Global Economic Open Thread

Talk about the global and national economy to your heart’s content, as much as it takes to get it out of your system so the rest of the site can stick to real estate and housing.

As of 09/07/2010, global economic comments that do not directly relate to Seattle-area real estate go only in threads designated for this specific subject.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

340 comments:

  1. 251
    Mikal says:

    RE: Scotsman @ 243 – Please oh great Spelling Nazi, show us a source that doesn’t involve Fox news.

  2. 252
    2kt says:

    RE: David Losh @ 244

    I guess when one takes into account that 50% of people don’t pay any taxes, your proposal really involves only 10%, compadre.

  3. 253
    Blurtman says:

    Will Student Loan Debt Be The Next Bubble To Burst?

    http://atlantapost.com/2010/08/17/will-student-loan-debt-be-the-next-bubble-to-burst/

    The comments section to the story is most illuminating.

  4. 254
    Scotsman says:

    RE: Mikal @ 251

    Hi- it’s good to hear from you again!

    Just got back from seeing “Town”- it’s better than expected- you should check it out.

  5. 255
    David Losh says:

    RE: 2kt @ 252

    I always love the back end argument that actually never says anyhting other than to point out the obvious.

    Tax cuts should be for the bottom 60%. Also in the 50% who don’t pay income taxes it includes people in all income levels in a descending per cent.

    Neither here nor there, the top income levels still only pay like 35% income tax.

    My point is that the wealthy will never contribute to our economic growth. That’s where we are today. Massive wealth was accumulated, and now it is just sitting there, making a modest return.

    Wealth will never do anything. It’s generational. The spark will flame, with the heirs stoking the fire like on a long winter.

  6. 256
    Trigger says:

    RE: pfft @ 226 – Pfft – But it would be good to talk about how much stimulus is ok. For example we were able to get away on a temporary basis with the stimulus and additional debt. If this is the case – could we have gone with a bigger stimulus? If so how much bigger? Can we stimulate the economy every quarter? How often?

  7. 257
    One Eyed Man says:

    RE: Trigger @ 256

    I think those are extremely appropriate questions Trigger. And I don’t think there are any hard fast answers. I was in favor of the financial bailout and some form of stimulus program, and I’m currently in favor of at least the threat of QE2. But I also believe in moving toward a balanced budget. If that means everybody can’t have an Apple I-Pad or Microsoft Maxi-Pad, tough. As the Stone’s said, Let it Bleed. Your promise to pay has to be genuine or your a fraud, and you can’t nonchalantly pass your obligations off onto your children or your nothing but a monster that eats its young.

    Deficit spending to stop a downward economic spiral or to purchase capital goods with long term benefits can be economically justifiable. But taking on a debt you know you can’t pay and have no intention of paying is legally “fraud.” And even if you do it with the best intentions unless the benefits justify the increased debt, its akin to selling your first born child in exchange for current propsertity and prestige. Its analogous to appointing Rupplestilskin as Secretary of the Treasury and declaring Grimm’s Fairy Tales as the fundamental treatise for US economic policy. The politicians who follow that course should pull down their pants and spread their cheeks so they can see the light.

    I don’t agree with Scotsman that we will definitely be sucked into the economic black hole, but I agree with him that we can’t take the chance of getting much closer to the event horizon. The responsible course of action is to decrease the deficit at a pace of about 200B per year so that we hopefully can balance the budget in about 5 yrs while still avoid being thrown into GDP contraction.

    Debt is a promise to pay and if you don’t intend to keep your promise you’re intentionally f—ing somebody. When did the idea of living on one’s income become considered “austerity.” I always considered it the only reasonable choice. But then again, I’m a little bit out there. I’m a mutt and a free thinker in the tradition of Huck Finn. I’m somewhere between a blue dog liberal and a bleeding heart conservative. I was 35 and representing lenders on multi-million dollar construction financing before I got a credit card and I only got one then so I could book travel for business. And I don’t buy lottery tickets either. I’ve always paid cash for my cars except once to get a car for my wife right after we got married and even then I paid the loan off early. What the hell kind of American am I?

  8. 258
    Scotsman says:

    “U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”

    “Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”

    http://www.bloomberg.com/news/2010-09-25/-black-swan-author-taleb-says-obama-s-stimulus-made-economic-crisis-worse.html

  9. 259
    Blurtman says:

    RE: One Eyed Man @ 257 – The bank bailouts were handled horribly. How many managers of these insolvent institutions have been terminated for incompetence? How many have done the perp walk? Even under the war criminal president George W, Enron and Worldcom execs went to jail. Recall Tim Getihner defending the AIG taxpayer paid bonuses to management who had bankrupted the company and likely committed fraud. The message sent to the population was received loud and clear – crime pays as long as it is white collar and large enough, and the guilty have the right connections. Republican or Democrat, doesn’t matter. One example clearly illustrating how the USA “justice” system operates – two years ago over the Christmas holidays, a NYC street vendor who was trying to scam $10 out of passersbye was pursued by NYC’s finest and shot dead. The vendor appears to have been armed, and it appears that the police acted properly. But not far from this shooting, white collar criminals were scamming billions and getting away with it. $10 crime – police action and shooting. Billion dollar crimes – you are an American hero. Change you can believe in.

  10. 260
    One Eyed Man says:

    RE: Scotsman @ 258

    ” You have a person who has cancer and instead of removing the cancer, you give him tranquilizers.”

    While I generally respect Taleb’s theory, his analogy has its limitations. Although a physician normally doesn’t just give tranquilizers to a cancer patient, a reasonable standard of care commonly requires that the physician first stabilize the patient’s condition and provide anesthesia before performing surgery.

    In 2008 and 2009, the question was what actions, if any, were necessary to stabilize the patient. Whether those costs were worth while is debatable, but the debate is academic as they are now generally sunk costs.

    The question now is whether the patient is sufficiently stable to tolerate the operation and whether Obama has the chops to put the budget under the knife. He’s always said he would, now he has to be true to his word, or expose himself as another lying sack political hack. My guess is that he’s somewhere in between (but doesn’t really have the cojones not to be a hack) and will cut a very modest sum from the deficit by 2012. We’ll probably still have close to a trillion dollar deficit even if there is a boost in tax revenues.

  11. 261
    pfft says:

    By Trigger @ 256:

    RE: pfft @ 226 – Pfft – But it would be good to talk about how much stimulus is ok. For example we were able to get away on a temporary basis with the stimulus and additional debt. If this is the case – could we have gone with a bigger stimulus? If so how much bigger? Can we stimulate the economy every quarter? How often?

    Barack Obama’s big stimulus
    http://www.guardian.co.uk/commentisfree/cifamerica/2009/jan/19/barack-obama-economic-stimulus

    I don’t know if you’re asking me a question to see how much I know but I don’t understand how such a vocal critic of the stimulus can not know such basic questions. the answers are decades old.

  12. 262
    pfft says:

    By One Eyed Man @ 257:

    RE: Trigger @ 256

    Deficit spending to stop a downward economic spiral or to purchase capital goods with long term benefits can be economically justifiable. But taking on a debt you know you can’t pay and have no intention of paying is legally “fraud.” And even if you do it with the best intentions unless the benefits justify the increased debt, its akin to selling your first born child in exchange for current propsertity and prestige. Its analogous to appointing Rupplestilskin as Secretary of the Treasury and declaring Grimm’s Fairy Tales as the fundamental treatise for US economic policy. The politicians who follow that course should pull down their pants and spread their cheeks so they can see the light.

    the US can pay it’s debts and the market agrees. do you people even look at borrowing costs or how much interest payments are? they aren’t high at all.

    it doesn’t matter though to those to “know” that the US can’t pay off it’s debts.

