Isn't the Fed providing the $ to the Gov't who then does the dropping from the helicopter?
Great question! But the answer is....NOT SO!
Because the lion's share of federal budget is spent NOT on building infrastructure, Not on buying hi-tech military hardware, NOT on research of futuristic products & processes, NOT on developing new pharmaceuticals....etc....That is why the Trillion dollar deficits are not reviving the economy.
Lion's share of federal budget is spent on writing checks to people. Those checks are small and are spent mainly on consumption of necessities. It is NOT a capital forming process NOR productivity enhancement process, which result in wealth creation. Only real wealth creators are manufacturing, agriculture, mining and applied research. Retail consumption is not a wealth creator if stuff is mostly imported from other countries.
That's pretty silly. Once the capital forming process is done and the productivity enhancements are put to bed, just where does that increased production get sold to? Martians?
The last thing a good successful businessman wants to do is spend his hard earned cash in increase production or, for that matter, hire someone - a business is not a social service. It's not until his order book (or a business plan that forecasts his order book) screams at him to increase production that he'll take the leap. People who don't get this either haven't run a successful business or soon won't.
The primary problem, by far, with the economy is households are de-leveraging unprecedented debt levels. That means they are not spending at a level to sustain economic growth. Businesses are not stupid, they are not going to use their hard earned cash to increase production at a time when demand is insufficient. And, let's not forget, we are a net importing nation so there is, on net, absolutely no help there.
There is only one sector of the economy in a position to spend, on net, i.e. deficit spend. And will need to do so until households' balance sheets are healthy again. If not, then we continue to get what we've been getting in 2012 or worse; possible a lot worse.
It's weird that everyone gets that the end of year "fiscal cliff" (i.e. reduced federal deficit spending) will put us into a severe economic contraction, but hardly anyone has the brains to make the connection of, hmm, what would increased federal deficit spending do - why, by golly, it might cause an economic expansion.
But that's okay, I still can continue to do very well by taking money from those folks that can't see anything but hyperinflation just around the corner. It's like taking candy from babies -- and more or less for the same underlying reason.
Edited by salsabob, 09 September 2012 - 09:11 PM.