I.M.F. Report Says U.S. Deficits Threaten World Economy

[lazarus]

With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report made public today by the International Monetary Fund.

In nearly 60 pages of carefully worded analysis, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration's tax cuts and warning that large budget deficits posed "significant risks" not just for the United States but for the rest of the world.

The report warned that the net financial obligations of the United States to the rest of the world could equal 40 percent of its total economy within a few years — "an unprecedented level of external debt for a large industrial country" that it said could play havoc with the value of the dollar and international exchange rates.

The dangers, according to the report, are that the United States' voracious appetite for borrowing could push up global interest rates and thus slow down global investment and economic growth.

But things are just great. And I've actually had freepers demand I ask them to prove the debt is a bad thing. :eyes:

http://www.nytimes.com/2004/01/07/politics/07CND-FUND.html?hp

[patricia92243]

1. Well, the report just has to be wrong - because we all know Mr. Bush would

never, ever make a mistake that adversely affected the USA!!!

If you believe this, I have some swamp land I want to sell you.

[SpiralHawk]

2. "This is another fine mess you've gotten us into, Chimpy"

The whole planet this time.


"I'm also not very analytical. You know I don't spend a lot of time thinking about myself, about why I do things."
- George W. Bush, Aboard Air Force One, June 4, 2003

[indepat]

4. Just think what "four more years" will bring!

[DemoTex]

3. Ah-ha! Just as I thought.

When will Junior's bubble burst? Probably not before 11/2/2004. Folks, we are fucked.

[ochazuke]

5. Debt Bubble

Much has been written recently about the huge public debt that the USA is running up, and in combination with the doubling of personal debt.

So, if the predictions of economic trouble come true, it won't be without warning.

Should Democrats make an issue of this? Would voters understand the problem, or accuse us of scare tactics?

[DemoTex]

7. Wrong track, I think.

We don't need to lecture voters on their over-use of credit. We need to improve the economy first. Macro vs micro.

[ochazuke]

10. The issue would be framed in terms of the national debt.

not private debt.

[Barkley]

19. Bubble Trouble

Q: Should Democrats make an issue of this? Would voters understand the problem, or accuse us of scare tactics?

A: That's a tough one to answer; many Democratics endorsed the Bush tax cuts that help create the Debt Bubble in the first place. Democrats like Dean that have attempted to address the problem by proposing a reversal of some of the Bush tax cuts have been roundly critized, not by the voters, or even Republicans, but by other candidates/ politicans in their own party!

Unfortunately I don't think many voters pay close attention to the national Debt. I don't see the issue getting much political traction because it far more abstract than say unemployment.

[newyawker99]

26. Hi Barkley!!

Welcome to DU!! :toast:

[Barkley]

29. newyawker99 Thanks its great to be a part of DU!

[Toots]

30. Do we then support a balanced budget amendment?

We either are far ridding ourselves of debt or we aren't. The only way I can see it becoming a reality is making a balanced budget mandatory like it is in virtually every single state. Democrats opposed that in the ninties while Republicans were solidly for it. Now the roles seem to have reversed. I believed in it when the republicans were pushing for it and I believe in it now. We need to get government spending under control. The difference though, if it were to become law, between Republicans and Democrats is Republicans would cut the spending programs that benefit people and buy bullets and bombs while the Democrats would cut the bullets and bombs and buy medicine and food. We need to get spending under control and get Democrats in office to spend the money wisely.

[muriel_volestrangler]

31. balancing a country's budget every single year is very tough

and could force big cutbacks in government spending in bad years.
In the UK, the current chancellor has a target of balancing the government budget 'over a whole economic cycle'. This isn't law, of course - just a public target which allows us to call him a miserable failure if he can't manage it. And he will probably try to twist his definition of the start and end of a cycle so he makes it. Still, it's much more realistic, in most economists' eyes - in the long term, it keeps government borrowing under control, while allowing continuing investment even in years when tax receipts go down.

[ElsewheresDaughter]

6. this whole fucking fake war was really about euro vs dollar

[ozone_man]

9. Which was the number one reason

was always a bit vague in my mind, but I would say dollar hegemony, oil, Bush vengeance would be how I prioritize the reasons for the Iraq war.

[Beaker]

13. when Saddam stated selling oil for euros- his fate was sealed.

and the 2000 sElection was decided.

