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Mosler on future economic growth/conditions

JP Hochbaum

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"And in any case to keep growing at about 2% credit expansion has to overcome the demand leakages and climb the hill of the automatic fiscal stabilizers as with the current institutional structure nominal growth automatically reduces the contribution of govt deficit spending, which is now maybe down to 4% of GDP. Note that with forecasts of 2% growth the forecast for the govt deficit spending falls to only 2% of GDP, implying far more rapid increases of ‘borrowing to spend’ in the domestic sector. And if that net new borrowing doesn’t materialize, the sales don’t either.

Is it possible for housing related credit expansion to suddenly accelerate? Sure, but is it likely, especially in the face of the drag the govt layoffs and tax increases that made the hill the domestic credit expansion needs to climb that much steeper? And sure, the foreign sector could suddenly spend that much more of its income in the US, but is a US export boom likely in the current anemic global economy? I wouldn’t bet on it."

The Center of the Universe

In laymen terms: If the private sector doesn't increase spending, via credit, the 2% growth we average won't maintain.
 
"And in any case to keep growing at about 2% credit expansion has to overcome the demand leakages and climb the hill of the automatic fiscal stabilizers as with the current institutional structure nominal growth automatically reduces the contribution of govt deficit spending, which is now maybe down to 4% of GDP. Note that with forecasts of 2% growth the forecast for the govt deficit spending falls to only 2% of GDP, implying far more rapid increases of ‘borrowing to spend’ in the domestic sector. And if that net new borrowing doesn’t materialize, the sales don’t either.

Is it possible for housing related credit expansion to suddenly accelerate? Sure, but is it likely, especially in the face of the drag the govt layoffs and tax increases that made the hill the domestic credit expansion needs to climb that much steeper? And sure, the foreign sector could suddenly spend that much more of its income in the US, but is a US export boom likely in the current anemic global economy? I wouldn’t bet on it."

The Center of the Universe

In laymen terms: If the private sector doesn't increase spending, via credit, the 2% growth we average won't maintain.

Why do increases in private sector spending have to come from credit? Why not increased wages, or tax cuts?
 
Why do increases in private sector spending have to come from credit? Why not increased wages, or tax cuts?

Where will tax cuts come from? Where will wage increases come from?

This forecast is made based on what is happening, there are no tax cuts coming, and wages become depressed with high unemployment.
 
The solution is too easy. Tell everyone that for the month of july there will be zero sales tax.

You'll have a lot more than 2% by the end of that.
 
Why do increases in private sector spending have to come from credit? Why not increased wages, or tax cuts?

They don't and wages do not have to go up or taxes down for it to happen either. Velocity would just need to increase, but it isn't going to happen. People are still shell-shocked from 2008-2009. The reality is that 1-1.5% annual growth of GDP is reasonable for a mature economy like ours. Trying to force it beyond what is naturally occurring to create the illusion that fiscal policies are "working" is nothing but politics. We just need to bring our spending in budgets in line with 1-1.5% growth and stop trying to expand the government based on 4-5% growth that just isn't realistic.
 
"In laymen terms: If the private sector doesn't increase spending, via credit, the 2% growth we average won't maintain.

Sounds like a valid analysis. Credit is absolutely central to a modern economy. That's why Austrians and the rest on the Gilligan's Island of market evangelism despise credit and promote policies that suppress (Gold Standard, austerity, cutting the social safety net, etc)
 
They don't and wages do not have to go up or taxes down for it to happen either. Velocity would just need to increase, but it isn't going to happen.
Increasing velocity won't work, rich people would magically have to decide one day to start giving money away for no reason.
 
The reality is that 1-1.5% annual growth of GDP is reasonable for a mature economy like ours.
Our population growth is near 3%, aiming for 1-1.5% would actually be bad. Not to mention we need to target 5-6% in order to get back to full employment.
 
Our population growth is near 3%, aiming for 1-1.5% would actually be bad. Not to mention we need to target 5-6% in order to get back to full employment.

3.5% growth is good. No way the US has 5 or 6% growth rates any time soon.
 
Why do increases in private sector spending have to come from credit? Why not increased wages, or tax cuts?

Or here's a novel concept: How about saving money first, then buying stuff?
 
The solution is too easy. Tell everyone that for the month of july there will be zero sales tax.

You'll have a lot more than 2% by the end of that.
At the moment, taxes are useless anyway.

Let's eliminate all taxes. Have foreign companies invest in us for a change.
 
For that matter, how on earth is that going to solve any problems?

By helping households rebuild their balance sheets. They spent thirty years assuming more and more debt. Then the financial crisis came, exposing how vulnerable households really were. Now, five years later, we still have millions of homes underwater, people taking out eight-year auto loans, living from paycheck to paycheck, etc. Maybe it's time they learn to live within their means so we build a better foundation for our economy.
 
By helping households rebuild their balance sheets. They spent thirty years assuming more and more debt. Then the financial crisis came, exposing how vulnerable households really were. Now, five years later, we still have millions of homes underwater, people taking out eight-year auto loans, living from paycheck to paycheck, etc. Maybe it's time they learn to live within their means so we build a better foundation for our economy.
The government is still a household? Jesus, you'd think you'd have learned something by now.

The irrelevance of this post is astonishing.
 
The government is still a household? Jesus, you'd think you'd have learned something by now.

The irrelevance of this post is astonishing.

I was responding to imagep's Post #2 where he was referring to private sector spending.
 
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