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In a recession: People lose jobs Govt pays out more social security benefits Govt earns lesser tax revenue Govt interest payments on bonds are still at pre
by NTDF9 7y ago
In a recession:
People lose jobs
Govt pays out more social security benefits
Govt earns lesser tax revenue
Govt interest payments on bonds are still at pre recession levels
So, govt has to issue more bonds
Nobody has the money to pay for those bonds
Thus, interest rates would naturally rise.
The fed could print money to buy bonds causing inflation or the fed could not print money causing rise in interest rates and furthering economic decline.
This is how the deficits have out the fed between a rock and a hard place.
- pjc50 7y agoTrue up to "nobody has the money to pay for those bonds": there's often a flight to safety in recessions of people moving money out of the stock market. Plus all the big international investors. Shortage of buyers is a risk but not one we've been close to so far. One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.
- NTDF9 7y ago> One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation. You nailed it. There was inflation with the last QE. We just changed what counts towards inflation.
- AnimalMuppet 7y agoHistorically, recessions have not played out the way you describe. (Never, IIRC.) So I think your theory is flawed.
- NTDF9 7y agoYou need to look at other countries that have had inflation to see how this goes. US is not an island and economics works the same everywhere.
- AnimalMuppet 7y agoEconomics works the same everywhere? Very well. It has never worked in the US the way you say it has. And if you say it works the same everywhere...