And given the macroeconomic risks posed by the stimulus package, I think it makes sense to spend some time thinking about how all this spending will be paid for. Raising taxes? A bad idea from a policy perspective, as well as a shrinking well from which to tap due to the sharp downturn in our economy. Lower incomes. Smaller corporate profits. Fewer capital gains. All of these point to a sharp reduction in tax revenues, and the tax increases President Obama has in store will nary make a dent, and may well cost more than they generate over time. We could cut spending. One thing we can take away from the annual budget process is that true cuts, net reductions in spending, almost never stick. If this is where we are placing our hope we are living in fantasy-land. So the only other place money can come from is if we manufacture it. Sell Treasuries. Borrow and spend. The Great American Pastime.
Yeah, which is why I believe inflation is coming down the road – maybe a few years out, but coming surely. big time.
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