Earlier last decade, Alan Greenspan initially opposed (and later supported) what would eventually become a sweeping tax cut. In case you forgot, the government was running a sizable surplus and the logic was that the surplus would be returned to the taxpayers. The government, after all, is generally not in the business of running a profit.
Right-leaning people were pretty upset with Greenspan. If you're ever going to cut taxes, that was the time to do it. Lots of people thought that Greenspan was going all moonbat in his advanced age. He took a not inconsiderable amount of heat from the right for his radical idea that surplus tax revenue should be used to pay down deficits. But Greenspan knew then what people today still do not understand: it's not the absolute size of government that's important, it's whether it can finance itself.
Today, unhappily, the United States spends more than half again as much as what it takes in. This is not uncommon in the developed world. Japan's national debt is about twice the size of its entire economy, the worst in the world. The bond market has so far declined to impose any discipline in the G10 world (except Italy) which causes people to be exceedingly glib about the situation.
Liberals generally think that the deficit is not a big deal; a fiction dreamed up by the right to deprive services to those in need, and conservatives are in the absurd position of advocating tax cuts amidst pornographic deficits to oppose any further growth of the state. The only people who really understand how grave the situation is are the financial people, and there are hundreds of protesters camped out on their doorstep.
It is a big deal. Few people understand that to balance the budget, or even to bring down the deficits to the rate of growth would require cutting the size of government by at least half and/or nearly eliminating entitlements. It really is true. People like Glenn Beck (and others) were very early in this trade, which was actually unhelpful, because Beck's other polarizing views did not help anyone to achieve a greater understanding of how serious the problem actually was. You can't have unserious people have a serious discussion about debt.
The reason why ridiculously large deficits are dangerous is not because we (or anyone else) would ever default. As we are finding out with Greece, it is hard to have a meaningful restructuring because too much of it sits on bank balance sheets. If a country goes bankrupt, so do the banks, and that means depression -- unless you can find another way out.
The other way out is to monetize the debt, which is to say that the central bank will print money to buy government bonds. The central bank finances the government, becoming the lender of last resort. Consequently, there is more money sloshing around the economy, which will lead, in time, to very high rates of inflation. I cannot think of one historical example of a country that monetized its debt and everything worked out peachy, with low inflation (Japan does not count -- that story is not yet written). People have heard of Zimbabwe and Gideon Gono, but it remains an abstraction to most, because it is hard to believe that something like that could happen here.
It can and it will. The laws of economics are not to be conned.
In Europe, the authorities are currently trying to find a way to restructure Greece so that if it defaults, it will default gently. Who knows -- they might be able to do it. But even if they can, that still leaves Portugal and Italy and Spain, which are far too large to restructure and which have zero chance of growing their way out of it.
Imagine a fancy chess game, where, once checkmated, you can hit the eject button, and launch off the chess board to safety. That's what debt monetization is, and it can be very attractive.
There are protests in New York, which is unsurprising, because people are usually only against capitalism when capitalism fails to produce the desired results -- you didn't see any protests in 1999. If you see ants, it is likely there is a picnic nearby. But if you think this is bad, wait until you see how upset people get when there is inflation, which will hit poor people disproportionately.
The whole debt ceiling argument was about something known as austerity, where we would make an honest attempt to balance the budget. It is too late for that. The tomb is sealed, and we don't even realize it yet. Such a thing is not even possible, and it may not even be desirable. We are too far gone. The only option left for us is to aggressively monetize the debt, and hope that the inflation of the century never arrives, like it has every other time in history.
U.S. National Debt Clock : Real Time
One giant debt for mankind: U.S. national deficit would reach almost ...
To my way of thinking and feel free to correct me if I am wrong, but your definition of cutting government in half will be a full-scale attack on Social Services, Any kind of Over-site of Business and Infrastructure Projects.
Why when new restrictions are called for on Business they must be phased in over years, but cuts to social services and be effective next quarter? Why must people suffer immediately and business must never endure anything more than a pin prick?
And why is Government efficiency never called into play? There is lots of waste in Government, we all agree, why is the only way to save it, is to bleed it to death?
This is just more Right Wing Tripe. Written by someone that has never had to be late on an electric bill or survive on Hot dogs and ramen noodles for the last week of the month.
Annualized Growth Rates, Before and After TAX CUTS
Clinton
1993 to 1996 Real GDP = 3.44%
1993 to 1996 Real GDP per capita = 2.22%
1997 to 2000 Real GDP = 4.44%
1997 to 2000 Real GDP per capita = 3.26%
1993 to 2000 Real GDP = 4.01%
1993 to 2000 Real GDP per capita = 2.81%
Bush
2001 to 2004 Real GDP = 2.62%
2001 to 2004 Real GDP per capita = 1.68%
2005 to 2008 Real GDP = 1.75%
2005 to 2008 Real GDP per capita = 0.79%
2001 to 2008 Real GDP = 2.31%
2001 to 2008 Real GDP per capita = 1.36%”
http://www.angrybearblog.com/search/label/Presimetrics
There is no reason we cannot run a surplus again and pay down the debt. Spending is up 30% since 2008. Simply go back to the 2008 budget as a starter.
The one thing that is discouraging in all this is that our elected officials have a penchant for spending regardless of party (more for Dems then Republicans generally, but the same result) and even if we have a surpuls (like the 90s) we will simply squander it.
