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Europe: Also Doomed | ThinkProgress

Europe: Also Doomed | ThinkProgress

Also a little late but....

How can our debt be downgraded if its still the best around? At some point maybe the US and Europe should just tell the bankers to get fucked. We'll pay China, our Individuals and other countries back but rich hedge fund bastards can go to hell. What are they going to do?

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Who Borrowed? Who Loaned?

Econbrowser: Graphic of the Day: Who Borrowed? Who Loaned?

The Deficit

How the Deficit Got This Big - By TERESA TRITCH

A few lessons can be drawn from the numbers. First, the Bush tax cuts have had a huge damaging effect. If all of them expired as scheduled at the end of 2012, future deficits would be cut by about half, to sustainable levels. Second, a healthy budget requires a healthy economy; recessions wreak havoc by reducing tax revenue. Government has to spur demand and create jobs in a deep downturn, even though doing so worsens the deficit in the short run. Third, spending cuts alone will not close the gap. The chronic revenue shortfalls from serial tax cuts are simply too deep to fill with spending cuts alone. Taxes have to go up.

End the Bush Tax Cuts, the stupid wars on the Muslims, bump up the top tax bracket for the >250k (or >500k) per year crowd, increase the Social Security Taxable income cap and most of our deficit problems go away.

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Long Term Budget Forecasts

The Baseline Scenario: Long-Term Budget Forecasts for Beginners

The CBO predicts that if our leaders do nothing, leave current laws in place and let expiring laws expire, the debt will level out at about 75-80% of GDP but if our leaders continue to act the way they have the last ten/fifteen years and extend these expiring laws (tax cuts, AMT, DocFix) the debt will balloon to over 180% of GDP.

It's like a bucket of shit. The more you stir it, the more it stinks.

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Cutting the Deficit

Dean Baker ponders how cutting the deficit will lead to increased growth and job creation.

Dean Baker: The faith-based economics of deficit reduction


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The Debt

The Baseline Scenario sums it up.

When people hold certain ideological beliefs strongly enough, no amount of facts will get in their way. If you believe that the current deficit is the result of excessive government spending (passed by Democrats, even though they only controlled Congress and the White House for four out of the past thirty years*), no pile of charts will be big enough to convince you otherwise — just like if you believe that tax cuts increase tax revenues, that the deficit has produced high interest rates, or that Barack Obama was born on Mars, no amount of evidence will convince you otherwise.

This is just fine if you are my daughter, who is four years old — although, actually, she admits it when she makes a mess (and helps clean it up). But if you are a legislator in the most powerful country in the world –and the one whose debt is the definitionally risk-free asset against which the yield of every other financial asset in the entire world is measured — it’s not good enough.

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Brad Delong Speaks

A couple of good points from a [Brad Delong talk about the Financial Crisis]

First on the Financial crisis

As the foundations of this crisis were laid, there were always arguments against massive regulatory intervention to deal with it. Those arguments always sounded convincing. The stayed convincing even as the situation transformed itself from a justified boom in long duration assets driven by advances in diversification and by capital inflows pushing down interest rates, to froth, to irrational exuberance, to a full-fledged bubble.

The first argument was: "well it is their money." Countrywide probably knows what it is doing. There are major benefits from diversification and better access to credit. Even if it does not know what it is doing, it isn't the government's job to rescue the investors in Countrywide from the fact their risk controls are not what they ought to be.

Second, Alan Greenspan really is a Randite, really is a follower of Ayn Rand. He really does believe that it is a bad thing to infringe your freedom and protect you from yourself. He really is the kind of person who thinks that it is bad for you if the government keeps you from making stupid investments that cost you all your money. You can ask him--"do you think there should guardrails on the ledge of the Grand Canyon?"--and he might well say no--that there should be warnings, but if grown-ups wish to venture too close to the crumbling edge... they are grown ups, and should not be treated like children.

The third argument was: "who is going to get hurt?" Investors in Countrywide, but they are rich and risk-loving and if they want to build the rest of us houses we should probably say "thank you." And somebody buying a house east of Riverside California with a zero-down, a teaser rate, a pick-what-you-pay mortgage--what they are really doing from an asset-price perspective is renting a house at a below-market rent for three years and being given a free call option on the house. They will be sad if the house price doesn't go up and the call option is not worth exercising. But that is regret. That is not harm: they did still get to live in the house at a low rent for three years. So why should the government step in and keep people from getting these deals if Countrywide wants to provide them?

Fourth, and most important, it is a big political looser for regulators to go before Congress. The Democratic members would whack them: why aren’t
you letting my constituents buy the houses they want to buy? The Republican members would whack them: why aren’t you letting my contributors make the loans they want to make?" That’s a very unpleasant position for a regulator to be in--when both Republicans and Democrats agree that you are an ass.

Fifth, there was the fact that the old framework for lending locked lots of people out of the real estate asset class, and a belief that we should be experimenting with new ways to get money to people who want it to make investments--that we should be trying to broaden the access of the poorer half of Americans to high-return investment vehicles.

Most important, however, was the overall belief on the part of the regulators that they could handle it. Subprime was a small asset class in the global economy. The Federal Reserve was powerful. Whatever stupid things financial markets did, the Federal Reserve could clean up the mess afterwards and build firewalls between finance and the real economy so that we would not suffer from high unemployment and a deep recession. The Federal Reserve had handled it in 1987 with the stock market's Black Monday, had handled it in 1991 with the Savings and Loan crisis, had handled it 1995 with the Mexican crisis, in 1997 with Malaysian crisis, in 1998 with the triple crisis--the Korean crisis, the state bankruptcy of Russia as it became clear that just because you were a nuclear armed ex
superpower that did not mean the IMF thought you were too big to fail. the bankruptcy of the largest hedge fund in the world, LTCM. We had the 2001 collapse of the dot-com bubble. And in every single case we managed to handle it: contain systemic risk, stabilize the financial system, and avoid a deep recession.

