Re: Sector financial balances and fiscal stimulus

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(email exchange)

Good stuff, thanks!

(Of course, I prefer to say ‘removal of fiscal drag’ rather than ‘fiscal stimulus!’ )

>   On Tue, Dec 30, 2008 at 3:17 PM, Scott wrote:
>   FYI . . . looking at the data on the sector financial balances for
>   Q1, Q2, and Q3 of 2008. All data are in $billions and are in
>   annualized nominal terms:
>    Sector: Q1 Q2 Q3
>    Household -195 110 24
>    Total Prvt -135 176 106
>    Fed Govt -346 -666 -544
>    Total Public -558 -899 -815
>   Note that in Q2, the -300 change in the fed govt balance is
>   almost exactly equal to the +300 change in HH sector
>   balance. Biz sector in Q2 actually reduced net saving a bit,
>   which is what it normally does when sales/profits improve
>   (expand capacity, etc.). Note also that Q2 was when real
>   GDP was over 2%, up from 0% previously. So . . . clearly the
>   stimulus “worked” in that it improved HH balance sheets
>   while raising real GDP growth. Only problem was that the
>   stimulus wasn’t large enough and didn’t last long enough,
>   Note that smaller Fed govt deficit in Q3 corresponds to
>   smaller HH balance and slower real GDP growth in that
>   quarter.
>   HH sector had been retrenching since 2006:3, when balance
>   peaked at -478B. Fed govt high was -176B in 2006:4, and
>   had been going into further deficit thereafter, so this is “the
>   hard way” you talk about in which automatic stabilizers offset
>   the slowdown, albeit not nearly enough as real GDP growth
>   deteriorated. The Q2 stimulus package was a clear “jolt” that
>   corresponds to “the easy way” of stabilization via direct fiscal
>   intervention and greater real GDP growth than otherwise,
>   albeit not nearly enough, again.
>   Anyone thinking that fiscal policy doesn’t “work” needs to
>   explain this data combined with quarterly real GDP growth.
>   Scott


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