Will we be able to handle it, especially if this type of a deficit will continue for years to come? Well I mean with a nearly unlimited ability to issue treasury bonds, I think we will, however, that doesn't mean that we shouldn't try to curb our spending.
Undoubtedly, the federal government is bloated beyond reason, and it is quite clear that money hasn't been spent wisely. Obama must be more efficient with his Government expenditures in order to stop such waster from occurring. Furthermore, after we get through this recession, it is absolutely necessary that our country begins to tackle the debt that has been accumulated, which can only occur through a surplus. By applying the Laffer Curve, I unquestionably hold that we can maximize tax revenue, and aid the coming of such budget.
For now, however, we must spend spend spend in order to pull the economy out of recession.
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My biggest concern with the current stimulus spending proposals revolves around the well publicized debate over the (output) multiplier for these increases in G. If the multiplier is only 1, or even less than 1, the effects of crowding out will not only cancel out the "good intentions" of this package, but exacerbate the crisis. It would seem that there are no economists in Washington; meaning no economists that aren't blinded by politics.
But what would it crowd out at this point in time? Firms aren't taking out loans in order to expand their operations at all, although the investment demand curve would suggest that such companies would be inclined to take advantage of such low interest rates.
Perhaps this goes beyond economics itself, and it's more about what people think/expect. If people were to expect better times ahead, and just push forward, spend more, and firms were to expand in expectation of better times, than the RET (Rational expectations theory) would posit that somehow forcing people to expect these things, would help the economy get out of this recession.
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