S&P goes a step further in downgrade warning
By Norman Leahy | Friday, July 15th, 2011 | Policy, PoliticsStandard & Poors takes Moody’s threat to downgrade U.S. debt of there’s no deal and goes a step further, saying, in effect, that while it believes the political class will come to some sort of deal, not all deals are created equal:
Congress and the Administration might also settle for a smaller increase in the debt ceiling, or they might agree on a plan that, while avoiding a near-term default, might not, in our view, materially improve our base case expectation for the future path of the net general government debt-to-GDP ratio. U.S. political debate is currently more focused on the need for medium-term fiscal consolidation than it has been for a decade. Based on this, we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a ‘AAA’ sovereign rating, given the expected government debt trajectory noted above.
That would seem to indicate that if all parties concerned adopt Mitch McConnell’s “Plan B,” which would shut responsibility for debt ceiling increases to the President and avoid any serious changes to either spending or the tax code, S&P will likely downgrade U.S. debt within 90 days.
But one thing that has gotten lost in all the hand-waving, petulance and posturing over the debt ceiling is that none of the plans past, present or future would really cause spending to go down. As the Richmond Time-Dispatch reminds us this morning, even that draconian, world-ending plan from Rep. Paul Ryan would see federal spending continue to increase, though at a slower rate than that proposed by the President:
You might not have heard this from the president’s cheerleaders in the establishment media, but nobody in power has proposed to shrink the federal budget. Nobody. The current federal budget totals about $3.8 trillion. The Republican proposal, from Rep. Paul Ryan, would raise spending to $4.7 trillion over the next decade. Obama wants to raise it to $5.7 trillion. The fight is not over whether to raise spending — but by how much.
Mind you, those increases would come on top of the already staggering recent growth of the federal budget — which stood at $2.9 trillion just three years ago. Spending has ballooned 30 percent, and Republicans agree to grow it more.
In short, no one in Congress or the White House is talking about using honest math.
Good grief…
(Cross-posted at Score Radio Network)
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Norm Leahy has written about Virginia and national politics online since 2002, beginning with One Man's Trash (OMT), and continuing through Bacon's Rebellion (both the blog and the e-zine), Sic Semper Tyrannis, NBC12's Decision Virginia, Richmond.com and Tertium Quids. He is the chief blogger at "The Score" and a producer of "The Score" radio show as well as being a Washington Examiner contributor.
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68 Responses to "S&P goes a step further in downgrade warning"
What is increasingly clear is that decreases in expenditures and increases in revenue are required to address the concerns expresses by the rating agencies. Just focusing on one side of the equation won’t deal with the long term structural deficit. Of course, the far right republican majority in the House will only consider cuts, all but guaranteeing we will default. For there is no way to meet requirements of the rating agencies without causing recession than to agree to cuts and increases in revenue as well. This brinksmanship in the face of near universal condemnation of these tactics from all but the House itself can only lead to their demise.
The point remains, Mike, that both sides want to spend more over the next decade. They are beating each other senseless over the rate of increase.
Yes, that is true, but with decreases in the rate of increase, and growth in GDP, the percentage of revenue and expenditures can decrease to 20% or so, and the national debt will go back down to the normal range, of no concern to rating agencies. The trick is to makes these changes without throwing the economy back into recession, because growth in GDP is an essential component of recovery and prosperity. Regretfully, House republicans have overplayed their hand, apparently forgetting the rest of us are not ideologues. We want to get back to the process of recovering.
I provided a link to a WAPO article on another link because this one was not available at the time.
Evidently the ratings agencies have indicated that if there is not a deal that both cuts the deficit (whether it be from revenue increases or spending cuts) and increases the debt ceiling, they are going to cut the US Treasury’s bond ratings. They have indicated that even if bond holders were given first dibs on the still remaining incoming revenue, they will but the ratings. Apparently they do even see such a plan as being a sustainable solution or something.
