Monday, September 19, 2011

Wll the new stimulus work?

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. 
- Friedrich von Hayek

This quote is certainly true when trying to determine what will be the impact of any stimulus program. We do not know what the multiplier will be from the spending increase. It should be higher given we are in a low interest rate environment, but we do not know. It is this multiplier uncertainty which is causing markets to be unsure. Credibility is eroded if the government says the stimulus will crearte1.9 million jobs but there is no details on how this will happen.  Equities will not move higher without an idea of what the bang for the buck is going to  be on the economy. 

No comments: