There is no US federal debt crisis

[girl gone mad]

This article is from March, but still 100% valid today. Economist Steve Keen says there are 4 components to the economy - households, businesses, government and banks. I would argue that local/state governments should be counted separately from the federal government so we have 5 sectors. 4 of those 5 are net saving/reducing spending in the US economy. What do you think happens if the federal government tries to reduce spending and shrink its deficit?

There is no US federal debt crisis
http://blogs.ft.com/economistsforum/2011/03/there-is-no-us-federal-debt-crisis-2/#ixzz1S1YLmJa6
By Francis Bator

Fiscal prudence matters. But the helter skelter rush to cut this year’s and next year’s budget deficits is high-priced folly. For want of enough spending overall by households, businesses and government taken together, i.e., for want of enough buying, a huge amount of production capacity is standing idle, producing nothing. 13.7m unemployed workers — four for every job that is vacant — are searching for jobs instead of working and earning income. At the same time, states and local governments, forced by shrunken revenues and shrinking federal subsidies to curtail their spending, are shutting health centres, allowing roads and bridges to crumble, and laying off nurses, firemen and teachers.

With all that spare capacity, why are businesses not hiring more workers and increasing production? Because their sales people are telling them that there would be no buyers. Debt-burdened households, deficit plagued governments and businesses with a lot of their plant and machines standing idle, are simply not spending enough overall to buy all the goods and services that businesses are easily capable of producing. A trillion dollar per annum shortfall in buying is keeping production by most industries below 2007 levels and the unemployment rate near 9 per cent. And with Treasury bill rates near zero — and core wage-price inflation below target — the Federal Reserve is almost if not quite out of ammunition.

If anyone tells you that cutbacks in this year’s and next year’s federal spending will encourage enough additional private spending to make up the difference — never mind narrow the inherited trillion dollar output and jobs gap — look him hard in the eye and ask him if he’d really bet his children’s tuition money on that proposition. It’s nonsense. Reduced sales to government and lower transfer payments from government, therefore less spendable private income, and more jobless workers and idle factories, will be more likely to cause both households and businesses to reduce their spending.

Granted, explosive growth in federal debt relative to gross domestic product can’t go on indefinitely. But http://www.slate.com/id/2561">Herbert Stein’s “so it will stop” does not tell you when and how fast it’s sensible to stop it. It depends on what you owe, to whom you owe it, and how rich you are. Except in extremis, it also depends on the state of the economy. Assuming responsible Republican leaders put a stop to Russian roulette lunacy over the debt limit, the US is light-years from extremis. Unlike say Greece, we can “print” what we owe, and owe almost half of it to each other. (“Printing” money is not tantamount to inflation. Whether it will cause price and wage inflation depends on the macroeconomic situation.)

[truedelphi]

1. next you will be telling us that there aren't two separate political parties -

jes' one big Money Party.

In any event, a big K & R.

[slay]

4. Ouch

k&r indeed.

[TBF]

12. K&R this post. nt

[amborin]

2. K&R

[truedelphi]

3. If the money being cut back was being cut in the military sector -

Where profits outnumber workers by a significant amount (When a toilet seat costs over 500 bucks, you know it is not the worker getting that profit,) then cutting back would be a savings. The people getting rich off the military sector, like the Halibiurton executives could surrvive some cutbacks.

In fact, those executives could survive a whole lot of cutbacks - and maybe cutbacks would force them to quit billing the US federal government $ 100 for every load of wash it does for the GI's still absed in iraq. (By the current set of laws, a soldier can be demoted or court martialed for doing their own laundry! It has to be done by Halliburton or K B & R.)

But for every dollar that the Federal government cuts back on state programs, it means that the states must lay off some teachers, fire fighters, social workers, planning managers etc. These individuals are the people who are spending their dollars at the local diner, the local grocery marts, hardware stores etc.

So the real net effect will be small businesses going belly up. Then the tax revenue both to the Feds and to the state franchise boards will be much smaller. As a result, the ripple effect pretty much ensures that there will be a huge increase in poverty.

