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That governments should pump money into banks during recession

(PRO)
WINNER!
3 points
(CON)
0 points
AcerAcer (PRO)
When talking about 'pumping' money into banks, people generally get a bad taste in their mouth.  When most people think of this phrase, they think of governments printing money and devaluing its currency.  However, the idea of putting more money into circulation doesn't have to be accomplished this way, and reaps many economic benefits.

Government issued bonds can be purchased by the central bank (Federal Reserve in USA).  Bonds can also be purchased by other country's govt. or institutional investors like Goldman Sachs and Morgan Stanley, for long term investments. Bonds usually yield lower rates of interest (say, ~2%), compared to other traditional investments. Bonds are preferred by the above-mentioned entities because they ensure stability and are trustworthy. Bond is one of the ways govt. makes money available in the market.

So what does the central bank do with this money?
The central bank lends its money to commercial banks on a rate slightly lower than the rate a person gets a loan from these commercial banks. This is the money that gets in circulation in the market.

The desired economic effect is caused by the govt. when purchasing back its bonds from the central bank, which makes more money available to the central bank. Since the central bank would want to dispose this extra money in the market, it eases off the lending rate to the commercial banks. The public is now lured into getting loans at a lower rate and spending in the market; therefore, more cash flows into market and the desired effect is achieved by the govt. 

This effect is increased economic stimulation and a lower deficit!

Who gets the extra cash generated?
Basically no one! It is only the ease of availability of money that gets altered. When the govt. eases off lending rates, people tend to spend the extra money in the market and the rate at which money is being circulated in the market only increases. Purchasing power of the public increases and productivity increases in turn.

For the economic strategy mentioned above, which would be greatly helpful in times of economic recessions, I urge a pro ballot in this debate. 

Return To Top | Posted:
2019-03-12 00:03:40
| Speak Round
Natasha17Natasha17 (CON)
I’ve pushed this debate back as I have had to learn a bit more about American governments so I’ll try my bestxD


Firstly within your debate you gave a simple overview and introduced the topic and then when on to say there is benefits.Which I disagree with, I understand there is advantages and disadvantages to everything but there is many disadvantages that effect the public with government bonds.


You spoke a bit about bonds and the interest and where they came from and a bit about the interest. Yes they may be economically benefiting but they are not beneficial at all in real life. The main negative for the government when it gives these bonds out is debt. Yes the money is helpful in the short-term but it has to be paid back which causes the government to pay billions of dollars each year on the outstanding debts, how is this a positive point? It's simply not.


Next you spoke about the low interest rates, as bonds are the lowest-paying investments you can buy which may be a positive to some but there is an interest rate risk. The bonds may seem safe but they do carry the interest that afflicts all bonds: interest rate risk.
You may ask what the interest rate risk actually is? Well, it's  the risk that your bond will fall in value after you buy it based on the movement of market interest rates and Since government bonds can be 30 years in duration, there's certainly a chance you'll sell it before it matures, in which case interest rate risk will come into play.


When you print more money, there's more money chasing the same things. As a result, the prices rise. That means each unit of the currency can now acquire fewer goods, hence "devalued."( https://www.quora.com/How-does-printing-more-money-devalue-currency)


Economic recession:
There have been as many as 47 recessions in the United States dating back to the articles of confederation.Now how does bring more money into the economic help stop or help during these periods of time? Yes buying the bonds can help in the short term and may pull them out but this doesn't help in the long term at all,it has many negative impacts upon America. 


Return To Top | Posted:
2019-03-12 20:21:08
| Speak Round
AcerAcer (PRO)
My opponent has made multiple claims, with their argument hinging on, "it doesn't provide a long-term solution"  However, this couldn't be further from the truth, as sustainably issuing bonds can help an economy recover from a recession.

The purpose of a government bond is to either finance government debt or to put money towards government projects.  When a person buys a government bond, the government basically takes out a loan from the holder.  The government pays interest on the bond, and once the bond reaches maturity, the principal is paid back in yield.

Assuming that the government and central bank haven't suffered an unprecedented loss of funds and defaulted all of our loans from other nations, the government won't struggle to afford loans, and do not perpetuate debt.

My opponent also breifly covered 'interest rate risk'.  Yes, when purchasing a bond from the central bank, there is a chance that the investment will depreciate!  However, literally any other investment contains risk of depreciation as well.  Comparative to other forms of investment, bonds have a relatively low risk of depreciation.  Below are 2 graphs, illustrating the change in price to yield because of market interest rates.

This graph illustrates that when interest rates decrease by 1%:


This graph illustrates when market interest rates increase by 1%:

(Graphic source: https://www.sec.gov/files/ib_interestraterisk.pdf)

When actually viewing the effect on yield of bonds during fluctuating interest rates, the risk is much lower than my opponent claims.

Summary: The evidence that I have provided in this round has disproven both of my opponents claims, showing that the government putting more money into the economy can be beneficial during a recession.  My opponent has also never explicitly cited a source backing up her claims, unlike the pro. It is for these reasons that I urge a pro ballot in today's debate.

Return To Top | Posted:
2019-03-13 22:20:12
| Speak Round
AcerAcer (PRO)
Since my opponent has forfeited this round and not rebutted any of my arguments from the previous arguments, all of my arguments should be flown through.  I urge a pro ballot in today's debate. 
Return To Top | Posted:
2019-03-16 01:10:25
| Speak Round


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The judging period on this debate is over

Previous Judgments

2019-03-19 14:27:53
Phos HalasJudge: Phos Halas
Win awarded to: Acer
2019-03-20 09:45:28
srmdchikeJudge: srmdchike
Win awarded to: Acer
2019-03-22 05:33:47
dpowell3543Judge: dpowell3543    TOP JUDGE
Win awarded to: Acer
Reasoning:
Con forfeited.

Feedback:
Acer- I know it's late, but you might want to check your tables. You got them backwards.

Natasha17- Try not to forfeit. Forfeiting really hurts. Find a way to take some time out of your day to type up a quick argument, as well as use any free time in between round researching the topic.
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