[cthrumatrix]

25. if we had a fair media to educate the people...this is serious stuff gang

[54anickel]

8. I don't think their gonna buy that cut the deficit in half spin.

Robbien posted this article today in the SMW thread in response to the Snowjob this am.
It's a very good article, and thanks again Robbien for posting it.

http://www.govexec.com/dailyfed/0104/010704bb.htm

snip>
First, the White House is not promising to cut the deficit in half from current levels but only after its tax and spending policies have increased it to $500 billion or more. That means that cutting the deficit "in half" could leave it at about $250 billion. Not only is this not a 50 percent reduction from the $374 billion deficit recorded in 2003, but compared to the $236 billion surplus recorded the year before the administration took office, a $250 billion deficit would still be a serious deterioration in the budget outlook regardless of how rosy the administration tries to make it sound.

Try to imagine the politics of this extraordinary decline if the president had said in 2001 that he not only was going to eliminate the surplus but also was going to leave the next administration almost $500 billion worse off than when he took office

snip>
But cutting the deficit in half as a percentage of GDP could be accomplished without significant changes if the economy is assumed to grow substantially over this same period.

snip>
Third, cutting the deficit in half by 2008 really means that the administration will merely be projecting what will happen four years from now based on the continuation of current policies. But in many cases, the current policies have already been abandoned. At the same time that it has been touting the deficit-reduction powers of the assumptions in place, the White House has been considering additional tax cuts and making the already-enacted tax cuts permanent. Then there are the near-certain additional expenditures for activities in Iraq, which have not been factored into the cutting-the-deficit-in-half calculation.

[readmylips]

11. Well, boosh wants to bankrupt the world, the same...

way he wants to bankrupt every social program in the US. When the world falls, boosh (little hitla) and his cronies will have all the wealth (including all the oil in the world), to buyout any country. A gun will be pointed at their backs if they don't play nice with the boosh nazis. Are world leaders blind or just stupid?

I hope republicans open their eyes. Their party has been taken over by a dictator and those republican values they talk about, are just that; words. The name boosh alone is creepy.

[fearnobush]

12. Bush = The first step toward fascism.

I believe it was Kissinger (believe it or not) who said, and I am paraphrasing "The first step toward fascism is the consolidation of wealth." from Krugman's The Great Unraveling. "The first three pages of Kissinger's book sent chills down my spine," Krugman wrote of the man who later become the unacceptable face of politics. Kissinger, using Napoleon as a case study - Krugman shows, the rise of fascism in the 1930s - describes what happens when a stable political system is confronted with a "revolutionary power" a radical group that rejects the legitimacy of the system itself. Does this sound familiar anyone?

[Demonaut]

14. DONT WORRY, BE HAPPY

Still have some room on those credit cards, well be a good consumer and RUN IT UP.........its your chance to save the economy.

[lovedems]

15. Can somebody explain the issue of this administration talking down

the dollar? What purpose does it serve? Does it make foreign investors more likely to invest? I know there is an evil reason behind it, I just don't know what it is!

[abelenkpe]

16. well

I also have a difficult time understanding why it is suddenly a good thing for the dollar to lose value. But check out these interesting and diverse responses from readers of BBC Online:

http://news.bbc.co.uk/2/hi/talking_point/3373849.stm


-snip-

If I wasn't already convinced, the comments on this page confirm liberals (democrats) do not understand economics/politics. To claim this will hurt the US is ridiculous. Look around you Europe, Japan artificially inflates the dollar to rein in the yen and China basically pegs it's currency to the US dollar, meaning Chinese goods are no more expensive than before. It won't be US and Chinese consumption that falls, it will be US and Chinese consumption of European goods that falls. Why doesn't someone just come out and say it.... this is a pre-emptive economic strike against the soon to be established European Union (primarily France and Germany). This is America's way of saying, if you want to have dreams of global competition/supremacy, you need to realize this is how the big boys play the game.
Bob, USA

Republicans have always preferred to reduce the value of the dollar than reduce the national debt, always taking advantage of the dollar's status as a "global" currency. Americans' savings, in this global economy, are worth less and less, and they earn no interest on it. During the thirty years since Nixon let the dollar float rather than pay for the Vietnam War, American's real earnings have consistently gone down, and the goods we are able to afford grow continually shoddier. I doubt that in the long run the foreign investors who have kept the dollar going will be as gullible as we have been.
Oliver, San Luis Obispo, USA

My husband and I are American military, stationed in the UK The only reason why we are surviving here, is because I have a British job and earn pounds. The dollar is really putting a strain on military life outside of the USA.
Mrs Jenkins, UK

[Barkley]

20. Talking Down the Dollar

the dollar? What purpose does it serve? I know there is an evil reason behind it, I just don't know what it is!

