| | Bush and his congressional cronies must really believe its possible to conjure wealth out of thin air. They're passing out $150 billion in checks to tax payers and tax consumers alike, hoping to avert recession. But, as you point out, the money must come from either borrowing or from "printing" money. If the US Treasury borrows the money, then the real wealth represented by those borrowings is denied to businesses and consumers in the form of higher rates or more restrictive terms. If the Federal Reserve System "prints" more money, it "monetizes" more Treasury debt (like the new debt created by the "stimulus package"). Monetizing more Treasury bonds expands the monetary base, ultimately causing an increase in the money supply. The inflation and boom-and-bust cycle that monetary inflating leads to, of course, hits hard at those most financially vulnerable and distorts investment and asset prices, which inspires the waste of scarce and precious capital. Either way, borrowing or printing new money, the "stimulus package" throws up new hurdles to private enterprise.
Although declining consumption spending is much discussed during a recession, by far the greatest decline in spending occurs between businesses. This is because the distortion in investment prices and business costs engendered by the Fed's false boom produces a wave of misdirected business ventures, most of which are revealed as unprofitable at about the same time. We hear endlessly that 2/3 of gross domestic product relates to spending by consumers, but this is actually completely wrong--a misconception that reflects the accounting confusion within national income statistics, a point carefully explained by George Reisman in his book "Capitalism". Most spending in a market economy is business spending, on the order of possibly 90% or so. To grasp this fact, consider the goods that stock a grocery. The price a consumer pays for a can of beans is dwarfed by the series of payments made at various stages of production to place that item for sale on the grocer's shelf. These stages include, for example, trucking, the growing of beans, the prodcution of farm machinery, fuel, fertilizer, etc. In a division of labor economy, most wealth and also most spending relates to business activity.
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