This morning I am reading Star Tribune and various other news sites I follow when I came across this headline: CBO report: Debt will rise to 90% of GDP (http://www.washingtontimes.com/news/2010/mar/26/cbos-2020-vision-debt-will-rise-to-90-of-gdp/) in the Washington Times. The headline enough raised my ire and should every American. Now, I have been railed against for my push of smaller government, more freedom and lower taxes platform. I hope this article puts things in perspective for those that believe I am "chicken little" on the size and scope of government.
The article notes that the Federal public debt when Obama took office was $6.3 trillion or $56,000 per household. That number has expanded to $8.2 trillion or $72,000 per household today. The CBO estimates that by 2020 we are on path to reach a debt of $20.3 trillion or $170,000 per household. I understand and acknowledge that Republicans, especially under Bush, lost their fiscal conservative way which lead to the historic election of Barack Obama. I recall last year when the unemployment rate hit 10% Vice President Biden noted that the Obama administration did not realize how bad the economy was and their numbers were off.
James Horney, a federal-budget analyst at the liberal Center on Budget and Policy Priorities, said, " The biggest part of the deficit difference [between the Obama's administration and CBO numbers] is lower tax revenue due to the different economic assumptions." Horney is correct that the Obama administration has a rosary outlook but it is that thinking that tripped them up last year as unemployment surpassed 10%. We need to get Americans back to work and being productive. Too many of our manufacturing jobs are being outsourced and due to our mounting debt America is put in a conundrum. The conundrum is protecting America jobs while not alienating our ATM; China.
Sure the Fed could print money hand over fist but that will only lead to inflation and a deeper recession. So how do we jump start the economy and reverse the trend this article warns? To start we need to demand that our government go on a diet and that Americans be held accountable for their actions. Right now Obama is proposing incentives that will encourage banks to rework mortgages that are underwater for those that are unemployed. This new incentive will create more debt for taxpayers and further our co-dependence on Government solutions. It is unfortunate that people are losing their jobs and making the house payment is tough but that does not mean the government is the answer.
When will Americans realize that entitlements, cash for clunkers, tax credits and health care reform legislation are only hurting the future of America? We need to wake up and demand that government shrink and allow the private sector be allowed to work. We need to demand that more States Attorney General join the fight for State Rights against the growing tyranny of the Federal Government. Obama did not start us down that road but he is standing on the accelerator with both feet.
I am thankful that you did not present this topic as a typical "blame Obama on the debt". So, in that, I thank you.
ReplyDeleteWhile I agree that our national debt is high, what, to you is worse-the current deficit or the projected one? Deficits are actually quite appropriate during times of recession. This one is large, but on the whole, it is quite unavoidable. Projected deficits are where the problems lies.
Bringing the deficits down to manageable levels is not simple, to say the least. There will be loud voices shouting that the budget can be brought into balance through spending cuts alone—but they are wrong. If we set on a path of spending reductions to bring about a balanced budget in 2014, across-the-board spending in that year would have to be 18 percent lower than currently projected. Even bringing the deficit down to 2 percent of GDP would require slashing all spending by 10 percent.
So the real problem is there a political party or politician willing to do the right thing by increasing taxes along with spending cuts?
Annon. "This one is large, but on the whole, it is quite unavoidable. "
ReplyDeleteUnavoidable? This was completely avoidable. The problem wasn't naturally occuring, it occurred because or a combination of factors:
1. Expiration of Glass-Steagall Act
2. Exceedingly low interest rates under Greenspan
3. Legislation to force banks to ease underwriting standards.
4. A massive trade deficit with China that left them awash in US currency which they ploughed back into our system through the purchase of t-bills.
5. Non-regulation of high risk, under the table investing tools such as credit swaps, and other derivatives.
6. Greed by banks who knew what the risks were but assumed they were "too big to fail" and therefore would pass the risk onto the citizens.
All of these things were avoidable. So to say that our 2-4 trillion dollar spending binge to offset the depression was "unavoidable" is outright lies. In some cases, the spending actually prolonged the recession, not shortened it.