I think Bush loaves implementing any type of economic policy
other than tax cuts for the rich. Talking down the dollar makes it look as if he's engaged in policy... This way, the cheaper dollar doesn't seem alarming domestically and internationally.

Moreover, to remedy the problem of a falling dollar through market intervention would undoubtedly require the coordination of the G-7/ EU and I don't think Bush is ready to ask for help from 'old Europe'whose agenda and economic interests may not necessarily be compatable the U.S.

A cheaper dollar benefits farm exports (which might be Bush's way of preparing his farm supporters for coming subsidy cuts). A cheaper dollar also makes foreign steel more expensive relative to domestic steel and may be Bush's way of making up with the U.S. steel industry voters for his recent decision to drop U.S. tariffs on European steel.

Does it make foreign investors more likely to invest?

A cheaper dollar would make the price purhasing America investments low, but the problem is the wealth derived from those investments is also denominated in dollars and will also fall.

Suppose you're a German who put $1000.00 in a U.S bank before the U.S. invasion of Iraq. Lets assume the interest rate in both Germany and the U.S. are the same.

Although you still have $1000.00 (plus interest) in the bank today, You would have done better keeping that $1000 in euros because the dollar fell 20% against the euro since the end of the Iraq war.

If you believe that the dollar is going to fall another 20% against the euro in the coming months, you'd be wise to repatriate your savings.

[aneerkoinos]

22. Here's the deal

BoJ and Fed made THE deal last year. US can't handle it's debt, so monetize it (by devaluation of currency). The trick to do this is to devaluate in orderly fashion, without hyperinflation (rig the numbers!), panic and loss of credibility. Japan, on the other hand, desperately needs inflation to jump start its economy from deflation. So BoJ prints trillions and trillions of Yen to buy dollars to keep dollar fall steady and not too abrupt, to move inflation (excess dollars) from US to Japan and to finance US debt.

This is the biggest scam in the world, and they may even manage to pull this of. At least until US election...

[drewb]

28. Great summary!

:thumbsup:

[daleo]

17. I am surprised by the IMF

In Canada we were getting the IMF inspired "we will hit the deficit wall" lecture constantly during the Mulroney and early Chretien era (mid 80's to mid 90's). I have often thought that one of the reasons people liked Chretien was that he (Martin too, I suppose) turned this around, so that the nagging "deficit lecture" finally came to an end.

It is hard to believe that the IMF will start this refrain going in the U.S. - it can't be good for Bush. I always assumed that the IMF was firmly under Washington's control.

[Merlin]

18. Well I'll be a blue nosed gopher! The IMF emerges as the new Ross Perot!

It's about time somebody with real cred took to the podium about this incredible mess these idiots have gotten us into.

77 Million -- count 'em -- 77 Million. That's how many baby boomers will retire over the next 15 years. The treasury is going to have to borrow then to pay back the Social Security fund so it has the liquidity to pay retirees their benefits. But if we do not pay down debt now, in serious fashion, we will not have the borrowing capacity then.

Debt service is already a staggering line item in the budget--second to defense.

If only these morons had kept the Clinton momentum going. What a tragedy.

Let's hope these voices, like the IMF, will keep a lot of Republicans home on election day '04.

[greatauntoftriplets]

21. This is really ominous.

And they accuse Democrats of being big spenders.

[ze_dscherman]

23. Kick!

To the top.

[gasperc]

24. Not to worry, Bush's master plan is to .......buy more money!!!!

It's so easy like duh!!!!!!

[cthrumatrix]

27. funny...didn't see this on the news tonight....shocking

[GOPBasher]

32. What I don't understand is,

why the hell is the Republican base still happy with Bush*? I don't get it. :shrug:

[dusty64]

33. Frightening!

I have no faith in our economy anymore and do not believe any of the cooked figures coming out of our regime. I intend to fully get out of the market and take what little "gains" the PPT can provide. Funny how badly the bar has been lowered when people get so excited over the bogus media hype about our "skyrocketing" economy. We are about half way where we used to be, back when we had an elected government. The powers that be will pull out ALL the stops to make things appear to be going well, but sooner rather than later this house of cards is going to collapse.