News on deficit reduction is good news, but beware the lure of bubble economics.

[reformist2]

The main reason for the unexpected reduction in the deficit is the surprising bounce-back of Fannie Mae and Freddie Mac. Written off for years as albatrosses around the government's neck, these two entities are now expected to make hundreds of billions of dollars in dividend payments to the US treasury.

Keep in mind the government is on the hook for trillions of dollars of mortgages. Deficit reduction is good news, but it ought to be done with tax increases on the rich, not by engaging in Bear-Stearns and Lehman-Bros style leveraging.

[socialist_n_TN]

1. Bubble economics IS end stage capitalism......

Profit is like water in that it finds it's own level. However, where water pools at the lowest level, profit pools at the highest. IOW, capitalist investment dollars will go to the areas that provide the highest rate of profit, ESPECIALLY since productive sectors (sectors that actually produce goods) are up against their limits. Ergo, investment money will find it's way to financial instruments and fictitious capital (credit based investments), which will create bubbles. Which eventually burst creating another crisis of capitalism.

This is what we're in for in the capitalist economy from now on.

[reformist2]

2. True - the government, entire economy, are increasingly reliant on financial bubbles.

Although you won't find it in any economics textbook, everyone knows there's something inherently wrong with money bidding up unproductive assets, while all sorts of societal needs go unmet.

Our understanding of what constitutes good economics needs to change.

[BlueStreak]

3. Are we talking about the April numbers?

The main reason for April being a positive month is that there are lots of extra tax payments made in April. Happens every year. It is not indicative of any trend, although the overall trend is toward a lower deficit.

[reformist2]

5. Not just April. The projections going forward have been reduced substantially, too.

Politics aside, so-called experts are considering this a huge game changer. Except that the experts never seem to consider the bubble nature of our economy, that basing long-term budgets on profits from inflated asset values is unwise. We've learned nothing from the economic policy under Dubya.

[BlueStreak]

6. Yes, I see CBO has lowered their projection by $200Bn.

That is good news, of course, mainly because it takes the life out of most of this austerity talk. And not coincidentally our success is happening at exactly the same time that Europe is officially back in recession driven by their more Draconian austerity measures.

So now the big questions are:

1) Will Europe's stupidity drag us into another recession?

2) Will Congress' stupidity drag us into another recession.

If it were not for those two things, our economy would be really vibrant now. And despite those factors, we are still mending.

It is interesting to note that the very same time when our economy is outperforming CBO estimates and Europe's austerity economy is cratering, the Republicans have completely changed the subject to these manufactured "scandals." All of this is just BS games. It is just the GOP looking for hostages because with this economic improvement, the next debt ceiling date has moved way out -- maybe October.

We do need to be cognizant, however, of the fact that even with this improvement, our national debt as a percentage of GDP is still rising, and that is a bad thing. In order to stop that, we need about #300 Bn more improvement in the deficit, But that will happen naturally if the economy continues to improve.

[KoKo]

4. And, articles have been written that it's Hedge Funds buying up properties in

areas like Miami, Las Vegas, etc. who are buying to rent waiting to flip. Also in NYCity it's foreign investors scapping up properties thinking they will go up in value. Asian investment in California also.

So...there's another bubble going there, with high end investment coming in from the wealthy in other countries where their own investments and economies are in a downturn.

This isn't filtering down to the rest of us though. But, it does help get some of the foreclosures off the market making a housing recovery appear to be emerging.