Thursday, November 01, 2012

Is slow economy and the need for stimulus the new normal?

I'm for Obama, but I still have my worries. Some folks criticize Obama saying that the stimulus program just added to the debt and didn't work. Well, maybe unemployment would be a lot higher if it weren't for the stimulus, but now there's another costly Obama idea. The Social Security tax cut. We have been getting it for the past 2 years. Like the stimulus, it adds to consumer spending to create jobs, but is now being opposed by the AARP (American Association of Retired Persons). They are worried about it increasing the debt and undermining the financial solvency of Social Security. Might be about as bad an idea as the Bush "partially privatize Social Security" plan.

A few days ago, I heard an interesting interview on KUOW Radio about this. Surprisingly, someone from JP Morgan Bank was in favor of this tax cut and stated that a tax cut to middle class and lower income people creates more consumption and jobs than the Bush tax cuts to higher income people. Interesting that someone from JP Morgan would think that. The worry about this tax cut adding to the deficit was discussed and the fellow from JP Morgan feels that it will not be a big problem for the future of Social Security if it is extended one more year. It's already been extended from 1 year to 2 years and Congress may extend it again one more time.

I wonder, who is to say that the economy will be much better in one more year than it is today? Maybe we will just keep extending it again and again undermining Social Security. It's stuff to think about, but basically I like Obama. I just have questions and reservations about all these things.

If the need for stimulus becomes the new normal, the debt will just keep piling on. Maybe that's where Quantitative Easing, on the part of the Federal Reserve, comes in handy. Basically we have to keep printing money to prop up the economy as we know it. Quantitative Easing can be part of the new normal also. Then the debt is less of a worry as we print our way out of debt. Still inflation could be a big worry with that strategy, but it isn't a big worry yet, I guess.

On the the topic of inflation and printing money, watch out for pockets of hyper inflation that may cause havoc before the overall inflation rate ticks up. For instance another housing bubble.

I assume the Fed would ease up on the money supply if overall inflation becomes a problem and, presumably then, unemployment would be much lower as a heated economy tends to have less unemployment. Less unemployment along with it's higher risk of inflation. Still, we may be facing "new normals" of jobless recoveries. If that's the case, things like housing bubbles, big profits and pay hikes can happen in parts of the economy while the majority of people remain in recession.

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