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Chris Herbert's avatar

I believe that all the interest rate manipulations by the Fed transfers wealth from labor and small businesses to the class of Oligarchs we've created because of our belief in 'trickle down.' This transfer of wealth has a name, the 'allocative effect.' I really don't understand why the Fed still embraces what was called the 'Treasury View' which was discredited during the Great Depression. But here we are.

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Neil Wilson's avatar

"If and when that happens, the automatic stabilizers will push the fiscal deficit higher. "

We need to make more of this simple fact.

The closer the increase in the deficit matches the increase in spending, the more *deflationary* it is.

If a $30bn budget spend increases the deficit by $30bn, then we have a deflation problem.

If a $30bn budget spend causes no change in the deficit, then we're stretching the supply side to the full and need to be careful.

It's the non-'deficit spending' bit of increased spending that is potentially inflationary. Not the 'deficit spending' bit.

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