1. Get out of Afghanistan ASAP.
2. Repeal the Bush tax cuts and put tax rates back where they were under Clinton.
3. Take a hard look at the defense budget and cut where appropriate.
4. Invest in infrastructure, such as roads, bridges, high speed railways, etc., which will create jobs in the short term and long term.
5. Put some teeth into the law that requires U.S. corporations that generate foreign profits to use those funds to create jobs rather than increase executive pay.
I know there are lots of other things we can do, but these would be a good start. It's only hopeless when we start thinking it is.
1. Afghanistan costs about $100B per year total so that would give us less than 3% impact on the budget. Also, even if the war stopped today we could not get all that savings because we have an all volunteer army. That means we will be paying salaries of those moved from Afghanistan to whereever they go. So the savings migh bet $50B or less per year.
2. Repealing the Bush tax cuts would hit everyone, including middle and lower middle class people who got a tax cut. Repealing the tax cuts for the wealthy, actually raising rates, would yield about $70B per year according to the Obama admin. That's less than 2% of the budget.
3. The defense budget is $670B proposed for 2012. How much can we cut on that? At 10% that would be less than 2% of the budget; 20% less than 4% of the budget.
4. Spending on infrastructure only creates temp jobs. Once the job is over, the workers are out of work unless the level of funding continues at the high level from year to year. This may positively impact unions in the short run, but what about the white collar 50 somethings out of work? Infrastructure spending to fix roads and bridges does not drive economic commerces unless more traffic or new traffic patterns result. Most of the spending here is on existing roads.
5. Forcing companies to spend money where it doesn't make economic sense, well doesn't make economic sense. We should be focusing on making the climate better here for business by lowering the corporate tax rate (highest in the world) and reducing government regulations.
Think a little deeper on the issues.
We spend 40% of the entire worlds military budget every year and they can't think of ANY PLACE to get the money we need except welching on our obligations to our own elderly and young.
The 2012 proposed military budget is $670.9B. Our federal budget is $3800B and the deficit is $1500B.
A 10% cut in military spending would be less than 2% of the budget; a 20% cut would be less than 4%. Both wouldn't put a dent in the deficit.
We spend more on military than other countries because we have more to defend and a bigger role in the world.
This is why Pres. Obama had the $700 billion stimulus package a few years ago. The idea was for government spending to stimulate employment, or at least slow the unemployment.
Right now, the economy is shrinking. It needs some kind of spending to overcome the shrinking. If the government doesn’t supply the credit, the economy will have to rely on commercial banks. And they’re going to charge interest. This means that all of the growth that does occur in the economy is basically going to be paid to Wall Street, not to the people who produce the wealth, not to industry or its employees. The economy is going to shrink. Industrial corporations will shrink. Real estate prices will shrink further. But the government isn’t doing anything to prevent this shrinkage into a deeper and deeper recession.
http://michael-hudson.com/2011/08/debt-ceiling-economy-sacrificed-for-military-bias/
Why should we? What are your credentials? What is your track record at predicting economic activity?
For the rest.. . http://www.dailydirtnap.com/book/
The alternative of monetizing the debt ends with much the same result except through huge inflation (eg, Weimar Germany).
Sure, Newtonian and the improvements since them work well enough for most things on a human scale, essentially everything but not exactly everything, but with Economics, ya'll still have a lot to prove. Therefore, when anyone says to me, "It can and it will. The laws of economics are not to be conned." I have to believe the reason you are saying it is that you are a dogmatist and not an economic scientist, thus I take everything you say as if from a disciple and not one who actually knows.
Will the laws of big numbers catch up with us? Sure, I believe it. But killing the patient to save it has not worked out for physicians, so I don't see why your prescription should be taken without due regard for the patient's life. Where is yours?
THAT statement alone tells me you don't know too much yourself.
Why?
Because the financial meltdown and most of the rest of the economic problems in America were mainly caused by these greedy, selfish so called financial wizards (Wall Streeters) along with the oligarchs, banksters, and the politicians.
The people who did MOST of the damage obviously are not too concerned about have grave the situation is with the deficit.
On the contrary, as long as THEY keep making a lot of money, they don't seem to care, especially if they can keeping kicking the can (consequences) down the road.
Deregulation, outsourcing.....all harm American workers, leave them with less money, decimate the middle class, make more hardworking Americans fall into poverty, lessen tax revenues, and harm the country economically.
One example: What kind of financial idi ots would wage expensive warfare AND lower tax rates?
I have come to the conclusion that the politicians, Wall Street, etc. can NOT handle money.
Greed, selfishness, lack of empathy for fellow Americans, and little loyalty to America make them dangerous.
He seems to pose substantial reduction of federal bureaucracy as a bad thing - or impossible. There is much reduncancy in federal agencies and some aren't needed. Generally federal agencies aren't rewarded for saving money, but the opposite. Have the expend their budget amount by year's end or lose it and fear a budget reduction the following year. The things like defense and social security that the federal level is supposed to do or can't work at state level need to continue. Other departments and agencies can disappear when those functions are performed by states, education oversight, for example. Real estate law is dirt law, state law. Look what a mess the big banksters made trying to remove recording authority from elected county officials and putting that ownership/rights tracking function into a private, on line data base, vandlizing clear title.