Good grief this is painful to watch:
Discuss
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And that doesn’t even include the potential write down and losses from Fannie and Freddie, which could add another $2-$3 trillion or so to the debt, easily.
They guarantee or own somewhere around half of the $12T-$13T in home loans outstanding in this country.
What happens when we have to bail them out?
Do their books even reflect market reality at this point?
Good point. I would like someone…anyone…to explain in real terms how the current tax and SPEND policy makes any sense whatsoever. One of my degrees is in economics and I have yet to hear anyone adequately explain how being fiscally liberal even makes sense on paper. Let alone in reality. Yet here we are spending our way into debt we’ll never get out of. Unemployment will continue to skyrocket, more people will depend on handouts and it will spiral perpetually downward from here. The brains will then decide they need to spend more?!?! Maddening!
Good point. I would like someone…anyone…to explain in real terms how the current tax and SPEND policy makes any sense whatsoever. One of my degrees is in economics and I have yet to hear anyone adequately explain how being fiscally liberal even makes sense on paper. Let alone in reality. Yet here we are spending our way into debt we’ll never get out of. Unemployment will continue to skyrocket, more people will depend on handouts and it will spiral perpetually downward from here. The brains will then decide they need to spend more?!?! Maddening!
Come on, you know the answer: it’s not our problem! Our kids can handle it. So what if the US won’t have a AAA rating any more and no one will be willing to lend to us and interest on our debts will go up, further increasing the sickening amount of money we owe. We’ll deal with it in 10 years, 20 years…just not now
Good point. I would like someone…anyone…to explain in real terms how the current tax and SPEND policy makes any sense whatsoever. One of my degrees is in economics and I have yet to hear anyone adequately explain how being fiscally liberal even makes sense on paper. Let alone in reality. Yet here we are spending our way into debt we’ll never get out of. Unemployment will continue to skyrocket, more people will depend on handouts and it will spiral perpetually downward from here. The brains will then decide they need to spend more?!?! Maddening!
Come on, you know the answer: it’s not our problem! Our kids can handle it. So what if the US won’t have a AAA rating any more and no one will be willing to lend to us and interest on our debts will go up, further increasing the sickening amount of money we owe. We’ll deal with it in 10 years, 20 years…just not now
You forgot the standard; “the rich are too rich” and no where did your post mention the word “fair”
All in all, it’s just another break in The Wall. (sorry someone had to say it)
All in all, it’s just another break in The Wall. (sorry someone had to say it)
Nice!!! Well played.
explain how being fiscally liberal even makes sense on paper. Let alone in reality.
It makes sense when you’re spending to make capital improvements which increase income over the long-term.
An example being it makes sense for a med student to go into debt while in med school because of the dramatic increase of lifetime earning power given by a law degree.
The national example, would be, say war bonds which allow preservation of national sovereignty and thus preserve the national economy.
Debt is a tremendously powerful tool, and one of the most significant ideas ever in economics, which gave rise to explosive increase in economic growth and standards of living. It gives the poor the capability to compete with the rich. It promotes risk and innovation which are central to free market economics.
The structural debt which forms the bulk of the U.S. National Debt exhibits few of these positive characteristics. But you asked for the “theoretical” justification, so there you are.
Your reply has some merit. But I don’t think this is the kind of debt we are talking about. I think it is more like a med student taking out a 10 million dollar loan to go to med school to get a job that will pay out over a career span 4 million dollars. With out a care of who pays off the loan. Unsustainable and irresponsible no matter how good the intention was.
I thought the Cash 4 Clunkers was a brilliant investment from a debt perspective. It is only a matter of time before those clunkers start paying off big time. We would have been better off using that money to stuff in the broken oil well.
I completely agree with your assessment of the benefits of debt. I however complete question whether the government should be under any circumstances using it as a tool.
IOW is it the government job, or agenda to be in charge of “Growth” of any kind or is their job something else. Proper debt by a company or individual for growth purposes, sure, proper debt by the government for growth, I don’t thing so.
