Tag Archives: fiscal stimulus

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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Brown says fiscal stimulus in UK will be temporary

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Highlights

Brown Says Fiscal Stimulus in U.K. Will Be Temporary

Confirms a lack of understanding of fiscal policy.

Brown sets out anti-recession plan

Gordon Brown on Friday heralded an anti-recession strategy founded on tax cuts for low earners and further cuts in interest rates. People on low incomes had “a higher propensity to spend if their credits are higher”, Mr Brown said, noting that recipients of a wider US fiscal stimulus of $170bn (£113.7bn) approved last February had saved half the money. “In the US, rates have been cut to 1 per cent but the European area has been slower with 3.25 per cent in the euro area and 3 per cent in the UK,” he said in a speech. Mr Brown said he endorsed the views of Mervyn King, BoE governor, that there was scope for further cuts. Mr Brown invoked the memory of John Maynard Keynes, whose plans to reflate the economy in the late 1920s were dismissed by the Treasury chief secretary of the time with three words: “Inflation, extravagance, bankruptcy.”

Brown says fiscal stimulus in UK will be temporary

Prime Minister Gordon Brown said Britain’s financial stimulus package will be “temporary.” Brown’s remark mirrors BOE Governor Mervyn King’s warning that the government must put forward a credible plan to reduce the deficit over time. “In these extraordinary circumstances, it would be perfectly reasonable to see some use of fiscal stimulus, provided two conditions are met,” King said on Nov. 12. “One, that it’s temporary. Secondly, that it would be clear there was a medium-term plan to bring tax and spending into balance.” The U.K. Treasury had a budget gap of 37.6 billion pounds ($57 billion) in the first half of its fiscal year. Since March, Brown’s government delivered tax cuts and spending increases worth 4.8 billion pounds to give relief to low-income earners, delay an increase in fuel duties and to help homeowners with mortgages and stamp-duty taxes.


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