Some of this is going to come from the article and some from my own thoughts. Even with bond holders first in line (and I believe this is required by the constitution) the resulting impact of failing to increase the debt ceiling will crash the economy threatening the ability to continue to service the debt. I also feel they fear the backlash from voters once the cuts take affect.
The 14th Amendment to the Constitution states: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” However it is not impossible to change what is in the Constitution. The 18th amendment ushered in prohibition and the 21st repealed it.
The greatest irony of the House majority’s position is that the moment default occurs, and interest rates rise for the government and all of us, and productivity is stymied by recession, one thing is perfectly predictable; that is, the deficit and the national debt will skyrocket. These representatives who seem so inclined to force default on this nation are not fit for office.
Cut, Cap and Balance.
Mike,
You stated: “…the deficit and the national debt will skyrocket” and that is not 100% true.
If the debt ceiling is not raised, no additional debt can be taken on. What will happen is that the costs of servicing the existing debt will skyrocket as existing bonds mature and have to be rolled over at higher interest rates.
I believe the risks to the economy that you mention are truthful based upon what Moody’s and S&P are telling us. The interests rates businesses and consumers pay are tied to the rates on Treasury bonds.
I am flabbergasted by the hypocrisy shown by Republicans. They keep saying small businesses, the engines of job growth, can not afford tax increases. But the tax increases proposed by Democrats will not really affect the truly small business owner however the increased interest rates on credit will affect the entire economy.
My opinion is that it is increasingly becoming clear that Republicans have no concern for the small business man who needs credit or who depends on consumers who buy on credit. Their concern is for the wealthy who already have the money because they have less to fear from increased interest rates and some might think they’ll actually end up benefiting from them.
The other point the RTD misses is that the fight is less about how much to raise spending as to what that spending will go for.
Oh, and if anyone does not understand this completely, let me provide additional explanation. The increased costs of Treasury Bill interest rates will be felt immediately. As the bonds mature they will need to be rolled over at an auction. The Treasury will say I will pay you 100 billion (sliced up into digestible amounts) in 30 years and how much will you give me today for this obligation? The highest bidder wins. If we do not raise the debt limit, the bids will be lower and IMMEDIATELY our government will feel the impact of increased costs of servicing the debt.
Existing bond holders have reason to fear as well. Perhaps they bought a 30 year bond a few years back that does not mature for several more years. The price they paid, the principal, immediately deflates. You bought that bond based upon an expectation of a 5% return but new bonds now pay more. If you hold the bond to maturity, you’ll get everything back with the interest. But if you need the money and choose to sell in the meantime? Why should someone pay you what you paid when they can get a higher rate of interest with the new bonds? You are going to lose money buddy and you are going to lose big time.
My advice to anyone having their 401K invested in bond funds is to get out while the getting is good. The closer we get to August 2nd without a deal, the closer we are to the stampede getting started.
“But the tax increases proposed by Democrats will not really affect the truly small business owner” is a false statement because the any business owner who has more than a couple of employees, a brick and mortar store front and $250,000 or more of income will have their taxes increased. The “billionaires”, “millionaires” and the “super rich” in “Democrat speak” are almost all business that take in $250K and more including a sub shop franchise owner, a lawn care business, an Ebay business reselling used baby clothing, an independent trucker with a couple of employees and several trucks, to a neighborhood consignment shop and thousands of others. If your micro business shows $250,000 or more of income and the owners are really pocketing $50 to $60K, there are no incentives to hire more employees or grow if the government is going to take it away. Besides, hundreds of small businesses are failing every week, reducing the tax base further until there will be no business to tax. But, that’s the real plan, isn’t it?
Tim J,
I guess then I am a tiny business owner instead of just a small one. While I do pay many taxes which are not dependent on profits, the tax increases the Democrats are proposing are only on net, not gross.
If the sub shop owner has a million dollars in gross receipts but only $250k in profits, he will not be impacted.