  13. 263
    pfft says:

    By Scotsman @ 258:

    “U.S. President Barack Obama and his administration weakened the countryâ��s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of â��The Black Swan.â��

    �Obama did exactly the opposite of what should have been done,� Taleb said yesterday in Montreal in a speech as part of Canada�s Salon Speakers series. �He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.�

    http://www.bloomberg.com/news/2010-09-25/-black-swan-author-taleb-says-obama-s-stimulus-made-economic-crisis-worse.html

    his method would have us deeper in debt and less people working to pay it off.

    With no special government intervention, the 2010 deficit would have passed $2 trillion, according to their model. It would have reached $2.6 trillion in fiscal 2011 and $2.25 trillion in 2012.

    that’s a study from mccain’s economic advisor.

    you rail about debt scotman and how we can’t pay it off but you’d have us more in debt. I am sure you will come up with some magical thinking as to why being more in debt would be better when you railed against debt so much. I supposed we can’t afford $1.3 trillion this year but somehow under reset we could afford $2 trillion?

  14. 264
    pfft says:

    By Blurtman @ 259:

    RE: One Eyed Man @ 257The vendor appears to have been armed, and it appears that the police acted properly.

    so your example is terrible.

  15. 265
    pfft says:

    By pfft @ 245:

    By Scotsman @ 232:

    RE: pfft @ 229

    “besides tim I am the most data orientated.”

    Wow. OK, you win. That’s so delusional it’s off the charts.

    where have you been? do you ever read anything I put on here? i can think off about 20 data points I’ve posted. many months ago I put about 10 indicators that showed the market was recovering. I can think of libor, the ted spread, CDS’ and technical indicators just off the top of my head. I posted about 10 indicators like the philly fed a few months ago two. I think I have them bookmarked, I could post about 15-20 of them if you want.

    the other day I posted this showing 5 indicators of recovery.

    Its Official: Recession Ended June 2009
    http://www.ritholtz.com/blog/2010/09/its-official-recession-ended-june-2009/

    the other day I posted this showing home prices nationally have gone up.

    http://www.ritholtz.com/blog/wp-content/uploads/2010/09/caseshiller0913101_big.gif

    I’ve posted before tim’s data showing home prices in seattle put in a tentative bottom in housing.

    still waiting for a response scotsman.

  16. 266
    One Eyed Man says:

    RE: pfft @ 262

    “do you people even look at borrowing costs or how much interest payments are?”

    As you know Pfft, I respect your point of view even if I don’t always agree with it. But, as to the market interest rates, I refer you back to my comment at #221. The Fed is keeping interest rates in check with QE. They’re rigging the game. I agree with what they are doing, but it’s not necessarily fair and its not where the market would be if they hadn’t purchased 1.6 Trillion in GSE debt and Treasuries during 2009, and recently decided to continue rolling it over at maturity. That’s a lot of supply that the Fed took out of the market place. If they didn’t purchase it, the market place would have had to buy another 1.6 Trillion of debt last year and the interest rate demanded by investors would be higher even though the economy would probably be weaker.

  17. 267
    One Eyed Man says:

    RE: Blurtman @ 259

    I don’t think that many of the bankers were criminals, but a lot of them were stupid and took on lots of long term risk with short term money. The bailout wasn’t fair. But I believe in systemic risk and the danger of a deeper bottom with a longer trough if you allow the economy to spiral down in panic. I don’t believe in supporting bubbles, but I do believe in slowing the fall so the impact with the ground is survivable. Unfortunately that means that a lot of the people and institutions who were in control get to survive as a trade off in order to avoid greater collateral damage to the general population. I can’t prove to you that I’m right because we’ll never know what would happen if the powers that be took a different course. It’s all opinion at this point. But if we fall into a deflationary spiral and depression anyway, those who disagree can say it was a waste of time and money.

    Ironically there are two positions more extreme than mine. Probably Denninger, Taleb and others say that we should have let the markets run their course and crush the bubbles quickly like an amputation so that the healing can begin free of infected tissue.

    Pfft and Krugman say that there should have been huge stimulus to the point of blowing deflation concerns out of the water with little or no concern for the short or long term effects of increased debt.

    I generally think that the middle ground had the least risk as judged at the time the decisions were made.

    For purposes of full disclosure: The CEO of one of the S & L’s I represented in the late 1980’s was convicted on criminal charges in the S & L scandal. I never personally met him.

  18. 268
    pfft says:

    By One Eyed Man @ 266:

    RE: pfft @ 262

    “do you people even look at borrowing costs or how much interest payments are?”

    As you know Pfft, I respect your point of view even if I don’t always agree with it. But, as to the market interest rates, I refer you back to my comment at #221. The Fed is keeping interest rates in check with QE. They’re rigging the game. I agree with what they are doing, but it’s not necessarily fair and its not where the market would be if they hadn’t purchased 1.6 Trillion in GSE debt and Treasuries during 2009, and recently decided to continue rolling it over at maturity. That’s a lot of supply that the Fed took out of the market place. If they didn’t purchase it, the market place would have had to buy another 1.6 Trillion of debt last year and the interest rate demanded by investors would be higher even though the economy would probably be weaker.

    interest rates are pretty low all over the world. that should say something. the fed isn’t purchasing that many treasuries. a weak economy and increased savings is helping keep rates down. rates will go up when economic growth really gets going.

  19. 269
    pfft says:

    By One Eyed Man @ 267:

    RE: Blurtman @ 259
    Pfft and Krugman say that there should have been huge stimulus to the point of blowing deflation concerns out of the water with little or no concern for the short or long term effects of increased debt.

    no, we do care about long-term debt. a depressed economy means you don’t have to worry about the short-term and that has been borne out in recent events.

  20. 270
    One Eyed Man says:

    RE: pfft @ 268 – I don’t have a source to give you, but I would guess that the total Treasury debt offerred in 2009 was about 2 Trillion and the Fed bought 300 Billion which is over 10%. My estimate is that the 1.3 Trillion in GSE debt was probably more than half the total issued in 2009. That’s a huge portion of the market.

  21. 271
    Hugh Dominic says:

    RE: One Eyed Man @ 266 – I agree, the treasury market is a product of government intervention to create low interest rates, less so free market confidence in the us economic policy.

    The fed is trying to get private capital out of bank accounts and t bonds and into new investment. (in factories or whatever creates jobs). But there is no inflation and a hostile or uncertain policy environment. So there it sits, earning zero interest but safe.

    The fed is on a razor edge. Suppose their anti-deflationary and currency devaluation policies kick in and create inflation, not at 3%, but 5% or more. Now that private capital fears the impact of inflation on their dollars, and comes back into the market looking for an interest rate and inflation protection. All that money chasing hard assets and fleeing dollars then drives inflation up to 10%. The fed tries to counteract but can’t clamp down on the money supply fast enough without whipsawing the economy.

    The treasury now tries to roll over it’s debt but faces huge interest rates, nobody wants to buy their debt as everyone is dumping the us bonds already in circulation. And what then?