I'm not saying I like it either Kevin...I could name several years of recession in the 20th century and show that the government ran deficits during them. I personally thought that was common knowledge.
ReplyDeleteNow the 6 things that you are listing may be apportionate to the cause of the recession, but they weren't done intentionally to cause it. In the earlier part of this decade, perhaps everyones crystal ball broke down and no one saw this coming. Because personally, I think that the intention of all the financial institutions that caused this mess was to make money for their investors. End of statement.
To me, it is all about taking your medicine. No government spending could equate to 25% unemployment and a serious loss of GDP. Government spending equates to large deficits which ultimately raises taxes and expands government. Neither one is very politically popular.
Weren't done intentionally to cause it? Wow, can you stick your head any further into the sand? If they weren't intended to cause a recession, what were they done intentionally to cause?
ReplyDeleteThe Glass-Steagall act was put in place in the 1930's specifically to prevent this type of finanicial collapse. What was the intent when it was allowed to lapse?
The forcing of banks to loosen underwriting rules on homes could only have one effect - higher risk mortgages. How is this not intentionally increasing financial risks?
Not naming China a currency manipulator and subject to penalties had one effect - to allow them to run a massive trade imbalance so we could have cheap shit. How is this not intentionally causing a massive financial imbalance?
Keeping interest rates artificially low to spur growth which was blatantly occuring in the housing market and causing speculation to occur. (speculation leads to bubbles) What effect were they trying to cause if not over-inflation of housing values and a bubble that had to deflate?
Banks knowingly using extremely high risk derivative models to make massive profits? Sure they wanted to make money for their investors but at what cost? Where is the moral responsibility? They allowed short term success to supercede long term profitability and they deserve to have neither. And their investors should have lost their shirts but didn't because of our tax dollars.
No, this was done very intentionally by politicians who wanted re-elected and investors who wanted absurd profits and it was all done on the backs of citizens. To say otherwise means you're either being naive or intentionally obtuse.
And medicine should be given to those who are sick, not the healthy. No, the proper medicine would have been to let Goldman, Citi and AIG collapse into bankruptcy. Let their assets be dealt with by the market and let the market correct accordingly.
This would have caused a spike in unemployment for sure, but the market would have corrected sooner. By using market interventions we prolonged the downward spiral and created false bottoms like the one we're in now. The housing market isn't done, and neither are the bad assets.
No, we're all taking medicine even though some of us did nothing wrong and are healthy. Personally I find that repugnant and a problem with our society.
Not to sound insulting, but do you have some sort of corporate conspiracy issue? None of those points I disagree with. Hand me a pitchfork, and I will march with you...
ReplyDeleteYou are very correct. Much of the deregulation and greed caused by risky mortgages and poor financial decisions by bankers got us into this mess. You lose me though when you give an inference of a large group of government regulators and financial CEO's are sitting around a smoke-filled table in early part of this decade plotting the destruction of economy as we know it.
No need to be rude about me putting my head into the sand. I get your argument. Just exept the fact that the financial institutions that grew in size to the order of mega-institutions did so because of their desire to make money. Pure and simple. And money they made. They manipulated politicians, regulators, and all of us to get that money but they did so because that is what free-enterprise (to them) is all about.
Will politicians grow a back bone and create an air-tight regulation system that breaks up large financial institutions and monitors them with an iron fist. Probably not.
Now should the government have given them bailout money? That's debatable. Many conservatives don't really understand that it was Bush that funneled money to them first, not Obama. Also, you do realize that the government stands to make billions from that bailout. Because it really remains to be seen how sick these banks really were...
High unemployment for any period of time is unacceptable for any politician, much like the raising of taxes.
So, in closing, I understand your anger. I am not arguing with you. Your points are correct. However, if you were hired by one of those financial institutions in the early part of the decade and provided with a job that internally monitored them would you have stayed and watched your compensation skyrocket, or left in a huff at the free-market abuse that was going on.
