Ask an Economist #3

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Kerozine said:
What would happen if the US government defaults on its debts?
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I would say that, like with any debtor, bankruptcy and loss of financial credibility - making it a no-no.

There's a whole thread dedicated to this subject ("What if we just don't pay" or something), although I'm curious myself as to an economist's view on this.
 
JEELEN said:
I would say that, like with any debtor, bankruptcy and loss of financial credibility - making it a no-no.

There's a whole thread dedicated to this subject ("What if we just don't pay" or something), although I'm curious myself as to an economist's view on this.
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That thread is full of crap.
 
JEELEN said:
I would say that, like with any debtor, bankruptcy and loss of financial credibility - making it a no-no.

There's a whole thread dedicated to this subject ("What if we just don't pay" or something), although I'm curious myself as to an economist's view on this.
Click to expand...

That whole thread has far too much crud in it.
It's never a good thing to default on debt. Economies take a hard road after they do such. However, about half of Europe would default on their debt before the US is in a similar position, given today's conditions. Heck, Britain is in a worse situation than the US.
 
Sorry if this has been asked before, but would it be preferable that the US government bailout the automotive sector or let them fall into Chapter 11? How would it impact consumer confidence?
 
JerichoHill said:
How are we defining "personal savings rate". Are stocks and 401ks included?
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Yes and no. I was thinking of multiple cases, such as a low savings rate, high savings rate, and a high savings rate with savings invested. I also wonder how they perform in both economic expansions and contractions. One particular case I'm thinking about is whether a high personal savings rate (without investment) is beneficial in a recession since people can draw on their savings to continue spending.
 
Kerozine said:
Sorry if this has been asked before, but would it be preferable that the US government bailout the automotive sector or let them fall into Chapter 11? How would it impact consumer confidence?
Click to expand...

What is essentially happening to Detroit is that they're going to be "bridge-loaned" while they "restructure" which is basically a bankruptcy that is dressed up to sound less bankruptcy-ish. It's words.

Ford was the only healthy auto manufacturer. Those other two need drastic help. Why are we bailing out companies that have demonstrated that they cannot compete in the world market? Sigh.


SS-18 ICBM said:
Yes and no. I was thinking of multiple cases, such as a low savings rate, high savings rate, and a high savings rate with savings invested. I also wonder how they perform in both economic expansions and contractions. One particular case I'm thinking about is whether a high personal savings rate (without investment) is beneficial in a recession since people can draw on their savings to continue spending.
Click to expand...

In most macroeconomic models, savings rate have level effects on growth rates, ie, changes to savings rate have one time effects. That said, savings rates can be too high (think of a laffer curve for savings). In general, savings rates are not going to have statistical significant effects on recovery from recessions. I don't think consumption smoothing is perfect (what you propose) nor do I think Ricardian Equivalence strongly holds.

Savings holds a minor role in a country's economic growth rate. It's not a major contributor, at least among current macro literature
 
Snorrius said:
In the Iceland topic I've spreaded some doom&gloom about dark future of UK economy, and for reasons unknown you were skeptical at this regard.
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Quote what you said in that thread, then quote what JH said in this thread, and see if there are any similarities.
 
money%2Bmultiplier.png


Has the money multiplier ever been below 1 before?

Does this mean it is better (for the economy, not the individual) not to stash cash in banks?
 
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