Reply #12: It's all about deflation

[maddogg41283]

1. It is borrowed from the government Bond market
2. I'm not sure what you mean by "create stimulus".
3. The answer of why giving out money isn't very stimulative during a recession (it is a little bit, but not much) is because people are smart. I'm pretty sure this requires some explanation...

Let's imagine for a moment, a smart pair of human beings that are married. This couple has a mortgage, and a car payment. Now let's say that one of them loses their job and is now having trouble keeping up with the bills and gets behind on their mortgage, car payments, and maybe even credit card debt. Suddenly, they are given $5,000. What would be the smart thing to do? The smart thing is to pay off their debts and then save the rest because the one person still doesn't have a job. This is a SMART thing to do in their situation. The problem is, paying off debt is not very stimulative for the economy.

Now let's take the same pair of human being. Instead of giving them a one time payment, give one of them a job. Say the government is going to build a new road or a railroad station. That project is going to require construction workers, civil engineers, foreman, and it's going to require that they buy supplied from other companies - this creates a lot of new job. The person who lost their job gets hired to do one of these new jobs. Now the couple can pay off their bills, and start buying luxury items. Since their income is now steady and certain they feel that they can take on new debt, maybe trade in their old car for a new one. When they buy those items, that is VERY economically stimulative. As a bonus, once this new project is completed, people and goods will be able to be moved more efficiently - further stimulating the economy.

These 2 scenarios is at the heart of why stimulus spending is more economically stimulating than handing out cash to the rich or even handing out cash to the poor.