The Way Out?

[Jahbulon]

You can only pick one.......

In times of economic contraction, a nation is often led out of trouble by:

Big banks willing to take measured risk
Small business and individuals assuming new risks
Government easing taxes
Government lowering interest rates
War

[kucheka]

I believe you're looking for war, J, which is one form of government spending. There are other ways that government can spend, btw.

[Jahbulon]

Actually, I picked "B"!

[kucheka]

Risk what...when people are saving and paying down debt? (Or assuming new debt because they're un/underemployed.)

[Jahbulon]

Im not sure im tracking here? What are you looking for?

[kucheka]

I don't know what "small business and individuals assuming new risks" means or how it would pull us out of this contraction.

[Jahbulon]

Historically individuals taking risk and starting small businesses pave the way for economic recovery. That's all.

[sludg]

I picked B as it was the only logical answer. War was the answer in the early 1900s but now it causes debt not creates a more stable economy. The big problem is the lack of jobs. I was reading about IBM yesterday and in the past 10 years they downsized a large portion of the jobs in the US and boosted their jobs in India. They started with 9k jobs in India and jumped to 45k in the early 2000s. No idea what they are up to right now but with all the major corporations out sourcing to foreign countries for cheaper labor our country in turn is slowly reverting towards being a 3rd world country.

I'm sure this is making every OWS supporter smile to see this being said but well their ideals are on point its just their way of doing things that I don't agree with.

We need to get away with looking to china and india for labor at $20 a day and bring it back to america and pay our people instead. An option you should have put on there was something along the line of "Stop outsourcing to foreign countries by major corporations" I'm pretty sure that would get the most votes hands down.

[Jahbulon]

I took this question from my kids economics book, so I didn't skew it in any way.

I saw him studying and thought it would be an "ok" poll question too.

I know there could have been more choices, but that can also go to infinity.......

[kucheka]

The Sorrow and the Pity of Another Liquidity Trap

The decline in interest rates and the rise in savings are accompanied by an increased desire among businesses and households to safeguard more of their wealth in cash. As a result, the speed with which cash turns over in the economy, the velocity of money, falls. And as the velocity of money falls, total spending falls, workers are fired, and their savings evaporate with their incomes...

When rates become so low that there’s little difference between cash and short-term government bonds, open-market operations cease having an effect; they simply swap one zero- yielding government asset for another, with their hunger to hold more safe, liquid assets unsatisfied.

This is the liquidity trap.

In this situation we need deficit spending. The government spends and borrows, creating more of the safe, cashlike assets that private investors want. As these bonds hit the market, people who otherwise would have socked their money away in cash -- diminishing monetary velocity and slowing spending -- buy bonds instead. A large, timely government deficit thus short- circuits the adjustment mechanism, avoiding the collapse in monetary velocity.

http://bloom.bg/j3sa2I

[Jahbulon]

I think that is debatable, but even then the goal is still to create more long term jobs, which will be risk takers starting small business. The defecit spending is just to get us through until then.

There is a strong case for deleveraging from all the debt that has piled up ove 30 years too.

Economics is more of an art, I guess.

[flight23]

Deleveraging should occur during times of growth, it acts counter to growth.
Kucheka's paragraphs are correct.

Choice B is directly related to choices A, C, and D. They are inseparable.

[Jahbulon]

But unfortunately we don't deleverage when in times of growth..............

[mkw52]

hmmm. do you actually think banks are lending to small businesses? even sound and long-term successful business endeavors in high default areas are finding it hard to borrow money, and as such being bought out by larger "venture capitalization" groups suggested by those same banks....small businesses are being strangled while seemingly being rescued....and all sold....sold...sold....and sold again. define a "small business"....it is not one anymore....

[Jahbulon]

We've made it impossible to start a business.