Tim J just spouts the Cantor republican majority line which implies all capital is on the sideline because of anticipated new government regulations/taxes. What a bunch of bunk. Frankly, the recovery is in progress, will accelerate smartly if we don’t go into default, but it is the threat of massive cuts in spending that have many sitting on their wallets, waiting to see the effects of massive spending cuts on the consumer. Frankly, the layoffs of so many state and local employees has shown the effect of job loss on local small businesses that depend upon the circulation of dollars in the local economy. If House republicans have their way, and cause trillions of dollars in cuts that will curtail local small business activity, those sitting on the sidelines will have been justified in their caution.
Mike, you express fears that GOP policies would put us in recession. Some would say, “been there, done that”. You can’t go crazy if you are already there.
Are you saying that we in any shape or form have a healthy economy???
Let’s talk about you hypothetical massive govt job layoffs – ok?
What sir, is the CURRENT unemployment rate? How do the lack of jobs already affect businesses and indeed revenue, NOW?
And holding on to cash reserves. Like they have been doing for long before this debate? Don’t worry all the spending and over printing of currency will seriously devalue those assets.
You speak as though you just now realize the country is in fiscal jeopardy.
Mike, man… are you really that far gone? And I’ll bet your one of the 80% which the president polled along with other rabid liberals who said they want their taxes raised so he can spend more on “hope” by putting more businesses out of business. Oh, but Rasmussen just published a poll where 55% of voters oppose a tax hike in the debt ceiling deal. And the recovery? What recovery? According to Investor’s Business Daily Obama has lost 2 million net private-sector jobs; unemployment has increased by 1.5 percentage points; long-term unemployment is the worst ever on record; the dollar is 12 percent weaker; the number of Americans on food stamps has increased by 37 percent; the Misery Index (unemployment plus inflation) has increased by 62 percent; and the national debt has exploded by 40 percent. Obama is on track saddle America with more job-killing debt than all the first 43 presidents – combined.
As Dr. Milton Wolf, who also happens to Obama’s cousin recently said… “When all you have a hammer, everything looks like a nail”. Well, guess who the “nails” are in this great debate?
A new CBS News/New York Times poll finds that Americans oppose increasing the debt ceiling, by a 69 to 24 percent margin.
The Barry debt ceiling crisis is just getting so boring. Need a new crisis. Like the Jellyfish crisis.
So americans are saddled with the debt created by the past administration, and the stimulus required to prevent a depression, and the bright bulbs on this forum recommend putting the same guys back in charge again who will implement the same tired old policies that got us into financial crises, just faster this time. So as a business person running a business that has benefitted from the recovery, I am supposed to welcome default, higher interest rates, recession, and the devaluation of all my personal and corporate assets? I know you think I’m nuts because I won’t tow the Bearing Drift line, but I’m not crazy to boot.
The debt crisis is not going away no matter how many of you want to bury your heads in the pillow.
Deal with the problem now, or watch your pleasant dreams turn into a nightmare once you wake out of your slumber.
Mike.. “So as a business person running a business that has benefitted from the recovery, I am supposed to welcome default, higher interest rates, recession, and the devaluation of all my personal and corporate assets?” So to hell with the rest of us, right? Admitting that you benefited from the current malaise would make Grover very proud of you!
So Tim J, are you saying that all the rest of you welcome default, higher interest rates, recession, and devaluation of our personal and business assets? I said both I and the company I work for have benefitted from the ongoing recovery, and neither wants what inevitably will occur with default. So you are saying that you want default, higher interest rates, recession, and devaluation? I really can’t believe any rational business person would want any of that.
Mike sez: “national debt will go back down to the normal range”.
Mike, what is a normal range?
