Originally Posted by
jungle
Another way to look at the inflation/deflation angle is to consider not just borrowing and currency, but to look at the wealth held by all americans. For 2007 it was estimated to be around 57 trillion dollars, much of it held in investments and real estate.
If you were to consider half of that value lost, you can begin to understand just how large a "stimulus" or other intervention would have to be to make a meaningful impact.
There is no doubt that a rapid and severe deflation of prices in equities, real estate, commodities and other financial instruments has happened. This is not good news for debtors, and it makes it very obvious that the Fed and other government agencies have no real control over the economy when the bubble has burst. They contributed to the blow up, but now their ammunition is spent.
The only remedy is to unwind government spending and rejuvenate the economy through lower taxation and by making sure the country offers the highest incentives for worldwide investment. The only way to attract business and investment to this country is through low rates of corporate taxation. You cannot possibly spend your way out of debt.
There is certainly a difference between true wealth and dollars. The question of the stimulus is whether it can create wealth, I think we all know the answer to that. Creating jobs does not equal the creation of wealth. I like to use the tour in China analogy again:
While touring China, he came upon a team of nearly 100 workers building an earthen dam with shovels. The businessman commented to a local official that, with an earth-moving machine, a single worker could create the dam in an afternoon. The official’s curious response was, “Yes, but think of all the unemployment that would create.” “Oh,” said the businessman, “I thought you were building a dam. If it’s jobs you want to create, then take away their shovels and give them spoons!