Between a rock and a hard place

04/07/2020 in finance, economics using tags rock, hard place, both options suck

We are in a turning point.

Option 1: Accept a lost decade, and accept negative interest rates (give up and accept permanent deflation)

This option involves a slow population decline and an aging population. Wealth inequality remains. The rich remain rich and the poor remain poor. Opportunity pretty much dies in this scenario. GDP does not increase, nor does it decrease. Taxes reach their peak value, ensuring that the labor market remains efficient.

Option 2: Repeat the great depression and renew the interest rate cycle by slowly increasing rates over 80 years (drop asset prices while everyone goes broke)

The last time the United States was in this scenario was when Herbert Hoover was president. The disaster in the real economy at that time was the dust bowl. Combine that with low interest rate credit and you get something similar. This outcome causes great short term suffering, but in the long term it can renew the debt cycle, while also lowering wealth inequality.
Wealth inequality decreases as the rich are heavily taxed to the point where they no longer remain as wealthy as they used to be.

This also involves fighting a large war to keep people employed, as this is the most expedient way to create jobs and to trade off the suffering caused by unemployment with the suffering caused by a war. It really isn’t for me to decide what is better or worse, but these kinds of situations result in different modes of thinking.

Option 3: Stagflation and MMT. Provide immediate relief for families living paycheck to paycheck, incentivizing unemployment. This seems like a short term solution but it can cause long term damage if not handled correctly. This appears to be the approach that is being experimented with during this trying time. Prices of consumer goods are expected to soar, all while housing drops in value. This incentivizes spenders to become savers, to possibly prepare the population with a negative interest rate economy. This might be an altered version of option 1.

Note: This all may sound like exploitation, but it’s the sole reason why the US is the greatest nation on Earth. A system which encourages hard work, occasionally through bouts of suffering and prosperity appears to be the only real way to get people to work hard while not being as oppressive as other societies, all while balancing this with the liberties guaranted by the Bill of Rights.

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