In response to,
http://krugman.blogs.nytimes.com/2010/11/18/debt-deleveraging-and-the-liquidity-trap/
Dr. Kn.,
Deleveraging shock is quite understandable and is close to the situation, we are in. Advocating fiscal policy to offset liquidity-tarp and reduction in private spending is a common Keynesian solution. The problem is how we are going to finance this spending? The Government is already running a budget deficit. It is already in debt. I think which why they say debt is no solution to debt. But, i agree there is a difference between a Government debt and a private debt, same as public and private, and Government has ways to finance its expenditure. What are those ways?
As far as deflation is concerned, it sets in when aggregate supply exceeds aggregate demand. If that is the situation can we expect that there is an excess of supply of goods in the economy as a result of very low interest rates in the pre-recession period? And, are the businesses are waiting to let the excess stock finish so that they can resume their spending later? Do not we need a policy, like increasing minimum income (wages/salaries), here?
No doubt deficient demand, either because of deleveraging shock or because of high unemployment, is the real problem.
The model, though suggests fiscal policy to escalate demand, it is mute on the account of softening the deleveraging shock. Can’t we extend the loan repayment time to protect the economy against stagnant demand? Like the same as the Federal Reserves unconventional move to purchase bonds and reduce long-term interest rate.
http://krugman.blogs.nytimes.com/2010/11/18/debt-deleveraging-and-the-liquidity-trap/
Dr. Kn.,
Deleveraging shock is quite understandable and is close to the situation, we are in. Advocating fiscal policy to offset liquidity-tarp and reduction in private spending is a common Keynesian solution. The problem is how we are going to finance this spending? The Government is already running a budget deficit. It is already in debt. I think which why they say debt is no solution to debt. But, i agree there is a difference between a Government debt and a private debt, same as public and private, and Government has ways to finance its expenditure. What are those ways?
As far as deflation is concerned, it sets in when aggregate supply exceeds aggregate demand. If that is the situation can we expect that there is an excess of supply of goods in the economy as a result of very low interest rates in the pre-recession period? And, are the businesses are waiting to let the excess stock finish so that they can resume their spending later? Do not we need a policy, like increasing minimum income (wages/salaries), here?
No doubt deficient demand, either because of deleveraging shock or because of high unemployment, is the real problem.
The model, though suggests fiscal policy to escalate demand, it is mute on the account of softening the deleveraging shock. Can’t we extend the loan repayment time to protect the economy against stagnant demand? Like the same as the Federal Reserves unconventional move to purchase bonds and reduce long-term interest rate.
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