Let’s no repeat the mistake of the 1930s. We must accept to dig the deficit for consumer confidence to remain afloat. In this sense, it’s ok to extend the duration of unemployment check. However, let’s keep in mind that the strategy of digging the deficit hit a wall in the 1970s.
(You can learn about inflation and deflation for free. To learn about long-term interest rates, you’ll have to purchase the book.)
Target: inflation at 2%
Let’s keep on spending to push price levels away from deflation. Inflation is barely above 2% for now (p3 “all items less food and energy” in bls.gov). Thus, the government is injecting money into the economy to avoid deflation.
The US Treasury is spending
The US government (through its Treasury) has passed budget with 10% deficit. It involves larger spending and no tax increase. Of course, it required to raise the debt limit (treasury.gov). With such a deficit, the accumulated debt of the government has reach 100% of the GDP. Tim Geithner of the US Treasury agrees (boston.com).
The Fed is pumping money
The Fed is also injecting money into the economy. In 2010, it even purchased Treasury bonds (from bonds markets) and pays with dollars created ex nihilo (federalreserve.gov). Such a measure had a double intent: injecting fresh cash in the banking system and lowering long-term interest rates to alleviate the cost for owning a home. Nevertheless, the Fed is always quick to claims that it doesn’t need to buy directly from the Treasury (federalreserve.gov).
As long as the recovery isn’t strong, Ben Bernanke wants to keep on spending (time.com).
