Don't believe the deficit hype

[CHIMO]

It's the spending, stupid.

When the New Political Economy group, a gathering of progressive intellectuals and politicians, met to discuss the question "How big is the public deficit?" there was no shortage of bold, challenging and innovative ideas. The debate, organised by the Guardian and Soundings magazine, offered up a bright new world, built on an emerging social economy in which collaborative networking gradually replaced greedy competition; green investment took the technological and productive lead; and the "good society" eventually would stand a chance.

What to do about Britain's national debt and its annual government deficits in the here and now remained less clear. Had deficit spending not been once and for all discredited at the end of the 1970s? Was John Maynard Keynes really about budgetary spending in times of crisis or did he not rather regard fiscal expansion as a secondary tool to be employed, where absolutely necessary, alongside long-term monetary policies (low long-term interest rates) to keep business cycle fluctuations under control?

UK "plc" certainly cannot. But UK "us" can and should. Asked what would be his one big policy move if he were to take over the Treasury tomorrow, Samuelson did not hesitate: he would raise the amount of deficit spending right away and "worry later about how we wind up in reverse and get out of it". If the money reaches the people with the shovels, there won't be much to worry about. Even Keynes would agree.
http://www.guardian.co.uk/commentisfree/2009/dec/07/deficit-debt-hysteria-spend-recession

[laughingliberal]

1. Yep. This is why my head almost exploded when I saw the headline about Obama

planning to use 2010 to focus on deficit reduction. Great! We see the first infinitesimal sliver of recovery and we quickly start trying to cut spending so as to strangle the recovery and any hope of job creation in its crib.

[SharonAnn]

2. FDR did that and it lengthened the Depression. Strangled the recovery.

[laughingliberal]

3. Yes, when we said we wanted Obama to govern like FDR, that wasn't the part we meant

:rofl:

[Common Sense Party]

12. What did FDR do to lengthen the Depression?

[angryfirelord]

17. The Great Depression

believe it or not, was actually two events, one depression and one sharp recession. Thanks to the new Keynesian policies that were implemented during the first 100 days, the economy started to recover and by 1936, most economic indicators were back to their pre-Depression levels. Unemployment always lags and while it better than at 1933, it was still at 14%. The problem is that FDR gave into political pressure and rather than wait for unemployment to catch up (as per Keynesian economic policy), he made an attempt to balance the budget. This meant cutting large amounts of funding for critical programs such as the WPA. This in turn started the Recession of 1937 and it's why it's referred to as the Roosevelt Recession in the history books.

That's why we shouldn't listen to the goldbugs, the deficit hawks, and other conservative/libertarian lines of thought. It may seem tempting to give into panic and political opposition (especially since 2010 is looking precarious), but Obama is going to be better off if he listens to his economic advisors and the history books.

[sendero]

4. Obama's economic policies..

... could not be more clueless.

There is no "recovery" and the time to worry about the federal budget was BEFORE shoveling trillions at the banks.

Obama's economic goose is now fully cooked. The SECOND the fed tries to raise interest rates the economy will tank like a torpedoed submarine.

They have put themselves into a box. Worrying about deficits, how quaint.

[Statistical]

5. You know this how?

What if Fed doesn't raise interest rates until 2011, or 2012. What is we are gaining jobs at rate of 300K per month and inflation is north of 6%. Would raising interest rates tank the economy then?

Absolute blanket statements are clueless.

Fed has raised rates many times in past without tanking economy. Of course you have all the super secret insider info that even the Fed doesn't have so you know it is a lose-lose outcome.

You are aware the fed has reduced balance sheet and ended quantitative easing without tanking the economy? Maybe they used magic.

[sendero]

6. If the Fed doesn't raise rates..

.. inflation will take off. They are in a box. You wait and see pal.

Didn't tank the economy? Fool, the economy is tanked. Federal debt has exploded. The printing had to be done to prevent wholesale deflation but at some point the Fed will have to turn on a dime and they are about as likely to accomplish that as I am to grow hair.

I don't "know" anything. But long before this whole shitpile happened I was being called "chicken little" for predicting it. Well, "chicken little" says that NOTHING of substance has changed. The big banks are STILL insolvent although they pretend not to be. At some future point in time the curtain will come down and pretending won't work any more.