Should Social Security and pension monies be cut back, the business that my husband and I run, a small publishing company, will suffer, along with hundreds of thousands of other small businesses. People with pension and Social Security money are the life blood of our publishing firm.

[sabrina 1]

6. Excellent point about cutting back jobs in the public sector.

Why is this administration going along with this, as it adds to the unemployment numbers, for one thing, and politically, doesn't serve them well?

Unless they are serving another master and what the public thinks, as we have seen in France, Italy, Spain, Ireland, Greece et al. What then is the plan when you get the electorate so angry? Does someone just buy the next election for those who did the best job of privatizing as much as possible, destroying social safety nets as much as possible, firing as many public workers as possible?

[truedelphi]

9. The voting machines are just as hackable now as they were in 2004 -

And that fact makes the following conversation from 1935 all the more important:


George Seldes, who was a Chicago Tribune correspondant during the late Nineteen teens and up until 1929, and then became a best selling author, he relates
the following conversation that he had with Dorothy Thompson -another news reporter and the wife of Sinclair Lewis:

Thompson told Seldes in 1935 that while en route by ocean liner from France to NYC that Harry F. Sinclair, a Big Money Guy, took her away from the table where they were eating to talk privately with her.

"See those folks at the table who were eating with us?" Harry F Sinclair asks Thompson? (Harry F Sinclair is usually mentioned in history books fior his willing participation in the Teapot Dome scandal.)

"Yes," answers Dorothy.

"Well, all of us are the ones who decide who gets nominated to run for the Presidency and who gets to win that office."

Among those he meant was an important associate of the Giannini family, who established Bank of America.

""We give money on both sides of the aisle, so that no matter what, one of our people is always in a place to do our bidding."

"What about FDR?" asked Dorothy.

"Our support for him was a major misjudgement on our part. We saw to it that he had money and of course, we fully expected for him to say the sort of things that he always said. We just didn't expect him to act on those statements."

Sinclair went on to state that the Inner Circle of Power Brokers was attempting to raise some five to twenty million to defeat FDR in 1936.

But back in that era, the voting was done on paper ballots, and the integrity of the voting system ensured that FDR did get re-elected, despite the amount of money thrown against him.

However, now that the voting system is crappola, we can expect that Obama will get his second term only if he continues to make all the collusionary and required compromises, or the Republicans will simply be handed the voting machinery as they were in 2004.

[dixiegrrrrl]

5. AND there is NO Soc. Sec/Medicare funding crisis, either.

Honestly. Maybe in the distant future, but now now. All this yelling about "no checks" is a BS game.

Find out for yourself.

http://www.treasurydirect.gov/NP/BPDLogin?application=np

[truedelphi]

10. The big problem about this is that so many out there know not a thing about

How Social security works, and understand even less..

Even the esteemable Bill Mahr puts up his pie plate with three separate groups of edibles that according to him must all come out of the General Fund used by the government to pay for necessities. And he says that Social security and mediCare are correctly represented by being one third of the pie chart.

And that is wrong. Social security is its own separate fund, and that fund is solvent, with a 2.1 trillion dollar surplus and has nothing to do with the payments that are to be made from the federal government's monies.

Maher is not the only one doing this. The Blue Dog House of Representatives guy from my district, Mike Thompson, uses the same piece of disinformation at all his public forums. And he doesn't back down, even when members in the audience use their time to explain to him that he is mis-representing reality.

[ProSense]

7. "There will be dire consequences if this limit isn’t raised."

Krugman:

In about a month, if nothing is done, the federal government will hit its legal debt limit. There will be dire consequences if this limit isn’t raised. At best, we’ll suffer an economic slowdown; at worst we’ll plunge back into the depths of the 2008-9 financial crisis.

<...>

[Zenlitened]

8. Did you mean to post this in another thread?

The OP is about the federal debt, not the debt ceiling.

[grahamhgreen]

11. K&R