Mike, the point is that with the current spending and taxing trajectory we are on, “default, higher interest rates, recession, and devaluation?” are exactly what we will get. But, as you said, your company has benefited from your definition of “recovery” which to the rest of us is job loss, historic levels of short and long term unemployment, a weak dollar, historic numbers of Americans on food stamps, a 62 percent Misery Index, a national debt that has exploded 40 percent. All which has been good for your business and which is naturally why you want conditions to get worse for us little people so your “recovery” gets better. Someone has to change the Wikipedia definition of “Recovery”.
Well James, my view of that is that over 10 years, our goal ought to reduce annual revenues and expenditures to about 20% and the debt to GDP ratio to about 50%. I think most economists would agree that is the normal range.
“As the Richmond Time-Dispatch reminds us this morning, even that draconian, world-ending plan from Rep. Paul Ryan would see federal spending continue to increase, though at a slower rate than that proposed by the President”
You guys don’t read my stuff, do you? I can’t help you if you don’t read what I write.
Google “Dollar Sags, Precious Metals Fly On Wings of Ryan Plan to Extend and Pretend” for my article on the Ryan plan. And note the date.
That was way back in April before we had debt ceiling crisis.
MB says “my view of that is that over 10 years, our goal ought to reduce annual revenues and expenditures to about 20% and the debt to GDP ratio to about 50%.”
If that is your view then Obama and the Dems think you are a traitor to the cause. Maybe you will become a Reaganite against all odds.
JJ says “even that draconian, world-ending plan from Rep. Paul Ryan would see federal spending continue to increase, though at a slower rate than that proposed by the President You guys don’t read my stuff, do you? I can’t help you if you don’t read what I write.”
Nobody reads my stuff either but I don’t expect them to. As far as I can tell we are just sending letters to ourselves.
As for Ryan, I have been down on the Ryan plan for that reason among several. It’s a typical inside the beltway solution, accommodating all existing party powerbrokers. On top of it the Repubs passed it without even a nod to public input. Haven’t we seen this movie before?
Taxed
Enough
Already
America doesn’t have a revenue problem, America has a spending problem.
Tim:
We’ve had a debt crisis for the past 30 years. Nearly all of our so-called “growth” over that time has been debt-financed, spurred by Fed inflation, ever-lower interest rates, ever-increasing fractional reserve leverage (reserve) ratios, and ever-increasing federal deficit spending. We are only now reaching the point where the marginal productivity of debt has gone negative, AND the fed dot gov has reached the end of its ability to juice the economy by increasing deficit spending. That is why more debt not only isn’t working but actually makes things worse.
You can see the explosion of debt here: google “Fred Graph total credit market debt owed.” The link you find at the top of the search page will take you to a St. Louis Federal Reserve graphic site and a chart of total credit market debt. Yes, there really is more than $50,000 Billion ($50 Trillion) of debt outstanding in the U.S. alone. Can you see the parabolic nature of this curve?
These aren’t my numbers, they are the Fed’s. Now, someone please explain to me, if they can, the following:
1. How is the consumer going to take on more debt and reignite the economy?
2. How is a few measely $Trillion of government deficit-spending going to make it possible to pay this off?
3. How is a few measely $Trillion of federal reserve printing going to make it possible to pay this off?
4. On an adjusted monetary base of $2.5 Trillion, we have credit outstanding of $50 Trillion? Talk about leverage! And, before the Fed tripled the adjusted monetary base, we had the same $50 Trillion in credit out on a monetary base of $850 Billion! These numbers show how the Fed has been trying to reduce leverage in an effort to reignite lending.
FAIL. The consumer is tapped out.
Jamie, of course I agree in principle with your argument and the data you present is well sourced. You didn’t pick up on the sarcasm of my comment which is about the event driven nature of our ruling class and their “Pavlovian” responses to polls, the media and criticism from the otheir side. Their reasons for posturing their negotiations go to a core of ideology, self interest and political gain that has nothing to do with us or our country.
Tim,
They are using fear and our own ignorance against us. I despise them for it.