  22. 272
    Mikal says:

    RE: Blurtman @ 259 – Um, Tarp was done by Georgie…

  23. 273
    One Eyed Man says:

    RE: Hugh Dominic @ 271

    I agree completely Hugh. Leveraged investments look foolish right now. But a few years from now the economic issues could be completely different. I think it took Greenspan a couple of years to stop the runaway inflation train in the early 1980’s. And as I recall, unemployment hit a high then of about 10% in 1981.I certainly wouldn’t say that high inflation is going to happen. But I think its just as near sighted to say that it can’t happen.

  24. 274
    Hugh Dominic says:

    RE: One Eyed Man @ 273 – right. The big problem is that the line between having 2% inflation and 10% inflation is remarkably thin. In this electronic age, one small change can set off a giant swing.

    As I sit atop a pile of cash, I understand the desire to hedge against the possibility of that swing. That’s why you see demand for inflation-protected assets (gold, tips) in an environment of zero inflation, which on the surface makes no sense.

    Unfortunately most Americans have no idea what I just said, nor do they have the financial flexibility to position themselves to buffer according to the economic risk factors. For most everyone, these factors will simply cast them about, catastrophically and unpredictably. The us consumer lives fully extended, leaving no margin for error and only the government as their rescuer.

    And as in recent years one wave of shocks rolled out, the government was called upon as that rescuer. But there is this scenario now, that I see, where this next shockwave rolls out and the government cannot come to the rescue, as it needs rescue itself. (see: unable to roll debt, above)

  25. 275
    Blurtman says:

    RE: Mikal @ 272 – Um, and Obama, too. In fact, Obama continued to give TARP money to AIG. And Obama’s Treasury Secretary claimed he first learned of the AIG bonuses in March 2009, even though the average internet surfer knew about the bonuses several months before that.

  26. 276
    Blurtman says:

    RE: pfft @ 264 – Your logic is faulty, once again. The street vendor was not pursued by police because he was armed, but because he was scamming $10 out of passersbye by misrepresenting music CD’s he was peddling. Not far away, Wall Street peddlers were scamming billions by misrepresenting the risk of securities they were creating and peddling. It remains to be seen if these thugs would have been armed had they been pursued, which they had not. Crime pays at a certain socioeconmic level.

  27. 277

    By Blurtman @ 259:

    RE: One Eyed Man @ 257 – The bank bailouts were handled horribly. How many managers of these insolvent institutions have been terminated for incompetence? How many have done the perp walk?.

    How many of them do you really think were not terminated? Using your AIG example, I think all of them were. Most banks that got into trouble have new CEOs.

    As to the perp walk, that’s part of what is holding the economy back. If a corporation is just doing well, they don’t want to take on new projects that would increase the risk to the corporation if that mean the possibility of their top executives being charged with some trumped up vague crimes. Fortunately one of those vague crimes was recently struck down, but I don’t recall the status of that litigation.

  28. 278

    By Mikal @ 272:

    RE: Blurtman @ 259 – Um, Tarp was done by Georgie…

    Georgie and Obama coordinated what they were going to do. Georgie didn’t want to start something that wouldn’t be continued.

  29. 279

    Some time ago I had asked how much of the decline in credit card debt was due to bankruptcies. According to this article, much if it is due to banks writing off the debt as not being collectible.

    http://www.mercurynews.com/ci_16168942?nclick_check=1

  30. 280
    Blurtman says:

    RE: Kary L. Krismer @ 277 – Goldman Sachs’ CEO is still on board. Recall their copping a plea to the civil fraud charge. Incidentally, the very same type of fraud was committed by Rahm Emanuel at Magnetar Capital.

    The AIG bonus recipients were the very same fools who engaged in the fraud that destroyed the company.

    BTW, misrepresenting the risk of securities you sell isn’t a very vague crime, it is simply fraud.

    “AIG planned to award about 4,600 of its managers and employees a total of about $1 billion, Bloomberg News reported in January, citing two people familiar with the situation. In addition to $450 million for employees in the financial products unit that sold credit-default swaps.”

  31. 281
    2kt says:

    RE: David Losh @ 255

    The most obvious is that your numbers rarely make sense.

  32. 282

    RE: Blurtman @ 280 – I’m virtually certain anyone at AIG that caused the problem is gone. Whether they had contractual rights to receive bonuses, that I don’t know.

    And I would agree misrepresenting a security is not necessarily vague, but that’s not what I’m talking about. There are some business crimes that are fairly clear.

  33. 283

    Here’s an interesting story on how bad some states (e.g. CA) are at spending stimulus money. 41% of the projects in CA haven’t even been started yet, 18 months after the stimulus was provided for.

    http://www.mercurynews.com/ci_16173981

    It’s no wonder the state didn’t want to give any stimulus funds to Seattle. 100% of those wouldn’t have been spent by now.

  34. 284
    David Losh says:

    RE: 2kt @ 281

    My numbers are correct.

  35. 285
    Scotsman says:

    A while back Pfft asked for a link on my claim that most of the debt deleveraging, especially for consumer debt, was through default.Here’s a link I know he’ll be able to understand:

    ” as this story in today’s Times points out, the main force behind the gratifying decline in consumer debt appears to be default rathhttp://krugman.blogs.nytimes.com/2010/09/25/default-is-in-our-stars/?src=twt&twt=NytimesKrugmaner than thrift.”

    http://krugman.blogs.nytimes.com/2010/09/25/default-is-in-our-stars/?src=twt&twt=NytimesKrugman

  36. 286
    Scotsman says:

    Krugman is really starting to lose it- on one hand he claims the stimulus wasn’t large enough while on the other he readily admits that most of the debt that funded such stimulus will eventually be defaulted on since the numbers just don’t work for repayment. Looks like he woke up one morning and discovered he was indeed in a box with no exit. No wonder his followers suffer from a logic deficit- the teacher just spews random points without ever really looking at the interconnections either.

    http://krugman.blogs.nytimes.com/2010/09/25/default-is-in-our-stars/?src=twt&twt=NytimesKrugman

  37. 287

    RE: Scotsman @ 285 – He’s basically pointing to the article I mentioned in 279. It’s something I’ve long suspected. It’s also I suspect the reason why Congress refuses to pass the Chapter 13 “cramdown” provisions, because that would make the defaulting credit card debt even higher!

  38. 288
    2kt says:

    RE: David Losh @ 284

    David,

    42% of Americans pay no income tax. Top 10% of the population pay 68% of the income tax.
    You offer to give bottom 50% additional tax breaks? Explain, which 50%?

  39. 289
    David Losh says:

    RE: 2kt @ 288

    Sheesh:

    I’m talking about the 5% who have accumulated wealth. For some reason our government, all governments love giving them tax dollars.

    Tax cuts should be for the bottom 60% of the population.

    Yes they have the tax cuts which should remain, and I further think FICA, and the Self Employment tax should be waived for companies with less than $500K in gross income, individuals up to $125K, and couples up to $250K.

    Economic growth, in my opinion, will come from the bottom, grass roots up, rather than from the top down. Small business needs to be able to grow without all the government interference intended as big business regulation.

  40. 290
    pfft says:

    Dow `Super Boom’ to Drive Average to 38,820 by 2025, Hirsch Says
    http://www.bloomberg.com/news/2010-09-27/dow-super-boom-will-drive-average-to-38-820-stock-trader-s-almanac-says.html

    not so sure about that.

