How will the market react to downgrade?

[Parkbandit]

I have a stupid analogy in my head for the stimulus:

Keynesian economics suggests building a house with four walls, a roof and a floor as a way to stay out of the rain. Progressives / liberals wanted to build this house. Conservatives believed that the house would cost too much and was not worth building and we should all fashion our own umbrellas. As a compromise, Obama and the Democratic majority caved and agreed to build a house with two walls, a floor and a roof made of cheesecloth. No one was happy with this, but something had to be done. Conservatives claim the mostly ineffectual house is a failure of the idea of housing. Progressives claim is was a failure to build the house as required.

I agree.. it's a stupid analogy.

[Insodus]

unemployment at 9% is a lot better than what could have been.

This argument is such rubbish. You have no idea what unemployment would have been like if we didn't spend the money. On the other hand, we know exactly what our deficit would be like if we didn't spend the money.

[Ardwen]

The Fed saved what was starting to look like it was going to end a good start with sellers overwhelming buyers with their timely announcement

[Kembal]

This argument is such rubbish. You have no idea what unemployment would have been like if we didn't spend the money. On the other hand, we know exactly what our deficit would be like if we didn't spend the money.

There were pretty good private sector projections of what unemployment would've been, as Nachos pointed out earlier today. Anecdotally, I can say with certainty the stimulus saved both of my major customers (along with a bunch of smaller ones) from failing in 2009/2010, and those two companies alone represent about 30,000 jobs nationwide. There are going to be lots more cases like these for whom the stimulus ended up saving from failure.

Secondly, we actually don't know "exactly" what the deficit would've been like if we didn't spend the money. Tax receipts would've fallen even further.

[Parkbandit]

Secondly, we actually don't know "exactly" what the deficit would've been like if we didn't spend the money. Tax receipts would've fallen even further.

These two sentences make no sense together, in the same post.

[NocturnalRob]

These two sentences make no sense together, in the same post.

They barely make sense apart.

[Kembal]

These two sentences make no sense together, in the same post.

Ok, $800B was the cost of the stimulus.

1/3rd of it was tax cuts, so we can remove that from the equation.

For purposes of this discussion, we can say that state aid was 1/3rd (it was less), and infrastructure spending was the other 1/3rd.

All infrastructure spending would have become revenues to companies completing the infrastructure projects. As they work on the projects, they spend the money, with some of it becoming wages to employees and some of it spent buying materials from other companies. After costs, they also turn a profit.

All these profits and wages throughout the chain get taxed. We can take an effective tax rate of 22% for this exercise. (it might be less or more, I can't recall offhand right now what the economic literature says.)

$266.67B x .22 = $58.667B in tax receipts.

Same thing holds true for state aid, through it's probably a lower effective tax rate on that portion.

That's just direct tax receipts from the stimulus. If we had taken no action, and companies failed, obviously there's even more tax receipts lost.

Hence, we don't know "exactly" what the impact to the deficit would have been of doing no action.

In any case, worrying about the deficit when the economy is so weak is like worrying about a house fire when the nuclear plant down the road is in a full meltdown. You can't cut your way to economic growth in a liquidity trapped economy. You have to create demand.

[Parkbandit]

You didn't understand my point... the first sentence was you saying you can't tell what would have happened without the stimulus.. in the second you attempted to say what would happen.

When do we stop putting so much faith in the precious Keynesian Economic Theory and simply call it what it is... a bust? Granted, we will probably continue to keep doing what we've been doing... pissing away money on top of more money and hoping that we can spend our way out of a recession.. and turn this into what we will later call The Greater Depression.

[Warriorbird]

You didn't understand my point... the first sentence was you saying you can't tell what would have happened without the stimulus.. in the second you attempted to say what would happen.

When do we stop putting so much faith in the precious Keynesian Economic Theory and simply call it what it is... a bust? Granted, we will probably continue to keep doing what we've been doing... pissing away money on top of more money and hoping that we can spend our way out of a recession.. and turn this into what we will later call The Greater Depression.

The bit that nobody will admit is "Taxcut and Spend" is equally as ineffective as "Tax and Spend." Neither politicized economic theory really works.

[Parkbandit]

The bit that nobody will admit is "Taxcut and Spend" is equally as ineffective as "Tax and Spend." Neither politicized economic theory really works.

As a conservative, I actually subscribe to the "Taxcut and spending cut" economic theory.