Senin, 06 Juni 2011

The ‘Stimulus’ Fallacy

By Robert Romano
Since Sep. 2007, when the recession began, to Sep. 2011, we will have borrowed and spent an additional $6.469 trillion. In addition, since then the Federal Reserve has expanded its balance sheet (minus treasuries purchases) by an additional $1.117 trillion.
In fact, the central bank has expanded its balance sheet in total by $1.930 trillion since then, but we’re not going to double-count its additional treasuries purchases, which are already accounted for in the new debt that has been racked up.

That’s a total “stimulus” of $7.646 trillion for FY 2008-2011. So, what have we gotten for all that borrowing, spending, and money printing?

Let’s be generous and assume that by Sep. 2011, the nominal Gross Domestic Product (GDP) will have increased to $15.376 trillion, which assumes exactly the same nominal growth as last year Q3 to Q3. In Sep. 2007, the GDP stood at $14.158 trillion. So, there has been total nominal growth $1.218 trillion since then.
Therefore, a “stimulus” of $7.646 trillion will have only generated growth of $1.218 trillion by the end of this fiscal year. Put another way, for every $6.27 borrowed, spent, and printed, the government achieved $1 of growth. Or, for every dollar borrowed, spent, and printed, there was 15.9 cents of growth — a measly .159 Keynesian multiplier.
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