  41. 291
    pfft says:

    By Blurtman @ 276:

    RE: pfft @ 264 – Your logic is faulty, once again. The street vendor was not pursued by police because he was armed, but because he was scamming $10 out of passersbye by misrepresenting music CD’s he was peddling. Not far away, Wall Street peddlers were scamming billions by misrepresenting the risk of securities they were creating and peddling. It remains to be seen if these thugs would have been armed had they been pursued, which they had not. Crime pays at a certain socioeconmic level.

    I really don’t get your point? what are you trying to say? they guy was shot because he had a gun, not because he scammed $10.

  42. 292
    pfft says:

    By Scotsman @ 285:

    A while back Pfft asked for a link on my claim that most of the debt deleveraging, especially for consumer debt, was through default.Here’s a link I know he’ll be able to understand:

    ” as this story in todayâ��s Times points out, the main force behind the gratifying decline in consumer debt appears to be default rathhttp://krugman.blogs.nytimes.com/2010/09/25/default-is-in-our-stars/?src=twt&twt=NytimesKrugmaner than thrift.”

    http://krugman.blogs.nytimes.com/2010/09/25/default-is-in-our-stars/?src=twt&twt=NytimesKrugman

    snarky. you don’t get any points for linking something I shouldn’t have had to ask for.

  43. 293
    pfft says:

    By Scotsman @ 286:

    Krugman is really starting to lose it- on one hand he claims the stimulus wasn’t large enough while on the other he readily admits that most of the debt that funded such stimulus will eventually be defaulted on since the numbers just don’t work for repayment. Looks like he woke up one morning and discovered he was indeed in a box with no exit. No wonder his followers suffer from a logic deficit- the teacher just spews random points without ever really looking at the interconnections either.

    http://krugman.blogs.nytimes.com/2010/09/25/default-is-in-our-stars/?src=twt&twt=NytimesKrugman

    “Looks like he woke up one morning and discovered he was indeed in a box with no exit.”

    that’s what you desperately want but it ain’t going to happen. he just says we’ll have some inflation to get out of this mess like we didn’t during WW2. as we know that all worked out terribly.

    by the way he says your deflationary depression reset option is much worse.

    you should have read this where he says the inflation way is much better than your ill-advised reset.

    Paradoxes Of Deleveraging And Releveraging
    http://krugman.blogs.nytimes.com/2010/09/03/paradoxes-of-deleveraging-and-releveraging/

    From 1929 to 1933, everyone was trying to pay down debt — and the debt/GDP ratio skyrocketed thanks to contraction and deflation. During and immediately after WWII, there was massive borrowing — but GDP grew faster than debt, and the debt burden ended up falling.

    nice try scotsman.

  44. 294
    pfft says:

    By 2kt @ 288:

    RE: David Losh @ 284

    David,

    42% of Americans pay no income tax. Top 10% of the population pay 68% of the income tax.
    You offer to give bottom 50% additional tax breaks? Explain, which 50%?

    income tax isn’t the only tax.

  45. 295
    2kt says:

    RE: pfft @ 294

    Is not that a revelation, pfft! You nailed it right there. You think Dave talked about payroll taxes, property taxes or sales taxes? In that case you two should definitely compare notes.

  46. 296
    blurtman says:

    RE: pfft @ 291 – My point is clear – that the NYC police make it a high priority to pursue street vendors that they suspect of scamming $10 out of passersbye, but that no too far away, folks on Wall Street that scam much, much more are not pursued by the NYC police. Which is an appropriate analogy for the two tiered “justice” system in place in the USA.

  47. 297
  48. 298
    David Losh says:

    RE: 2kt @ 295

    Let’s see, global economic thread, sales tax discussion, then county property tax, or are we talking Fed stimulus, or tax cuts? Really in all of this confusion it is kind of hard to keep track.

  49. 299
    Hugh Dominic says:

    I’m talking about the sweet, sweet layoffs at the county and city. I read about them in the times.

  50. 300

    By Hugh Dominic @ 299:

    I’m talking about the sweet, sweet layoffs at the county and city. I read about them in the times.

    Yup. I hope it’s really sweet for you when you need the police and they don’t come quickly because of layoffs. Or when your house is on fire but there aren’t enough firefighters around because of layoffs, or you have to wait forever for a bus to come . Or your car is damaged when it bottoms out in an unfilled pothole, due to layoffs at the roads division. Sweet.

  51. 301
    Gerald says:

    Interesting how the essential services that practically everyone agrees are the reason for having a govt are the first to be cut. Must be because the rest of the govt is so lean that they are immune to any cuts.

    By Ira Sacharoff @ 300:

    By Hugh Dominic @ 299:

    I’m talking about the sweet, sweet layoffs at the county and city. I read about them in the times.

    Yup. I hope it’s really sweet for you when you need the police and they don’t come quickly because of layoffs. Or when your house is on fire but there aren’t enough firefighters around because of layoffs, or you have to wait forever for a bus to come . Or your car is damaged when it bottoms out in an unfilled pothole, due to layoffs at the roads division. Sweet.

  52. 302
    Scotsman says:

    RE: pfft @ 293

    ” he just says we’ll have some inflation to get out of this mess. . ”

    No, he doesn’t. In an article titled “Default Is In Our Stars” he states:

    “So what will happen? In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.

    And that’s what is happening now: as this story in today’s Times points out, the main force behind the gratifying decline in consumer debt appears to be default rather than thrift.”

    First he states the dream- inflation. Then he states the reality- default. There’s no way to twist this around. Our situation now is nothing like WWII when the U.S. had over half of the world’s manufacturing capacity. And we already have high debts so taking on even more is difficult. Finally, the concept and composition of the monetary base has change to a much more private debt influenced situation. Inflation won’t be happening for a long time. What do you think the Fed has been trying to pull off for the last two years? How’s that working out? And stop trying to b.s. your way out- we can all read the same article.

  53. 303
    David Losh says:

    RE: Gerald @ 301

    I personally agree that there is enough money paid into the system, but there needs to be more paid by the people who have benefited. I’m on a holy tear against the wealthy in the world who are hoarding cash.

    There is a commercial on TV about a school in Harlem that follows kids through college. The charter school system has worked, but no one wants to let go of all the fluff in education.

    As you all know by now I feel the same way about health. Our government funds health. We have clinics, hospitals, research, and development. We just can’t access it. We are prevented from expanding those services in favor of protecting private insurance companies. The funding is there. I would like to, and would, contribute more.

    Some one mentioned doing away with the Department of Commerce, and they were right, we could. When you mention World War II, and the government budget, it’s like the budget hasn’t changed we just throw more money into the same black hole.

    We can get out of this mess by cutting spending, cutting taxes, and raising tax on the wealthy who are hording cash.

  54. 304

    By David Losh @ 298:

    RE: 2kt @ 295

    Let’s see, global economic thread, sales tax discussion, then county property tax, or are we talking Fed stimulus, or tax cuts? Really in all of this confusion it is kind of hard to keep track.

    It’s an unnecessary side-track. Anyone thinking a sales tax or property tax cut is likely right now is delusional. Any cuts to SS taxes would be very targeted and temporary. Therefore any talk of tax cuts is presumably an income tax cut. (Although there is also the estate tax issue hanging out there too.)

  55. 305

    By Gerald @ 301:

    Interesting how the essential services that practically everyone agrees are the reason for having a govt are the first to be cut. Must be because the rest of the govt is so lean that they are immune to any cuts.

