A finance professor said "If the budget deficit grows, that means the government has to borrow more money and there is a lot more demand for capital because the budget deficit has to be financed. Non-Government entitles are also competing for the same capital." Published by The Washington Post, Sept. 24, 2008 Page D3.
My comment: I would address such as "crowding out" situation since both the public sector and the private sector are competing for financial capital resulting higher interest rates. Here we can see the working of supply and demand curves and the debt goes up. Higher interest rates would hit the profits causing sagging plans for retirement accounts. Such cycle tends to be negative in terms of the economy.
Professor Wachter at the University of Pennsylvaia Wharton School said: " The macro level would involve job loss leading to a deep recession. The intervention of Bush administration is an effort to turn that around." President Bush's speech at 9 p.m. would stress such rationale. Such scenario was envisioned in "Keys for Economic Understanding". Cf. www.Amazon.com online for reference.
Francis Shieh a.k.a. Xie Shihao sends this blog at 8.30 p.m. on September 24, 2008.
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