Can stimulus ever really *fix* a problem?

Graham_Devon

I read this today (it is wrote in regards to the markets)

"With the FTSE 100 tumbling over 120 points in two hours this morning, it is becoming clear that there is a distinct possibility of yet another crash in financial markets," said Joshua Mahony, market analyst at IG.

"The steroids of monetary policy may have brought us to heights previously unseen in global markets, yet as the Fed and Bank of England begin to wean us off this artificial high, we are coming to find ourselves perilously exposed to another major sell-off."

Over the past few years we've had so many people stating you can't fix these problems with stimulus, it only artificially increases prices until you remove the stimulus. We've had people saying it delays the problems. How many times have we heard "kicked into the long grass".

But on the other side of the coin we've had people suggesting stimulus can fix the issues we faced (and still face). We've had people suggest we need more stimulus. Whole new packages of stimulus directed at different areas of the economy to stimulate growth (which co-incidentally always seems to revolve around increasing prices?).

So, with that quote in mind, can stimulus such as that which we have seen throughout he economy ever *fix* a problem?

Or at the end of the day, is it always going to be simply masking the problems?

In my view, if we'd had let a proper crash happen previously, we wouldn't be facing the crash today the quote talks of. Obviously this depends on huge loads of variables and I understand the pain we may have gone through should everything have corrected itself a few years back.

HAMISH_MCTAVISH

That depends on the type of problem you're trying to fix.

BTW - a source to the quote would be nice...

Graham_Devon

HAMISH_MCTAVISH wrote: »

That depends on the type of problem you're trying to fix.

BTW - a source to the quote would be nice...

The quote is in here. Under the big letters "crash warning". It's the only bit I read

http://www.bbc.co.uk/news/business-34322790

I guess it does rather depend on the problem. However, I was thinking in more general terms. Stock Markets, Commodities, Housing etc. This of course, is in reference to the problems we've faced and the reactionary stimulus put in place.

Be difficult to discuss this on a forum without being a bit generalised about it!

The article in osme ways highlights my point though. We've had weeks of ups and downs now in the stock markets. 3-4% swings don't batter eyelids anymore as it's become normal.

But the underlining theme of all the swings is that they are always bassed on fear of a market without further stimulus. The rises are always on the back of the market adding more stimulus. And around we go.

wotsthat

Graham_Devon wrote: »

But the underlining theme of all the swings is that they are always bassed on fear of a market without further stimulus. The rises are always on the back of the market adding more stimulus. And around we go.

If I thought someone was going to bung me £1m I'd be really happy but if they then said they weren't I'd be really sad but nothing has fundamentally changed. Life will go on.

No one is going to complain when money is thrown at them but the volatility seems to be about the uncertainty of this happening rather than a fear that the markets won't function without it.

Amazing the BBC is warning about crashes whilst simultaneously warning about interest rate rises. Could be the perfect storm

Thrugelmir

Graham_Devon wrote: »

So, with that quote in mind, can stimulus such as that which we have seen throughout he economy ever *fix* a problem?

The injection of money by Central Banks is as much about financial engineering as it is about stimulus. The asset bubbles are simply a consequence. That mask the reality of possible secular stagnation. Cold turkey is not the way to get an addict off heroin. Requires a little more imagination than that.

GunJack

according to the ons, there are approx 19 million family units in the uk. Why not give each unit £250,000..... how would that be for stimulus, and cheaper than corporate bailouts?


edit:- ok, that might be a bit high, but in principle

Graham_Devon

GunJack wrote: »

according to the ons, there are approx 19 million family units in the uk. Why not give each unit £250,000..... how would that be for stimulus, and cheaper than corporate bailouts?


edit:- ok, that might be a bit high, but in principle

It would see a massive surge in spending, which would look great.

But in 3 years time, the decline in spending would be colossal. To keep things growing, we'd need more stimulus.

wotsthat

Graham_Devon wrote: »

It would see a massive surge in spending, which would look great.

But in 3 years time, the decline in spending would be colossal. To keep things growing, we'd need more stimulus.

I'd buy a house in North West Leicestershire where HTB has allegedly caused an increase in value by more than the HTB subsidy.

In three years my spending would increase as I spent the profits.

Eureka! It's a free lunch.

Thrugelmir

GunJack wrote: »

according to the ons, there are approx 19 million family units in the uk. Why not give each unit £250,000..... how would that be for stimulus, and cheaper than corporate bailouts?

Collapse of the banks would have done no one any favours.

Thrugelmir

Graham_Devon wrote: »

But in 3 years time, the decline in spending would be colossal. To keep things growing, we'd need more stimulus.

The elephant in the room is DEBT.

To keep things growing work a little harder. Borrow less. Save for your retirement. And of course buy British......

antrobus

GunJack wrote: »

according to the ons, there are approx 19 million family units in the uk. Why not give each unit £250,000..... how would that be for stimulus, and cheaper than corporate bailouts?


edit:- ok, that might be a bit high, but in principle

Otherwise known as 'helicopter money', as suggested by Milton Friedman, a Nobel prize winning economist.