    I would tend to agree with Ira more than Hugh on this topic, but as to this post I would also tend to agree. IMHO what we need to do is look at any government programs or divisions added since about 1980 for complete termination prior to cutting any government core service such as police, fire, animal control, etc.

  56. 306
    Hugh Dominic says:

    RE: Kary L. Krismer @ 305 – Constantine is trying to sell a sales tax hike this November, so of course his budget cuts police. Typical scare and threaten the public into more taxes. Though, I’d accept it in any case.

  57. 307
    One Eyed Man says:

    RE: Scotsman @ 302

    “What do you think the Fed has been trying to pull off for the last two years? How’s that working out? ”

    It’s working out incredibly close to what a reasonable workout plan for the Fed would be. You don’t restructure and do a workout on a 14T economy overnight. They’re less than 2 years into a plan that will take 4 yrs to rehab the financial system and burn off the real estate bubble, and 6 or 7 years to bring public budgets close to balance (if politicians and the public have the foresight and the fortitude to do it).

    The economy in general and the financial system in particular are absorbing the currently level of defaults without falling into a deflationary spiral. This is a “workout” not a “liquidation.” There needs to be restructuring of entitlement and pension obligations too and a scaling back of public spending including defense. But you don’t do it all in 18 months. The shift has to be absorbed slowing to allow the economy time to adjust. If you cut the budget at the rate of 1.5% of GDP per year, you can lower the deficit over time and remain in a state of growing GDP.

    The amazing thing is that so far, its working. They stopped deflation of “non-bubble” assets cold with Zirp and QE. They put in place a program that allows the financial system to earn its way out of all the bubble losses over about 4 years or so. They’ve allowed “bubble” assets to deflate reasonably slowly to reach what will eventually be close to historic economic equilibrium levels without too much in the way of wild oscillations all while surviving foreign based financial crises and populist legislative reforms to the financial system and liberal reforms to the healthcare system (which create a huge headwind of uncertainty to any domestic investment and economic expansion at least in the short term).

    Whether you like what the Fed is doing or think its unfair or favoring certain undeserving elements is to a large degree irrelevant. Some people argue that saving the finacial system increases future systemic risk because the financial system believes it can rely on a bailout. I disagree. The risk of loss is alive and well. Lehman, Countrywide, Wachovia, WAMU and a host of others weren’t saved from their stupidity and will act as a warning for those who think they can rely on bailouts.

    The Fed is currently trying to fine tune inflation expectations in the say 2.5% range, with the hope IMO that the public sector budget deficit can be cut by about 200B per year thru spending cuts and revenue increases. 200B per yr is less than 1.5% of GDP and would balance the budget in about 5 yrs while still keeping nominal GDP and perhaps real GDP growth positive. That would also cause a slow monetization of a portion of the debt and a limited amount of dollar destruction. It will also help create an environment where trillions in wealth can move back into higher risk assets like equities with the potential to fund increased production and increase employment and demand. As uncertainty and the risk of economic collapse dissipates, businesses can gradually add to employment and expand real GDP (assuming of course that they forecast growth in demand).

    If you believe in capitalism, then you believe that private ingenuity and profit motive will lead to higher output at lower cost, ultimately fueling economic growth. I’m a reluctant capitalist. I prefer a cabin in the woods to a condo in the city. Growth and economic expansion invade and infringe upon the natural world that I love. But the worlds demand to consume more resources and increase production keeps coming and absent natural catastrophie or conflagration, neither I nor any other human can stop the desire for increased consumption. So get outa the way if you can’t lend a hand cause the times they are a changin.

  58. 308

    OEM wrote: “The risk of loss is alive and well. Lehman, Countrywide, Wachovia, WAMU and a host of others weren’t saved from their stupidity and will act as a warning for those who think they can rely on bailouts.”

    Even with those that were saved (AIG, GM, etc.) the insiders lost their jobs and/or suffered heavy (sometimes complete) losses in their stock holdings. I really don’t think any decisions are going to be made on the basis that the worst result is ending up like AIG.

  59. 309
    blurtman says:

    RE: Kary L. Krismer @ 308 – The business model for disaster capitalism is/was to generate as much business as possible in the short run to maximize bonus payments, even if the result was the destruction of the employer. This has been discussed by many bloggers and jounalists included Naked Capitalism and others. It is irrelevant if an employee who made millions in the short run is no longer empoyed at the defunct company. There are no clawbacks for gains generated via incompetence and fraud. The point was to steal the millions. Even the AIG fraudsters were allowed to retain their bonuses, even after many had departed the company. The sanctity of the contract was described as the reationale to continue the AIG bonuses, but was not a sufficent rationale to maintain the sanctity of the GM workers’ contracts.

    Realize that the US had a recent Treasury Secretary whose former employer committed fraud, and who lobbied for this criminal enterprise to be bailed out as Treasury Secretary. We have a current Treasury Secretary who justifed his lack of proper oversight of the NY investment banks when he was the head of the NY Federal Reserve Bank by saying he did not view his responsibilites to include regulating these banks. A review of the Federal Reserve website clearly describes that their mission includes regulating these banks. So in front of Congress, Geithner basically said “Don;t blame me for Wall Street misbehaviour, I was not doing my job.” And this is Obama’s choice!?

    US capitalism is a fraud. It is legal(?) theft. And it has not been fixed. There will be no long term recovery until it is.

  60. 310
    Scotsman says:

    RE: One Eyed Man @ 307

    Surprise, surprise- I disagree. I think the media and your mind have rewritten history along with a healthy dose of “Hapizan” to cover an ongoing disaster. The original goal was to keep the bubbles inflated and the economy humming along at 3-4% annual growth. The brains masterminding the whole show didn’t see the housing bubble bursting until it was in their laps. That’s when they went for plan B, then plan C. The fact that the first tool they reached for was more debt and “stimulus” shows they didn’t really understand the problem initially and only came to understand the totality much later. Now they understand other options might have been better, but no one will be around to try them. The whole crew, with the exception of Obama (who is economically clueless) and Geitner are gone. That speaks volumes.

  61. 311
    Ben says:

    RE: Scotsman @ 310

    Scotsman at 310 and blurtman at 309 are the the most insightful and descriptive posts I have seen back to back.

    You guys “get it” – in spades. Couldn’t agree more.

    BTW, Denninger is extremely prolific these days. I think he has just about given up. The “remnant” awaits him at Galt’s Gultch.

  62. 312

    By Scotsman @ 310:

    <The whole crew, with the exception of Obama (who is economically clueless) . . .

    I would tend to agree (and include his staff). But I would also point out that if the economy is to be saved it will be largely a result of what people do outside of government. So if it is saved, it will be saved despite Obama and crew.

  63. 313
    One Eyed Man says:

    RE: Scotsman @ 310

    While its true that I may occasionally suffer from alcheimers, I believe my recollection of the last 2 years is reasonably accurate. By Autumn of 2008 even Forrest Gump knew the economy wasn’t going to grow at 3 or 4%. While its true that those in power didn’t see the problem until it hit them in the face, I think by the time they took any action they were scared to death and the goal was to avoid a second great depression and the ownership of the majority if not all of the big banks by the FDIC. The Fed was interested in slowing the deflation of bubbles to slow bank losses, but they weren’t interested in reflating bubbles. Most of congress on the other hand was clueless and the people in the administration who talked in terms more glowing than a fear of depression lacked any understanding.