Here is the Fed’s own graphical representation of financial system leverage: google “Graph: Total Credit Market Debt Owed (TCMDO) / (St. Louis Adjusted Monetary Base (AMBSL)-Excess Reserves of Depository Institutions (EXCRESNS))”
It is obvious from viewing that chart that most of the so-called “growth” for the past 50 years has been leverage-induced, meaning it is built on a foundation of debt. Rather than dealing with the underlying problems, the Fed is trying to manage the economy by tinkering with the factors that are data inputs into these charts. Can you imagine the collapse of our economy should we start to deleverage back to 1960′s levels of leverage?
Managed economies don’t work. The reason? HUBRIS.
This also explains the libertarians’ obsession with sound money.
Jamie, these guys don’t care about charts and graphs. They only care about Cantor and Boner beating Obama.
Here you are just another Tea Party Prophet shouting “The End Is Near!”.
Let me add a dose of pragmatism and reality to this discussion. As the CEO of a real estate management and development, we have worked to keep our tenants, no matter what, and prepare for new development when financing comes back. That was now; today, with the Cantor/Rigell induced hysteria, the prognosis for robust economic development is severely threatened, just at the time that most businesses are simply looking for Washington to stop fighting, compromise, and let us get back to business. The House republicans have succeeding in destroying any cred they once had with all but their ideological masters. No matter what happens in the coming two weeks, I hope they get punished for it.
Doesn’t Rigell own a business too?
Mike,
Deleveraging = pain, especially for those who are highly leveraged and illiquid. Assets that are not written down cannot be put back into play at reduced rates. Write downs = losses for investors and principles. The government-induced avoidance of losses, keeping bad business models alive and a drag on the economy, is the greatest obstacle to recovery.
Darrell
These leftists don’t care about charts and graphs. They only care about Obama beating Cantor and Boehner and especially Palin
Are they just another Al Gore shouting “The End Is Near!”. Or maybe they are another Obama screaming “The sky will fall unless you pass all my socialist programs!”
Let’s read and grasp history before assuming any persona.
Left, right, north, south, the campaign slogan the people should be demanding is clear.
IT’S ABOUT THE COUNTRY, STUPID!
What we are seeing out of Washington isn’t about the country. It’s about power, greed and lording over the common folk.
That didn’t work in the days of mounted messengers and it sure isn’t going to work in an age of flash mobs and Twitter. The politicians are facing an ethical dilemma of their own making, while the citizens are reviewing a checklist for governmental reset. Looking at the checks in the boxes so far, being social is not on the list.
cap spending, cap the limit where it is, consolidate departments, privatize some others & enact the Fair Tax
This President has a bunch of inexperienced fools in his cabinet, also, and it would help if we got rid of them.
Fund the constitutional necessities, Zero-base budget the rest.
Yes, the oath says as follows: I, AB, do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.” Now, using raising the debt ceiling as a way to veto their legislative duties is against their oath. Signing the no tax pledge, as required by the head of the republican party, Grover Norquist, requires you to negate the oath above. So what to do? Raise the debt limit, as these obligations are obligations of the U.S. Government. If the Norquist party wants to enforce extreme austerity, fine, legislate that action. Don’t abrogate your duties as a member of Congress just because you don’t like what has been passed, ratified, and signed into law.
Mike, wow! You found all that stuff linking the oath, debt ceiling, tax pledges and Grover Norquist in the Constitution? To keep it straight, I checked the Federalist papers, Constitutional amendments, Supreme Court case law, and couldn’t find any references that would help. Oh, and I couldn’t find Grover’s great, great, great grandfather discussing these weighty issues with Madison or Franklin in these documents. Please help…
Mike likes Sesame Street. He keeps talking about Grover, while acting like a Grouch and supporting a budget bigger than Snuffleupagus.
Of course Brian, you once again fail to actually engage; far more likely for you to offer another snide comment. You have ridden the Norquist no tax bandwagon for so long you feel you have a sense entitlement. But the Norquist Party will ride it until it doesn’t, and when that happens, those who made their fortunes telling people to run on it will become has beens.
