 billion a year ago.

But now that an actual jobs bill is here, it will be interesting to see how it's treated in Congress.

On the subject of spending and debt, a Daily Profit reader asked:

How can you advocate sound fiscal policy and fiscal stimulus at the same time? We are borrowing over a trillion dollars a year, just to keep the economy on life support. Do the math. If the government increases spending and cuts taxes the difference has to be made up by borrowing, i.e. more debt.

Our debt is quickly approaching the size of our annual GDP. This can do long term harm to the country, and for what. To create a few temporary jobs to re-elect the same political hacks. The politicians care more about the next election than the future of our country. How about you? Lets continue to borrow our way out of debt, and see where that takes us.

It's standard operating procedure for government to step in and spend -- even deficit spend -- when an economy slows dramatically and even enters recession. The key, however, is that government also must act to build a surplus when times are good.

Prior to the Internet bubble bursting and the 9/11 recession, the federal government was running a surplus. Unfortunately, the government didn't adopt sound fiscal policy between 2003 and 2007 and instead, ran budget deficits. So when the financial crisis hit, there was no surplus to draw on. And the situation was made worse by levels of private debt. more