    But the Fed governors likely knew very quickly that it would take years of a rigged system for the banks to work their way out of the hole caused by the real estate bubble. The economic and financial communities also knew that the deficit was a growing problem. But the issue of dealing with the deficit was put off the same way a doctor puts off worrying about a broken leg until they get the patient’s heart started again.

    Congress and Obama have perhaps naively risked the economic recovery with healthcare reform and Finreg, but the Fed will destroy the Dollar with QE before they will go down in the books as the gang that allowed a deflationary spiral and the second great depression in order to protect the currency. They’ll buy up the entire 8 Trillion in outstanding Treasuries if they have to in order to stop deflation in the general economy.

    I still think that U-3 will likely hit 10% again before it comes down and that it won’t hit 9% until next summer or later. But like my bet with Ira, absent a world crisis, the Dow will be above 10250 at the end of the year. Housing prices in Seattle will likely go down over the winter and stagnate for a few years but they aren’t likely in my opinion to go down the whole 20% to reach long term trend lines. Nation wide housing prices and the general economy have to a large degree stabilized and won’t fall like a brick through the long term equilibriums (non-bubble trend lines) the way they probably would have if the powers that be had sat by and watched it all play out.

    The road out of the hole for the national economy will be slow growth with lots of bumps. But the general trend will be up, not down, when measured by output (GDP). Median inflation adjusted household income probably won’t start rising until the investing public sees an effective program to bring deficits under control. But then again, they haven’t risen meaningfully in the last 10 yrs even with all the outrageous debt stimulus under both administrations.

  64. 314
    Scotsman says:

    RE: One Eyed Man @ 313

    Oh come on- jump on the bandwagon of reality, join others in finally acknowledging just how jacked the long term equilibrium is, a Catch-22 of extraordinary proportions. We are headed for a cliff, and there are no incentives in our political system to cause anyone to reach for the brakes. And even if there were, the cute-but-clever tampering at the margins you seem to be espousing isn’t going to do it:

    “I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.

    My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION. If the Federal Open Market Committee cannot see the difference, God help America.

    We now learn from last week’s minutes that the Fed is willing “to provide additional accommodation if needed to … return inflation, over time, to levels consistent with its mandate.”

    NO, NO, NO, this cannot possibly be true.

    Ben Bernanke has not only refused to abandon his idee fixe of an “inflation target”, a key cause of the global central banking catastrophe of the last twenty years (because it can and did allow asset booms to run amok, and let credit levels reach dangerous extremes).

    Worse still, he seems determined to print trillions of emergency stimulus without commensurate emergency justification to test his Princeton theories, which by the way are as old as the hills. Keynes ridiculed the “tyranny of the general price level” in the early 1930s, and quite rightly so. Bernanke is reviving a doctrine that was already shown to be bunk eighty years ago.”

    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007777/shut-down-the-fed-part-ii/

  65. 315
    pfft says:

    By Scotsman @ 310:

    RE: One Eyed Man @ 307

    Surprise, surprise- I disagree. I think the media and your mind have rewritten history along with a healthy dose of “Hapizan” to cover an ongoing disaster. The original goal was to keep the bubbles inflated and the economy humming along at 3-4% annual growth. The brains masterminding the whole show didn’t see the housing bubble bursting until it was in their laps. That’s when they went for plan B, then plan C. The fact that the first tool they reached for was more debt and “stimulus” shows they didn’t really understand the problem initially and only came to understand the totality much later. Now they understand other options might have been better, but no one will be around to try them. The whole crew, with the exception of Obama (who is economically clueless) and Geitner are gone. That speaks volumes.

    less stimulus was a political decision not an economic decision.

    ” Now they understand other options might have been better, but no one will be around to try them.”

    are you saying the administration is now against stimulus? wrong again! it’s a political decision.

    the stimulus worked, deal with it. the debt burden is not that big. far less costly than the extension of the bush tax cuts you want. those add up to trillions.

    next year the stimulus and other measures will add less than $200 billion to the deficit. you favorite president’s tax cut extension will add $295 billion to the deficit and the two wars will add $193 billion.

    not matter what you think, the stimulus wasn’t that burdensome.

    http://www.cbpp.org/images/cms/12-16-09bud-rev6-28-10-t11.jpg

    edit:

    you make it so easy scotman

    ABC News Exclusive: The White House Touts Its Stimulating Abilities
    http://abcnews.go.com/Politics/abc-news-exclusive-white-house-touts-stimulating-success/story?id=11656662

    Don’t Sell the Stimulus Short
    http://www.offthechartsblog.org/don’t-sell-the-stimulus-short/

  66. 316
    Scotsman says:

    RE: pfft @ 315

    Easy? I hadn’t read half way through before there was an error:

    “far less costly than the extension of the bush tax cuts you want. those add up to trillions.”

    No, they don’t. Liar. In a static analysis they add up to $700B over 10 years. The reality is that if tax increases were put into effect people would change their behavior (dynamic analysis) and the actual revenue would likely be far under $700B.

    In case you’re confused, $700 billion is seven tenths of a trillion, i.e. less than one trillion, not the multiple trillion(s) you claim.

    I didn’t even bother to read the rest of your “insightful” post, knowing that it would be just about as valuable.

  67. 317
    pfft says:

    By Scotsman @ 316:

    RE: pfft @ 315

    Easy? I hadn’t read half way through before there was an error:

    “far less costly than the extension of the bush tax cuts you want. those add up to trillions.”

    No, they don’t. Liar. In a static analysis they add up to $700B over 10 years. The reality is that if tax increases were put into effect people would change their behavior (dynamic analysis) and the actual revenue would likely be far under $700B.

    In case you’re confused, $700 billion is seven tenths of a trillion, i.e. less than one trillion, not the multiple trillion(s) you claim.

    I didn’t even bother to read the rest of your “insightful” post, knowing that it would be just about as valuable.

    $700 billion is just if we didn’t extend them for the very rich.

  68. 318
    One Eyed Man says:

    RE: Scotsman @ 314

    So Ambrose Evans-Pritchard doesn’t see 9.6% U-3 as sufficient justification for rolling over the Fed’s portfolio? I don’t disagree with the easy money complaint. But the borrow and spend fiscal policy of the last 30 yrs was every bit as responsible for bubble formation as easy money from the Fed.

    I know you think a “work out” is a waste of time. But what would you do differently? I think we both agree that eliminating the deficit is an integral part of any solution. I would do it in 200B/annum increments to phase it in without killing GDP. I assume you think its irrelevant because Congress will never cut the budget. Preserving the tax cuts for those over 250K isn’t a big issue for me either way. My preference would be a one or two yr continuation with a re-evaluation at that point.

    At present, all QE2 consists of is the roll over of the current holdings at maturity and the threat of more purchases as necessary. Without question, its hurting the dollar and causing concern about the potential for inflation in a couple of years, but right now the only bubble arguably being created is in Treasuries. The 20 city CS index is reasonably stable but I wouldn’t call that bubble formation. Would you start decreasing the Fed balance sheet right now? Do you want to get rid of the Fed?

    9.6% U-3 is the worst unemployment since 1982. I think that’s probably justification for the current policy for at least a while. I might change my mind if I thought that we were the bag men in a growing carry trade. But you might be able to kill that by keeping QE in place and killing Zirp.

    Right now the economy is still alive, and more stable than its been in over 2 years. If you call in Dr Kevorkian right now, there would be a lot of collateral damage. If not the current version of QE2 coupled with deficit reduction and extended tax cuts, what would you propose,

  69. 319
    pfft says:

    scotmans fails again.