[clixtox]

7. I agree completely!

I am surprised so many people can disagree.

Reality as I am seeing the situation: The once fecund, now rancid, USA economy has so many unsustainable dynamics occurring simultaneously that the sort of fundamental restructuring required to create an efficient, transparent and well regulated financial system would necessarily be revolutionary, not evolutionary.

With the mysterious, to most Americans, the uber-rich puppet-masters, controlling enough of the mega-corporations and most of the politicians, any incremental adjustments of the paradigm are absolutely guaranteed to not solve any of the underlying problems.

Never happen!

Tweaking, loosening and tightening, deficit spending, squirreling away debt, draining the middle class, relentlessly exploiting the resources of the planet, providing through "aid" or selling war making materials, lying, treaty breaking, genocide, invasions, torture, kidnappings, prisons & prisoners beyond counting, a population malnourished for profit, quality health care for the wealthy or lucky, and myriads of other fruits of CAPITALISM will continue in our names.

Isn't that outrageous! All of these crimes and all of the machinations of the Federal Government are done in our names, all citizens of the USA are responsible for these activities. The fact that we derive no benefits, only the opposite, we are all damaged and victims too. That doesn't absolve us of our culpability since we pay the bills with our taxes.

Capitalism equals exploitation.

Think about it!

The premier propaganda apparatus ever created would, of course, prefer you didn't worry your little pinhead about inconsequential matters.

If this seems harsh rather than having resonance then turn on your TV, kick back and relax... Sorry to annoy you!

[sendero]

10. I don't blame...

... capitalism or democracy. Both work well when done right. We have neither, and haven't for quite a while.

Eventually, the rich will kill the golden goose, i.e. make it so painful for the poor that they rise up. And unlike most countries, the poor are well armed here. We've got a ways to go yet, but that is our ultimate destination.

[Statistical]

8. Federal debt has nothing to do with the Fed,

Inflation won't happen in a deflationary environment.

Not sure why you are coupling federal debt with printing by Fed. Fed did expand balance sheet and has no contracted almost 1/3rd of that expansion.

If there is inflation that means increase in productivity and DEMAND for goods and services to the point of price increases. That would indicate a growing economy

So yes the Fed does need to worry about inflation but bonds are a good indicator there is no inflation risk in short term.

As long as 2 year and to lesser extent 5 year bonds remain at record lows (despite record debts sales by govt) that indicates default risk outweigh inflation risk for big money.
Every time we saw an inflation spike the 2 & 5 moved before it as investors demanded more a of premium for locking up their money on low yield products.

[sendero]

9. The Fed is buying Treasuries..

... you are woefully uninformed dude.

[girl gone mad]

13. "Federal debt has nothing to do with the Fed"

Economics 101:

Estimated ownership of US public debt in 2008


(psst...it's that big blue chunk of the pie)

[OllieLotte]

11. I agree with your analysis.

10% unemployment. Huge deficit, unfunded commitments for SS, MC etc and now talk about funding national health care with a shell game?

[econoclast]

14. Samuelson sounds like Greenspan

Samuelson on the defecit- "worry later about how we wind up in reverse and get out of it".

Greenspan on bubble and excessive leverage - we'll worry about picking up the pieces after it bursts

How'd that work out?

[roamer65]

15. Deflation has been and is a myth.

The numbers they report are highly "cooked". In particular, look at he chart using the 1980 inflation measurement.

http://www.shadowstats.com

In particular, look at the chart using the 1980 inflation measurement. The divergence shows the fudging that started under Raygun.

M1 money supply over the last few years has been nearly tripled. That spells huge inflation numbers in the near future. The Fed will not drain this liquidity. It will simply cook the numbers further.

"Deflation" is the crap they are feeding you to make you stay in dollar-denominated assets. If you stay in the dollar, then you pay the tax called INFLATION.

[Taitertots]

16. The idea of a balanced budget is foolish

It will only increase the severity of economic fluctuations.

We need countercyclical policy. Increase spending during recessions and pay off the debt during good times. Increase taxes when the economy is going good and decrease them during recessions.