Trade for stimulus failure

Discussion in 'Economics' started by CollegeTrader, Feb 18, 2009.

  1. What happens if the new stimulus package fails? Any alternative plans for save America? It seems if we dont have results rather quickly the market will deteriorate. If that happens where can the SnP fall to? 600 whole number seems fair i assume. What are trader thoughts about this subject? In my opinion from what im seeing CNBC is getting rather bullish in their attitudes, last year everytime that happened the market was in for a huge drop. Contrarian indicator possibly.
  2. Stimulus plan #2, what else? That is what Japan did over and over again.
  3. TGregg


    We're on #2. #3 is the next one.
  4. Only Americans are going to have to save Americans.

    I doubt that any government stimulus bill could ever create the kinds of long-term jobs, products, and services, that will turn the country around. Government jobs simply don't create growth, they may provide some seeds for growth (e.g., investments in primary research) and they may support growth (e.g., providing infrastructure and a stable currency), but government doesn't create growth. Looking at how much of the U.S. GDP was just a borrow-and-spend illusion makes me think that the country needs to replace about $1 trillion worth of 2007 company revenues with new revenues from products and services that don't require borrow-and-spend consumption. In particular, the US will need to create more products and services that generate export revenues because the Fed's printing press will probably lead to high inflation on imported goods. That means innovation and solid commercialization that creates large volumes of new stuff that other countries will really want and really pay for.

    I also think that govt can (and is) helping keep the wheels on the financial system so that it can lend to credit-worthy companies (and not to every real estate speculator and NINJA borrower). That Cisco and others have managed to raise a nice chunk of debt at a reasonable rates suggest the wheels are still on. I doubt we are at the bottom (both a large number of banks and companies need to fail first), but it's clear that some companies are functioning despite the crisis. That's good.

    The key realization is that most of the productive capacity, especially, the fast-moving, innovative productive capacity of the country lies in private hands. To the extent that the government can stimulate new private investment that creates new products and new services that lead to new jobs and new exports, then things will go well. In contrast, to the extent that the government wastes money trying to resurrect the borrow-and-spend economy and prop-up industries that would have died in 2003 without the easy money of the housing boom, then government will damage the future economy with the burden of an inflating currency and high taxes. To the extent that government decides it must punish the financial system, it will end up stifling investment in the economy and fatally wound every bank, insurance company, and pension plan in this county (and others).

    Yes, the government can stimulate the economy. But the real key is to stimulate the investment and productive side of the economy, not the consumptive side of the economy