~Matt
The use of leverage by the government is a value destroying proposition.
The cost of capital may be lower, but the inneficient deployment of that capital completely negates the funding advantage vis-a-vi the private sector.
An example being it makes sense for a med student to go into debt while in med school because of the dramatic increase of lifetime earning power given by a law degree.
excellent and well though out analogy. what i really want to know though is where i can go to med school to receive a law degree? 
where i can go to med school to receive a law degree?
Damn, was hoping no one would catch that.
where i can go to med school to receive a law degree?
Damn, was hoping no one would catch that.
You can edit your posts
explain how being fiscally liberal even makes sense on paper. Let alone in reality.
It makes sense when you’re spending to make capital improvements which increase income over the long-term.
That, and the fact that practicing counter-cyclical discretionary fiscal policy makes sense as one of the inbuilt economic stabilisers of modern economies. Even ultra-conservative economists like Friedman acknowledged as much, even while pointing to the potential pitfalls of timing/lags, focus, unpredictability of private sector response etc.
It bemuses me that conservative commentators are bleating about Obama’s spending predilections when the USA’s position in the economic crapper was assured by the fact that, during some of the most benign economic conditions in a century, socially conservative (but fiscally reckless) administrations spent like the proverbial drunken sailor. The USA entered its current recession already in hock to its nostrils. That wasn’t Obama’s fault. The first job he gave H. Clinton was to go and beg the world (esp China - oh, the irony) to not cut up the USA’s credit card. There just isn’t a palatable menu of choices for the current administration (even more debt? deeper, longer recession?).
In my communist country (where both of the pinko-liberal parties at least practice fiscal conservatism) we have not had a recession since 93, and we successfully avoided recession during the ‘made in USA’ financial crisis through stimulus spending. We could afford a stimulus program, because it followed about 15 consecutive years of surplus. We’ll be 3 years in deficit, then back in surplus. When will the US be out of debt?
Surpluses during growth, deficits during downturns, that’s actually how it’s supposed to work for the government sector. It’s no surprise that the recent US model (ever larger deficits) is not working so well.
There just isn’t a palatable menu of choices for the current administration (even more debt? deeper, longer recession?).
Cut spending? Sounds palatable to me. An across-the-board tax increase should be on the list as well, just to get the debt ‘under control’, but reducing federal spending should be priority #1.
Well, you might have inferred from my earlier post that I think getting debt under control for the first time in a generation is the long overdue better option.
My point is that trying to do it dramatically - during the US’s worst downturn since the Great Depression, with consequences of greater unemployment (yours is already double ours) lower growth (yours is half ours) and the weight of further business failures and personal bankruptcies thrown onto a banking system that has already come within a bee’s dick of catastrophic collapse - is probably not up there with your Nanna’s apple pie on the ‘palatability’ scale.
It might be “needed”. It might also be political suicide, because the US electorate hasn’t demonstrated much appetite for tough economic decisions. “Spend more, tax less” gets the votes, and you do have a form of democracy.
The toughest economic challenge we’re experiencing in my country is that the central bank has imposed 6 interest rate increases in 12 months to slow the rate of economic expansion. We avoided a recession and are managing the next boom with the national accounts in good shape. My political leaders are choosing from a much more appealing policy menu than yours.
Here’s a cute chart:
http://www.visualizingeconomics.com/2010/05/24/us-national-debt-1940-2010-chicago-tribune/
The greater problem is the smaller (government) component. Anyone who looks very carefully will notice that it didn’t start with Obama, and wasn’t caused by Clinton.
Tax increases will not close this gap…historically; REGARDLESS if marginal tax rates are 70% or 28%, the govt take is 19% of GDP…so, tax increases will not marginally increase revenue into the govt…
The only way to increase revenues into the tresury is to grow the economy. Remember 19% - in fact, our budget should be set at this target.