Originally Posted by gibbous
To me it sounds like that's assuming that there is currently a huge amount of private enterprise that's not growing ONLY because they can't get a loan from anybody. I've heard of some small businesses that are running into problems with getting financing from cautious banks, but I still have to believe that if there were really a group of industries in the U.S. that had real potential to collectively put millions of unemployed people back to work, investors would still be lining up to give them loans so they could reap the benefits as well. China is still loaded, the big banks are still making huge profits, why wouldn't they want to use that money to make more if they thought they could? That's what investors do.
Maybe if the government did borrow less, investors would be willing to put more money into a few things that they currently see as too risky relative to the security of government bonds. But are there really so many of those risky new ventures in the U.S. that it would turn around an entire economy? Pretty hard when there are companies overseas that will do the same thing for way less money IMHO...
It's not a straight out 'there is no money left to loan to investors' but the more money the government borrows, the less there is for the private sector in total, like taking a bigger slice out of a pie. This leads to an increase in the real cash rate on the loanable funds market. So basically it costs more to borrow money which is obviously a disincentive to invest and grow. Note when I say invest I mean borrow money to undertake new projects to increase capital NOT 'investing' in shares, bonds or a high interest rate bank account. I'm not saying this policy (if you could call it that) is effective at all at increasing growth, it's purely one way of looking at recovering from a recession.
Also just adding something here, if you looked at the profits most banks make, they may be making large profit figures, however, the profit margin is tiny in terms of percentage of a rate of return. Just taking a guess but it probably wouldn't be any higher than a 3-5% return on what they're investing which really is sweet f*** all.