    A permanent extension of everyone’s tax cuts would cost an estimated $3.7 trillion over the next decade. More than 80% of that cost is attributable to extending the cuts for the middle class, which both parties and President Obama have said they want to do.

    CBO chief: Tax cuts rate low on ways to stimulate economy
    https://news.fidelity.com/news/news.jhtml?cat=Economy.US&articleid=201009281605CNN_____MONEY____-2010-09-28-news-economy-cbo_economic_fiscal_outlook-index_htm&IMG=N

  70. 320
    tt says:

    Question: If reducing the deficit is desirable and our defense budget is $750 Billion, and we spend 47% of the entire globe’s military spending, and the next highest spender is China at $100 billion in military spending, and we spend more than the next highest 20 countries combined (and many of those countries are our allies such as GB, France etc.), then why can’t we start our budget reduction with a say hmmmm, 200 billion dollar reduction annually in defense spending? Why is military spending reductions always off the table, when in fact that is exactly where we should start cutting? Do we as a country suffer from paranoia? Why spend so much more than anyone else. Recently GB has been debating to cut from 10% to 20%. This is the same kind of discussion we should be having. This country reminds me of the Russians in the 1980 when it was said they spent more on the military than they could afford. Well are we not doing the same thing, except we don’t have a rival super power to match our spending.

  71. 321
    Scotsman says:

    RE: pfft @ 319RE: pfft @ 317

    Nice try- no one, as you yourself state, has been talking about increasing taxes for those with incomes under $250k.

  72. 322
    pfft says:

    By Scotsman @ 321:

    RE: pfft @ 319RE: pfft @ 317

    Nice try- no one, as you yourself state, has been talking about increasing taxes for those with incomes under $250k.

    so the $3 trillion dollars for the rest of the tax cut bill means nothing? that’s news to me. that’s many times more than the $700 billion dollar stimulus you think will bring on reset.

    no sign of reset anytime soon in bond yields.

    US Treasury Awards $35B 5-Year Notes At High Rate Of 1.260%
    http://online.wsj.com/article/BT-CO-20100928-711557.html

    how do you explain that one ace?

  73. 323
    Scotsman says:

    RE: tt @ 320RE: One Eyed Man @ 318

    What will kill us going forward are entitlements- health care, pensions, social security, food stamps, etc. That fact that they are growing at an exponential rate that exceeds the growth rate of the economy as a whole is the crux of the problem. People forget that we as a nation were headed for insolvency with or without the complication of a collapsing housing bubble and high debt loads. We forget that the last CBO ten year plan had average deficits of almost a $trillion/yr for the next decade under optimistic growth assumptions (that have not/will not be met).

    We need a balanced budget amendment and a discussion about what percentage of the economy will be dedicated to national government. Then we can talk about how to apportion the available money. Everything- military, health care, retirement, etc. needs to be on the table. Being the world’s policeman is expensive and may not be something that fits into the new picture. We’ll have to decide what truly is a right, what is a minimum standard, and what is a personal responsibility. A lot of people are going to be unhappy for a wide variety of reasons but I really think a major re-evaluation is in order.

    I still don’t see how it all gets worked out in the current system- no one is rewarded for saying no, no one accepts responsibility, no one thinks long term. I seriously believe the whole mess rumbles on until the checks bounce and the riots start. Sure, GDP may slowly continue to grow, but the combination of unemployment burdens, interest expenses, currency devaluations, mild inflation and population growth (mostly in the poor/working class) will lead to a falling per-capita income and standard of living.

    I applaud OE’s plan to cut the deficit $200B a year through some combination of spending cuts and tax increases- it seems very reasonable. But based on past history I think the chance of it ever happening is zero. And I think you underestimate the drag it would be on our economy given its current state. Think zero growth in GDP while entitlements continue toexpand at an ever faster clip. I would rather see a balanced budget amendment/cap at 20% of GDP and a one time raw printing to pay off debt. It would hurt, but be over and done with, leaving us to look at a clean slate on which to build for the future.

    ZIRP is hurting more than we acknowledge, allowing capital to be mis-allocated, the currency to soften, and masking the real consequences of the debt. All the while its having very little stimulative effect. The only plus is some recovery in bank balance sheets, but even that is largely illusionary when we look beyond their fantasy balance sheets.

  74. 324
    Scotsman says:

    RE: pfft @ 322

    “so the $3 trillion dollars for the rest of the tax cut bill means nothing?”

    Yes, it means nothing. It’s more likely that pink ponies will fly out of your ass than it is that Dear Leader (who PROMISED no tax increases for those making under $300k, then $250K, then finally $200K) or any other politician who wants an office in D.C. next year will pass ANY tax increase, especially during a slump in the economy that features U-6 of 17+%. Even you know that. Just admit you screwed up your numbers in your enthusiasm to try and make a point and move on.

  75. 325
    Scotsman says:

    RE: pfft @ 322

    “no sign of reset anytime soon in bond yields.
    US Treasury Awards $35B 5-Year Notes At High Rate Of 1.260
    how do you explain that one ace?

    It’s not the present equilibrium that’s the problem. It’s the future. How long do you think interest rates can stay where they are? Five years? twenty years? Forever? What happens when they do finally increase? Here’s the answer:

    http://market-ticker.org/cgi-ticker/akcs-www?post=167754

  76. 326
    Scotsman says:

    RE: Scotsman @ 325

    In case you have trouble clicking the link, here’s the juicy part:

    Here’s the math.

    This fiscal year (2010) we have approximately $13 trillion outstanding in debt (including “intergovernmental borrowing”, that is, Social Security and Medicare.)

    Our total debt service is projected (it’s not quite over!) to be 4.63% of the budget, or about $165 billion. That’s approximately 7% of revenues, incidentally.

    That’s an effective interest rate of about 1.27%.

    Yes, 1.27%.

    Now what happens if we take no more debt at all but rates normalize to 5%?

    That would be $672 billion, or about $500 billion more than it is today. Incidentally, that’s fifty-two percent of all (personal and corporate) income taxes, up from today’s thirteen percent.

    Of course the CBO says we will run about $1 trillion in deficits for the next ten years. Let’s presume it’s five years, and we’ll give it the $1 trillion, although I think that’s low – maybe by 25% or more.

    So let’s add $5 trillion to the total, for $18.5 trillion, and apply a 5% rate to it.

    That comes to $925 billion, or dangerously close to all personal income taxes, which are $1.061 trillion.

    Got it folks? All personal income taxes, or if you prefer all FICA and Medicare taxes, will go only to pay interest.

    We won’t get there. Before that day comes the world, which buys our debt as a “safe haven”, will discern this math and cut us off. It is a certainty. Look at what happened with Greece, where literally within days short-term interest rates went to 10% – a rate that, were it to happen here, would cause The United States to blow up monetarily and politically right here and now.

    Calculators cost less than $5 these days.

  77. 327
    One Eyed Man says:

    RE: Scotsman @ 323

    We may haggle a little over how to divide up the shrinking pie, but basically I have no argument with any of what you proposed. You got my vote. Do you have any felony convictions that would prohibit you from holding public office? Or any old photos that might make you unelectable? Those are always a real killer for my campaign hopes. Ironically friends of mine do have compromising photos of another old friend whose now a prospective state politician. It all seemed like good fun in our twenties.

  78. 328
  79. 329
    One Eyed Man says:

    RE: tt @ 320

    “Do we as a country suffer from paranoia?”

