Monday, August 29, 2016

People Won't Spend Even if Government Is Spending When Confidence Falters

Spending other people's money is what governments do. They're good at it during normal times and crises. The majority fails to recognize (at least right now) is government spending, highly regulated and inefficient, often does very little for the real economy, because liquidity, the propensity to spend (or save) money, has more to do with confidence in the private sector than the actions of the public sector. Liquidity supports the financial system that supports the domestic and global economy. People hoard money, creating a condition of illiquidity, when confidence in the system, either those that lead it or system itself, is faltering. If the government is part of the problem, people won't spend even if the government is spending.  This is the lesson from history.

Headline: Calls grow for U.S. government to spend more

The next president of the United States should be ready to work with Congress to spend more money. That's the message from investors and economists, including Janet Yellen. The question is how much cash to drop -- and when. About everyone agrees that if a crisis hits, government spending must be part of the rescue effort.



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