Quote:
Originally posted by Sidd Finch
It is unclear to me that the American economy is starved for investment -- particularly if you are talking about limiting the PRA options to blue-chip stocks, for example.
In any event, how do you evaluate the macro-effect of pumping money into the stock market? Did the huge inflow of cash into the stock market in 1999 create a long term benefit? In some sectors, sure. In others, it created huge distortions and bad incentives.
On the other hand, the effect of increasing the deficit by another $150 billion a year -- before the first penny of money is borrowed to cover SS payments -- will be pretty uniformly rotten. Add to that the additional..... how many trillions? ... to cover benefits for current retirees, and the effect on interest rates is likely to offset to zero and beyond any positive economic effects.
eta: The "$150 billion a year" is roughly the difference between current SS revenues and payments. This amount is used to reduce the reported federal deficit (except during the tenure of a certain deficit-reducing President). It's considered "off-budget" -- the money is spent, the national debt grows, but the White House gets to pretend that it doesn't exist.
If the US has to finance that additional debt in a competitive marketplace, rather than from the captive SS trust fund, that will affect interest rates -- I believe; I am not sure how the rates for debt from SS trust fund are set but the fund does not have the option of shopping around, so....
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I was thinking about this more in terms of individual wealth, rather than company wealth. Dumping more cash into the markets should increase stock prices, meaning that those that currently hold the stock will see their investments appreciate. Although there may be an increase in new issues resulting from the higher stock prices (i.e., cheaper capital), I don't see this as being the same model as in the 90s, where the increase in capital was spurred by demand for new issues by companies. In other words, I believe that the primary effect will be creation of individual wealth, rather than capital investment in companies, and that an increase in individual weatlh would have some benefit to the economy as a whole.
