In Robert Kiyosaki's _Rich Dad's Prophecy_, deflation is predicted. Recently Alan Greenspan alluded to possible deflation.

If deflation does happen, can't the U.S. Treasury department just print more money to counter it?

If it does print more money, how does it get into the economy (though government agency budgets?)?

Thanks,

JeffO

Jeff,

The Fed is now and will continue in the future to try to fight deflation by printing money. How does it get into the economy? The Fed buys U.S. Government bonds from banks who in turn lend the money out, which gets it circulating in the economy.

They also try to stimulate the economy through interest rate cuts. But we have now had something like 13 rate cuts in a row and the economy is still sluggish. So we’ll just have to see how it all pans out.

Larry

Hey Gang,

I'm trying to remember from my Macro-Economics class how the government can boost the economy. Two of them have already been discussed in this thread but there is one more which coincidentally they have been doing also.

1. decrease interest rates
2. increase money supply (print more money)
3. increase government spending

The war effort has accomplished this third step in my opinion. Also with post 9/11 there have been programs added to the budget in the multiple of billions. Eventually this all trickles down in some form or another to the people.

So if the government is doing everything that they can to kickstart the economy and it isn't working you have to ask why.

www.financialsense.com has an article on there somewhere about how Greenspan will be remember for creating the largest debt creation machine in history. I am now starting to wonder if this is what is ultimately holding the economy back? If servicing the debt is taking up surplus moneys that could be spent on the economy it kinda makes sense.

I'm just theorizing here, I'm definately not an economist!

Matt

Matt,

You may not be an economist and neither am I. But I think your observation about debt is right on the money. Every once in awhile I like to look a the the national debt clock.

It is updated to the second. It currently shows that the outstanding public debt is $6,723,540,124,081.08. The estimated population in the U.S. is 291,508,815. That means that each person’s share of the debt is $23,064.62 (and that includes children). The national debt has increased an average of $1.71 billion a day since 9/30/02.

I haven’t written anything about it, but the bond market has been just crushed in the last four weeks. That means higher long-term interest rates. It will also mean higher mortgage rates. It is generally accepted that a big part of what has kept this economy from being worse than it has been is the housing market, fueled by low interest rates. And yet as strong as the housing market has been the typical consumer doesn’t have any equity in his house. He’s been constantly refinancing and taking out his equity at low interest rates and spending it and using it to service his enormous credit card debt. I don’t know how this economy can keep going when the consumer has no more room to borrow.

It’s not a pretty picture.

Larry