Zeev's Turnips Patch-No Politics (ZEEV)

[Zeev Hed]

Sure it does, when it increases the government has to go into the market and compete with the private sector for funding, but that is a lagging influence. Short term, the money the government borrows is spent, and when in a short time it borrows 2% of GDP, that spending is going to be felt as economic activity. What it is spent on has an impact on how much of a stimulus that extra spending will have. The problem with that approach is that there is always a price to be paid later. The price becomes quite heavy if the deficit goes much above 2% of GDP annually (I doubt any one has done quantitative analysis on that for good reasons, history never repeat itself exactly) and since we went to 2% in barely six months, and probably will continue for some time to come (Bush will want to be reelected, even if it causes a major retrenchment immediately thereafter).

Zeev