Great Moments in Doomsday Countdowns
Still trying to decide if watching an episode out of “The Twilight Zone” or a new soap opera “As The Tide Turns”, the ongoing story of politics in Tidewater.
Mike, I’m flat out a better writer than you. Your tripe is more boring than a yawning festival.
Mike,
Congress continually tinkers with transfer payment (theft) schemes. How does a threat, even an existential one, to the continuation of transfer payments at the current rates constitute a Constitutional crisis? Congress can simply say “We can’t afford this anymore.” And they would be correct in saying so.
The existential threat is, rather, to the notion of managed economies, nanny governments, cradle-to-grave welfarism, and the permanent majority voting and fundraising block of government employees, military contractors, transfer payment recipients, and the Wall Street banking den of thieves.
But, according to you, “we must have more debt!” Who benefits from this debt? Those who receive the money borrowed. Clearly, the benefits go to the permanent majority voting and fundraising block I described above. And the unwashed masses, at least that part of them still working, get to pay for it.
Care to argue the facts?
No Jamie, that would be too boring. But I digress. You realize of course that even the Ryan budget will require more debt. I agree that expenditures must be reduced, but we need more revenue as well. Moody’s says $4 Trillion in debt reduction over ten years is a good number to retain our Triple A rating; I agree with that and so does the President. Frankly, if we were to insist on a balanced budget today, this nation would immediately enter a depression, and so would the rest of the world. That is just not appealing to me for my business nor for my personal financial accounts.
If the country is in such dire straits, why isn’t our multi-million dollar congress offering to work for free?
“You realize of course that even the Ryan budget will require more debt.”
That’s why I am not a fan of the Ryan budget. It’s smoke and mirrors.
“I agree that expenditures must be reduced, but we need more revenue as well. Moody’s says $4 Trillion in debt reduction over ten years is a good number to retain our Triple A rating; I agree with that and so does the President.”
So what this is about, then, is keeping our AAA rating so we can continue borrowing and spending, not about ever really addressing the deficit; all you really want is to be able to continue borrowing and spending.
“Frankly, if we were to insist on a balanced budget today, this nation would immediately enter a depression, and so would the rest of the world. That is just not appealing to me for my business nor for my personal financial accounts.”
I appreciate your candor. The alternatives, then, are deepened and more formalized debt slavery for me, or Armageddon. Is that right?
It’s a false choice. Given the choice, though, I’ll take Armageddon.
“If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen.” – Samuel Adams
Well Jamie, being in the real estate development business, I have to say that my industry would not exist without debt. Debt is the lubrication for investment, profit, and reinvestment. It is neither inherently good nor bad; it is simply a mechanism to provide opportunity. If the Congress and the President are able to reduce the debt as proposed, and to stimulate growth in GDP as well, it will have been a grand deal which works for our nation. The goal ought to be to stabilize the national debt at less than 60% of GDP within ten years. With this plan, that is achievable.
Mike,
Your description of debt as “a mechanism to provide opportunity” is an oversimplification. Debt can be productive or it can be nonproductive, and the differentiation is very important. Debt that is used successfully for wealth-producing purposes actually adds to a nation’s wealth and adds to GDP continually over time. Debt that is used only for consumption merely adds to GDP up front when the purchases are made, but then acts as a subtraction from GDP because of the interest payments on the purchases that must be made to the wealth-stripping vampire banks. Consumption debt, even though it might temporarily stimulate production, is actually a net drag on GDP. Consumption debt merely pulls consumption forward in time, it does not make more consumption possible over the long term. We have arrived at consumption debt saturation; replacing personal borrowing with government borrowing is not the answer, and it is immoral.
Karl Denninger has a chart of debt productivity on his blog site; Google “Market-ticker The Truth About Budgets, For Both Left and Right” (for some reason I am forbidden to post links here…)
Several good articles about the productivity of debt have been written but are seldom if ever mentioned or discussed.
