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January 27, 2010

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If most of the stimulus ghat was borrowed last year ($787 billion) was not scheduled to be used till year two and three of Obama's term why did they borrow it all up front? Seems like the gvt could have saved a lot of money on interest by not borrowing the other 5-600 billion until it was planned to be used.

The stimulus was actually supposed to consist of about $280 billion in tax cuts, $300 billion in discretionary spending (e.g., transportation and agriculture, and $200b in direct spending (medicaid, unemployment). According to http://projects.propublica.org/tables/stimulus-spending-progress, about $370 billion of the stimulus remains ($119 billion in tax cuts and $251 billion in spending). It's unclear what fraction of the total spending was borrowed, and what fraction came from selling assets, or increasing taxes on other segments of society. It truly doesn't matter how the spending was funded -- except for public goods needed for national defense and similar expenditures, it is all wasteful relative to leaving the income in the hands of the money generators.

I may be alone in my view that the interest payments are not an issue in and of themselves; the impact of debt on the stock of value is zero. The interest rate paid by the government is the interest earned by the lender; that rate is market-determined to fairly compensate for risk and the time-value of money, including the impact of expected inflation on the purchasing power of the repaid principal. What troubles me is the inefficiency and loss of value associated with government spending itself.

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