    This isn’t jeopardy. You don’t have to state that as a question. But just be advised that everyone here is now questioning your patriotism and trying to decide if merely asking the question constitutes sedition. And just for further clarification, I believe if you read the legislative history of the Patriot Act you’ll discover that water boarding isn’t torture and pre-emptive strikes are just self defense. So if you hear a knock at your door, don’t answer it. As a matter of fact, you might want to leave thru the back door right now.

    And don’t be confused into thinking that because you believe very strongly in civil liberties you’re some kind of libertarian. The key components to being considered a libertarian are now a belief in strong property rights, lower taxes thru limited government, and the right to bare arms. And let me be clear, you still have the right to accept the above or be deported, its your choice. We don’t want to take away any of your freedom, unless, of course you weren’t born here or your parents weren’t citizens in which case, you have no inalienable human rights and you’ll have to look to PETA for protection from abuse at the hands of the state or its citizens.

  80. 330

    RE: One Eyed Man @ 329
    I’m not paranoid either, but I have noticed that the DJIA is up about 600 points from the time One Eyed Man and I made our bet several weeks ago. Coincidence? I’ve been looking at Barron’s and the Wall Street Journal for large insider transactions, large stock purchases under the name ” Man” and ” One Eyed” but he must have his minions doing the bidding.
    All that for a bottle of Mickey’s Big Mouth?

  81. 331

    By One Eyed Man @ 329:

    RE: tt @ 320

    “Do we as a country suffer from paranoia?”

    This isn’t jeopardy. You don’t have to state that as a question. But just be advised that everyone here is now questioning your patriotism and trying to decide if merely asking the question constitutes sedition. And just for further clarification, I believe if you read the legislative history of the Patriot Act you’ll discover that water boarding isn’t torture and pre-emptive strikes are just self defense. So if you hear a knock at your door, don’t answer it. As a matter of fact, you might want to leave thru the back door right now..

    Horrible advice. To not attract attention, they’ll come for him through the back door. ;-)

  82. 332
    Scotsman says:

    RE: Ira Sacharoff @ 330

    Relax, Big Dog- December is several event horizons away. ;-)

  83. 333
    pfft says:

    By Scotsman @ 325:

    RE: pfft @ 322

    “no sign of reset anytime soon in bond yields.
    US Treasury Awards $35B 5-Year Notes At High Rate Of 1.260
    how do you explain that one ace?

    It’s not the present equilibrium that’s the problem. It’s the future. How long do you think interest rates can stay where they are? Five years? twenty years? Forever? What happens when they do finally increase? Here’s the answer:

    http://market-ticker.org/cgi-ticker/akcs-www?post=167754

    when they increase, if they increase, we can react.

    remember you’re always talking about dynamic analysis?

    I thought you were a big deficit hawk. you aren’t. you say obama’s healthcare and stimulus will bankrupt us but you then want to extend the bush tax cuts for all(at a cost of $3.7 trillion) and you wanted reset(this would costs $2.7 trillion more in budget deficits from 2010-2012 alone). so obama’s relatively small programs(stimulus was only $700 billion and heathcare won’t add much to the deficit even if it adds $300 billion as you wrongfully suggest) will bankrupt us but your policies would add $6.4 trillion to the national debt.

    I don’t think you’ve though this through. what happened to exponentially ever increasing spiraling out of control interest payments?

  84. 334
    pfft says:

    By Scotsman @ 326:

    RE: Scotsman @ 325

    In case you have trouble clicking the link, here’s the juicy part:

    Here’s the math.

    This fiscal year (2010) we have approximately $13 trillion outstanding in debt (including “intergovernmental borrowing”, that is, Social Security and Medicare.)

    Our total debt service is projected (it’s not quite over!) to be 4.63% of the budget, or about $165 billion. That’s approximately 7% of revenues, incidentally.

    That’s an effective interest rate of about 1.27%.

    Yes, 1.27%.

    Now what happens if we take no more debt at all but rates normalize to 5%?

    That would be $672 billion, or about $500 billion more than it is today. Incidentally, that’s fifty-two percent of all (personal and corporate) income taxes, up from today’s thirteen percent.

    Of course the CBO says we will run about $1 trillion in deficits for the next ten years. Let’s presume it’s five years, and we’ll give it the $1 trillion, although I think that’s low – maybe by 25% or more.

    So let’s add $5 trillion to the total, for $18.5 trillion, and apply a 5% rate to it.

    That comes to $925 billion, or dangerously close to all personal income taxes, which are $1.061 trillion.

    Got it folks? All personal income taxes, or if you prefer all FICA and Medicare taxes, will go only to pay interest.

    We won’t get there. Before that day comes the world, which buys our debt as a “safe haven”, will discern this math and cut us off. It is a certainty. Look at what happened with Greece, where literally within days short-term interest rates went to 10% – a rate that, were it to happen here, would cause The United States to blow up monetarily and politically right here and now.

    Calculators cost less than $5 these days.

    that is a whole lotta ifs.

  85. 335
    Hugh Dominic says:

    I spoke to a loan originator at a small community bank today. It was cool to hear him describe his situation.

    His bank is flush with cash. They have no place to put it. He lamented that he has it all tied up in T-bills, earning nothing. He needs to lend it, but nobody is coming to borrow. And half of the people want to borrow, he can’t lend to because of what he believes are overly stringent regulatory requirements. “and there’s your economy” he says.

    Meanwhile the .gov keeps pushing programs that supply him with even more money that he can’t lend. (see: new small biz stimulus bill). But it all comes with string attached, he says he doesn’t want it.

  86. 336
    Scotsman says:

    RE: pfft @ 333

    “your policies would add $6.4 trillion to the national debt.

    I don’t think you’ve though this through. what happened to exponentially ever increasing spiraling out of control interest payments?”

    Out of control interest expenses come with your plan where we continue to rack up an additional $1.0T in deficits every year for the next decade and longer. But I guess you missed that in the analysis I posted.

    Maybe you didn’t understand that $10 trillion is greater than $6.4 trillion. Maybe you need one of those $5 calculators.

  87. 337

    RE: Scotsman @ 326

    Very True Scotsman

    Greece’s horrifying debt putting the EU on the verge of collapse this summer is a mere 13% of its GDP….while the stronger [?] American economy sports a 92% of its GDP debt.

    Which country is screwed?

  88. 338
    The Tim says:

    This page wasn’t loading for me, so I turned on paging for comment threads over 250 posts long, which seems to have fixed it. Unfortunately that broke the comment # references (e.g. – RE: so-and-so @ 255), but the links still work.

    FYI, I’ll be kicking off a new Global Economics Open Thread tomorrow anyway.

  89. 339
    Scotsman says:

    RE: Hugh Dominic @ 85

    It’s a “marketing” issue. If the problem is a lack of loanable funds the government may be able to fix that, and indeed we’ve been hearing how hard they’re working for us on that issue. But if the problem is a lack of demand no one wants to talk about it because the “solutions” are so much harder and beyond the grasp of government control. And as your experience confirms the real problem is on the demand side.

  90. 340
    David Losh says:

    RE: Scotsman @ 89

    You’ve hit issue, aside from all the theory. No one wants to invest. No one wants to speculate, because you don’t know what will happen.

    The one thing that pfft got right is that we are in better times. What he missed is that we need to seize this moment to turn things around.

    If we wait, the Scotsman scenario becomes a reality.

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