Few seem to understand this very important and simple fact. This is why more federal borrowing and spending cannot and will not work. It is just a fact of mathematics. It should not surprise anyone. About 40 years ago our economy was 62% consumer, now it is over 70% consumer. At some point we crossed the threshold where not enough capital was being reinvested in productive endeavors, and we had to start borrowing capital from foreigners. And then, instead of applying that borrowed capital productively, we ate it. Since the productivity of debt is now negative, more debt will hurt us, not help us.
This is also why we need to unleash the productive animal entrepreneurial spirits in this country. We can do this by deregulating business and industry, and by making capital available for productive use. We make more capital available for productive use by stopping the government borrowing “crowding out” factor.
This economics stuff really isn’t that hard.
Jamie Jacoby,
That is some pretty deep thinking on your part.
How about this? Part of the reason for the boom we experienced during the Clinton administration was due to the balanced budget he achieved. Those who had the capital no longer had the ultra safe Treasury bonds to invest in so they had to find somewhere else to park their money. There was more venture capital for start ups etc.
Please note that this was back when income taxes were higher before the Bush tax cuts.
Your arguments about consumption are pretty much correct but what happens if instead of borrowing to pay for consumption we pay for it out of increased revenue instead of borrowing? What happens if the increased services and consumption to the poor are provided by those who already have too much money to spend?
Clinton’s alleged balancing of the budget was an accident of timing: the Fed-money-induced tech bubble produced a wave of revenue. Besides, he didn’t actually balance the budget. Entitlement obligations continued to increase faster than revenues. Using GAAP accounting, the Clinton years contributed to the real deficit.
The thing you have to understand is that we are at the end of a thirty-year credit bubble. I made a ten minute video that explains this; Google “jjacric youtube the magic is gone.wmv” and watch the video.
This thirty year long bubble has changed the way everyone thinks; we all believe that the Fed can save us, that recessions are either preventable or will be short, that government management of the economy works…none of those things are really true, but they have been operationally correct for the past thirty years. Politicians have built careers on relying on it; it’s always worked, until now, and they are incapable of understanding what has changed and why it isn’t working anymore. If you read my writings I often refer to the “paradigm” that economists and establishment politicians have their heads firmly stuck in. This is the paradigm of which I speak. Nothing will really change until that paradigm is broken. The kind of radical change we need is impossible until then. Only a collapse of the system will break the paradigm.
Got popcorn?
There was more venture capital for start ups when government was annually going to the well for $200 Billion and not as it is now for $1.5 Trillion. The Fed is trying to make up the difference by printing (QE).
Paying for increased spending out of revenue implies an underlying productive economy that is producing enough surplus real wealth that it can be redistributed. Ours isn’t.
P.S. This is one of the fundamental reasons I oppose George Allen and believe Jamie Radtke is the best thing going in the Virginia Senate race. Allen is an old school good old boy politician who is stuck in the old paradigm. You can clearly see it in his press releases, his hedging on positions, his use of “politics-as-usual” phrasing. Allen is pure “more of the same.” And if you believe that the people who brought us this mess are the ones who should be in charge of cleaning it up, then Allen is your guy.
Radtke, on the other hand, gets it. I have spoken with her quite extensively about economics. She is free market all the way, and that is exactly what is needed.
Regretfully, I have to conclude that anyone who continues to believe in the tired old vodoo economics whereby the answer every fiscal issue is to cut taxes to spur productivity is simply ignoring reality. This old saw is just like Cantor’s insistence that our problem is solely expenditures, not the lack of revenue, which has even been debunked by the references he quotes. Fact is, the gang of six has gotten it about right; a combination of decreases in expenditure growth, increases in revenue, and growth in the economy is the balanced approach we need to get back to a strong financial position. Our own Senator Mark Warner has been a key player in this proposed solution, and I applaud his personal commitment to the process, just as I applaued Senator Coburn having the courage to tell Norquist to take a hike.
