The Instigator
SeriousThreat
Pro (for)
The Contender
RonPaulConservative
Con (against)

Stimulus spending should be done in current economic conditions

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Voting Style: Open Point System: 7 Point
Started: 11/30/2016 Category: Economics
Updated: 1 day ago Status: Debating Period
Viewed: 87 times Debate No: 97506
Debate Rounds (5)
Comments (0)
Votes (0)

 

SeriousThreat

Pro

It is argued that most of the developed world central banks have already "shot" all their power in regards monetary policy and State should take more responsibility in regards fiscal policy to prop up their own nation's economy and world economy as a whole.

So the debate is about that should governments make bigger deficits to ignite some "fire" for their economies and return to faster growth world or not?

This is Pro's side debut debate, so inexperienced debaters are more welcomed to join, as experienced ones might not feel quite a challenge, but accepted is everyone nonetheless.
RonPaulConservative

Con

No, here's why:
1 because we would have to borrow that money from private banks such as the Federal Reserve as an intrest bearing debt.
2. Stimulus doesn't help the economy ifwe want to create more ecinomic growth we need to deregulate the economy.
3. It hasn't worked so far, why try it again?
Debate Round No. 1
SeriousThreat

Pro

Firstly, all the net earnings from The Federal Reserve goes to the Treasury, so it becomes like a vicious cycle - when government issues bonds, central bank buys a large chunk of it out, so money stays "home". (not a case in the US these times, but still The Federal Reserve is the one of the biggest holders of US bonds whatsoever) So when the government pays the interest on these loans, great part of it stays in the nation's central bank, as its profits rise, so rise the government revenue from the payments from The Federal Reserve as it pays directly in the Treasury accounts.

https://www.federalreserve.gov...
http://money.cnn.com...

Secondly, I could agree on the Con's point that economic growth could be encouraged by deregulation, but still in the times of crisis, it is so much easier to pass stimulus package through the legislative bodies rather than specific industry deregulation or any kind of structural reforms.

Thirdly, the stimulus have worked in the past, it has helped for the very necessary temporary relief for the economy very recently, as American Recovery and Reinvestment Act of 2009 did.

https://www.washingtonpost.com...
RonPaulConservative

Con

The Federal Reserve Act does say that all of its profits go to the Treasury, but as we cannot audit the Federal Reserve there is no way to enforce this. This is like if you had a big pile of money, and thus I convinced you to let me steal money from your pile as long as I paid you all my stolen money, but you were not allowed to see how much I stole. Such an agreement is thoroughly absurd for obvious reasons.

Now, our base money supply has been increased to 3 Trillion- 3.75 times the base currency as there was before the crisis. So the economy already has a massive surplus of currency, the problem is none of it is being invested or leaving bank vaults. No one is going to start investing until the economy is deregulated and taxes are cut.

Actually stimulus spending hasn't made the economy recover, Professor Emeritus Richard Wolf from the University of Massachusetts explains: {1}

"What we do is a very peculiar procedure, the Federal Reserve basically gives the money, under various conditions, to large banks. End of story...
"[What] we had hoped for was that the banks would lend it out, to individuals and to businesses; and so the money would circulate. The banks decided to do otherwise. They said to the government, 'you know, you're running a big deficit. Here's your solution; you need to borrow the difference. This magic can be done if you borrow money from us.'
And Here's [what is] very important for you to understand; the banks took the bulk of the money, made available to them by the Federal Reserve, and lent it to the government with the following arrangement: the interest paid by the banks to the Federal Reserve for fresh new money has hovered around half of one percent. The rate of return paid by the US Treasury for the money it borrowed from those same banks, two to three percent. If you understand that, you'll understand why the banks have recovered, and nobody else has."

{1}. 1:37-1:50, 2:43-3:38, https://www.youtube.com...

Debate Round No. 2
SeriousThreat

Pro

Principally Con's argument refers to monetary policy more than to fiscal policy. But nonetheless, I could agree that monetary policy provides cheap money to private banks, which therefore buys government bonds for higher yield and they profit quite tremendously, BUT even if the Fed cuts its loose monetary policy and raises interest rates on discount rate and overnight interest rates, the banks therefore would ask from the government higher yield on their bonds to even out the difference, because after all private banks is for profit, which leads us back to the very fiscal policy.

From fiscal policy point of view, before mentioned activity of monetary policy would still make sense of loose monetary policy, because it lowers debt maintenance costs, so there are bigger buying power for government for fiscal stimulus to recover faster from recession, as it has happened these days.

Returning to underlying question, then there is one more reason why stimulus spending should be done these days, and the answer is infrastructure.

Infrastructure in the US and basically worldwide is in a grim situation, without external encouragement (read: fiscal stimulus), it would improve painfully slow. Additionally, good infrastructure really helps the economical activity as without it - the roads, railway, ports, electricity etc. - it is quite hard to conduct solid business, so fiscal stimulus not only would make short-term economical activity growth, but also would encourage long-term business activity, growth rate, which makes jobs, so there would be more tax payers, so the government budget would meet surpluses and could pay down the debt in the boom business cycle.

https://www.ft.com...
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Debate Round No. 3
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Debate Round No. 4
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Debate Round No. 5
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