Wednesday, January 21, 2009

What Kind of Stimulus Projects Should Be Considered?


One area of consensus for economists is the belief that things are going to get a lot worse before they get better. As John Mauldin points out in his news letter, a number of economic factors are working together that need to change before we will see any improvement:

Overcapacity, rising unemployment, imploding leverage, lack of borrowing and/or lending, a serious retreat by consumers, and increased savings are all the conditions needed to bring about deflation. Left unchecked, we could soon see something like what Japan has experienced, and even potentially worse, as they started with a savings rate of 13%. But deflation is not going to be left unchecked. It will be fought by central banks everywhere with low rates and the printing press, as well as government spending.

So the other significant point of agreement amongst reputable economists is that it is exceedingly difficult to find enough projects to make real progress against so many negative feedback effects. Sure you can fund infrastructure, but it takes time to get these things going and even then, it won't necessarily help much in 2009. >>MORE

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