And on the long run deficit problem

It is a fact that if congress simply goes home--doesn’t do anything for the next 10 years except keep the federal government on autopilot, or if it does do things if it pays for whatever increases in spending it enacts by raising taxes and pays for whatever tax cuts it enacts by cutting spending--that we do not have a long run deficit problem. If congress goes home for ten years our program spending is matched to our tax
revenues, which means a declining debt burden because the growth rate of the economy is larger than the interest rate on our debt.

Our belief that we have a long-run deficit problem is based upon the belief that congress will pass laws that increase spending and that cut taxes--that it will repeal the Independent Payment Authorization Board's authority to try to make Medicare more efficient, that it will repeal the Affordable Care Act's tax on high-cost health plans. Given that the fear is based on a belief that some future congress will bust the budget, it is hard to see how we can address this fear through any possible piece of legislation today--for no congress can bind its successors.

This is a problem.

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The Deficit

Here are the arguments behind the chart below. Causing the deficit

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Why the Debt?

The Collapse of Fiscal Rationality In America - Brad DeLong's Grasping Reality with Both Hands

Congress: Spending-Deficits

We're pretty serious about cutting spending: [Spending Cuts]

Unless we're talking about this spending:

[Barak: U.S. aid significantly bolsters Israel's missile-defense capabilities - Haaretz Daily Newspaper | Israel News]

Defense Minister Ehud Barak welcomed Friday a decision by the U.S. House of Representatives to approve a budget which includes $205 million intended for continuing development of the Iron Dome anti-missile system

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Another $20 billion ?

Israel may ask U.S. for $20 billion more in security aid, Barak says - Haaretz Daily Newspaper | Israel News

Damn, those Israelis aren't shy.

"It might be wise to invest another $20 billion to upgrade the security of Israel for the next generation or so," he said, adding: "A strong, responsible Israel can become a stabilizer in such a turbulent region."

Israel doesn't need any more US taxpayer money. They have been the strongest nation in the region for 50 years and really haven't been much of a stabilizer, in fact, many would say they are responsible for the turbulence in the region. Maybe they should put a little more emphasis on the "responsible" part of "a strong, responsible Israel".


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Turning a Blind Eye to the Obvious

A nice chart here.

Would every Fox News wathers/Tea-Bagger please take a look at this chart. The critical area is after the bottom of the early 1970s. Now think about who was president during each period of increasing deficits and each period of decreasing deficits.

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Found here: Turning a Blind Eye to the Obvious - NYTimes.com

The 58 Billion in budget cuts

from GinAndTacos: ginandtacos.com » Blog Archive » LOW HANGING. AND DIMINUTIVE.

Our Government doesn't Work

Robert Reich (National Fiscal Hypocrisy Week)

On Earmarks

Earmarks


I see Earmarks more as a corruption issue than a spending issue. This article makes the point that earmarks and spending are not necessarily related. However, earmarks are a great tool if my congress man want to reward some friend of his in the district. Still, in the list of problems facing the US right now, earmarks seem like a minor issue.

Why the Mass Media Sucks

and Why We Still Need Health Care Reform.

Why does this information have to come from bloggers?

... The budget problem is almost entirely a story of a broken health care system. If the United States had the same per person health care costs as any of the countries which enjoy longer life expectancies than the United States than it would be facing long-term budget surpluses, not deficits.

Ross Douthat Claims That "Everybody Knows" Something That Is Not True | Beat the Press

Run Government Like a Business

"Run Government Like a Business" = Deficit Spending | Angry Bear

Our Debt - Who's Responsible?

From the Booman Tribune

Here's some historical fact. In the Roosevelt/Truman term from 1945-1949, public debt dropped twenty-four percent. During Harry Truman's full-term (which included most of the Korean War), public debt dropped twenty-two percent. During Dwight Eisenhower's two terms, public debt dropped by 11% and 5%, respectively. During the Kennedy/Johnson term, public debt dropped eight percent, and it dropped 8% during LBJ's full term (which included the beginning of the Vietnam War). During Nixon's first term (which included the remainder of our major involvement in Vietnam), public debt dropped three percent. It wasn't until the Nixon/Ford term from 1973-1977, that our debt rose, and it rose a meager 0.2 percent. Jimmy Carter dropped the public debt 3.3%, despite a very weak economy.

This was our history until Ronald Reagan came to power. During Reagan's two terms our public debt increased eleven percent and nine percent, respectively. Under George H.W. Bush, our debt increased fifteen percent. This was rectified under Bill Clinton, whose two terms delivered a one percent and seven percent reduction in our public debt. And then came George W. Bush.

In Bush's first term, our public debt increased seven percent. During his second term, our debt increased by a post-war record of twenty-percent.

For those of you reading along, the history is that no Democratic administration in the post-war era has ever completed a term in office with the public debt higher than when that term began. The same can be said for Dwight Eisenhower. However, public debt rose during every Republican term since Nixon's first ended in 1973.

War Machine - Deficit? What Deficit?

Even though the deficit gets a lot of polital news play, our leaders really don't seem to have a problem with it. Deficit spending is OK as long as it's for bombing the hell out of other people. We wouldn't want to spend any extra on Americans though.

State of the Nation