Right on cue: John Taylor, writing an op-ed in WSJ. Google “John Taylor WSJ The End of the Growth Consensus”
“In my view, the best way to understand the problems confronting the American economy is to go back to the basic principles upon which the country was founded: economic freedom and political freedom.”
Damned radicals.
Of course you believe, and it all sounds so simple. Of course, those same principles led to capitalists creating monopolies so they could control all the wealth in the nation, and to political structures that worked against democratic principles to the benefit of powerful business interests. It is not radical to insist upon regulations that provide a level playing field to help guarantee the principles to which you pay allegience while preserving our hard earned rights.
I am anti-monopoly, and that is why I oppose the government’s monopoly on power. Business monopolies always seek to defend their positions using the political system, otherwise the monopoly pricing power is abused and becomes self-defeating. It is the abuse of the political system and the granting to it of ever more power that is the problem.
Banks are a prime example. They have abused their position in extremis, and would have died the business deaths they’ve so richly earned had they not been able to abuse the political system to bail them out with endless taxpayer dollars. So, the monopoly continues, but only with the full backing of the power of the government.
This is the system you want to give more power to.
Well Jamie, yoiur philosophy is confusing. First, you tout going back to “economic freedom” but when presented with evidence that led to the creation of monopolies, you admit regulation is required to prevent monopolies. Frankly, this exchange has gone too far, but have a nice day.
The End of the Growth Consensus
http://online.wsj.com/article/SB10001424053111903554904576457752586269450.html
Just read it, do not have to agree.
Actually this is better.
http://market-ticker.org/akcs-www?post=190174
Again you may not agree but makes sense to me. Sadly.
Mike,
Nice strawman. I admit no such thing. I asserted that monopolies cannot last absent government support. As such, they are self-defeating. In other words, monopoly power is fleeting and not worthy of discussion, and certainly not worthy of empowering a massive economy- and soul-crushing monopoly regulatory regime.
But you can stamp your foot and bail if that’s what you want to do.
P.S. GOVERNMENT IS A MONOPOLY. Do you support monopolies?
OK, I read the Wall Street article which appears to me to cherry pick statistics and occurrences and link them by causality. That said, he errs in the end, and shows the political nature of his comments by saying health care reform is already raising prices. Of one thing I am sure; in the decade before health care reform, our rates went up double digits every year. Please, don’t try to sell the past as a good system; it was unfair, it excluded millions, it cancelled the policy if you used it too much, and it went up in price every year far in excess of other expenses. Further, we rank 36th in health among so called indutrial countries. Not a record an objective observer can defend.
Mike weighs in and defends the government’s legislated healthcare monopoly.
Jamie,
The United States spends at least 40% more per capita on health care than any other industrialized country with universal health care with a more dire outcome as a result.
No Jamie, I defend the health care reform bill, not because I think it is perfect, but it was the best the President could get. It preserves private entities as the providers and the insurers, and it shifts emphasis to prevention that will lower over all costs. The over all performance of our health care system in the last decade has been so deplorable that even though the reform is flawed, it is better than what we had, which of course, was the system first supported by republicans, and actually put into effect by a republican Governor in Massachusetts. You guys really ought to sit down and sort out your inconsistencies.
In my opinion, S&P lacks neutral objectivity.. The govt pays s&p to rate our debt and as a result they are somewhat beholden. The fact that obama supporting operatives hold many senior positions within s&p and the parent company may deserve just a little attention in light of tha fact that the fed was manipulated to leverage the 08 election… I would not be surprised if individuals within this agency would not do the same, just like the msm.. So go ahead Mike and you liberal activists and progressive republicans, call me a conspiracy theorist.
Keep in mind it was S&P that assigned top ratings to credit houses who screwed us with the CDO market all the way up until october 07.. AAA ratings were assigned to the highest risk loan pools so investors would trust them and buy up all the top rated junk that became unsellable.
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