Anon..not all my post blast Obama, Progressives or Democrats. I simply call it how it is. As Kevin has pointed out the decline of the stock market a few years ago and the recession that followed was set up by allowing Glass-Steagell to lapse and the belief that everyone has the right to own a home.
ReplyDeleteWe allowed our elected officials - Republican and Democrat alike - to destroy the Constitution - Patriot Act, TARP, and Health Care Reform just to name a few - while crafting legislation to grow government and allow cheap money to persist.
The unmonitored Fed and the allowing of Investment Companies and Banking activities under one roof - derivatives - set the stage for our recession. A handful of politicians and economist warned of the comiing disaster but were dismissed. These same people are raising the flags again because our Government did not allow the bankruptcy process to take place with the finanicial and automotive industry.
Now Sen. Dodd (D-Conn.) wants to turn TARP into a permanent slush fund and allow the Fed to decide who is "To Big To Fail". No one is to big to fail. Now America stands on the doorstep of the abyss and no one wants to make the tough decisions. Instead we have an Administration that spends more time cheerleading and campaigning instead of encouraging legislation that will get us out of the recession and set a foundation for sustainable growth.
The debt warning by the CBO does not include Cap and Trade, Immigration reform or job creation bills. Imagine the debt we will see amassed if we allow Government to continue to grow and pass spending bill after spending bill.
President Obama was correct that the sky was not going to fall after he signed into law the health care reform and fix it bills. What he fails to comprehend is that the sky is getting darker and is rapidly approaching a fall.
What gets me angry in your posts is that you seem to give the men in charge a free pass as if they didn't know what would happen. I never said they were "plotting the destruction" of the economy. But at the same time they aren't stupid men, they knew the moral hazzards they were creating and did NOTHING to stop them.
ReplyDeleteTo use a phrase I use with my daughter when she says "but I didn't try to do it" my response is:
"I know you didn't try to do it, but did you try NOT to do it?"
What that means is did you ignore the possibility of the outcome occuring intentionally or did you take steps to avoid it? These men knew the risks better than anyone and they went forward anyway. Even after the market started to collapse they continued to sell bad securities on the open market and insure them with credit default swaps with AIG. How is that not blatant culpability?
Thats why I say they put short term profits ahead of long term profitability. They did nothing to try NOT to let this happen, which was part of their responsibility if you believe they have a moral obligation to society and their investors.
Therefore, they deserved no bailout for that reason because they failed in their stewardship of the investment to which they were given control as well as failed in their obligations to society. To quote one wall st. analyst, "when companies stop being of benefit to society, that company shouldn't continue to exist". He was referencing Goldman when he said that.
Now, most economists agree that the US government will never recover the 2 trillion dollars that we pumped into the economy let alone make a profit. And that's ignoring the 2 trillion lent at 0% interest by the fed. No, we all took our medicine and it was a 2 trillion dollar increase to the national debt on behalf of the banking system of america. How's that taste to you since they're now taking those 0% loans and doing exactly the same high risk derivative trading that caused this crisis?
To answer your question, I'd have left the company and shorted them on the market while trying to raise the flag. However, the regulators were in bed with the companies so nothing would have happened. (Moodies/S&P are paid by the banks whose securities they grade) But in the end I'd have done my part and made a fortune at the same time.
And if you've read ANY of my posts here then you know I hammer Chris for railing against Obama and appearing to give Bush a free pass. In no way do I do so, so please don't paint me with that brush. I railed on Bush for his tax cuts (unfunded), his prescription plan (unfunded) and his wars (unfunded). Sadly, no one listened then either but it's why I consider all republicans hypocrites and false fiscal conservatives now.
Kevin..an aside here. We agree that for sustainable growth in the economy people need to have money in their pocket to spend. To assist in keeping money in the taxpayers pocket we need to lower taxes. As you stated above the Bush tax cuts were unfunded. How do we fund tax cuts?
ReplyDeleteA decline in income in your household requires that you either cut your expenses or you increase your debt. The government is no different. Therefore, an unfunded tax liability can either be an increase to spending without increased revenue OR a decrease to revenue without a corresponding decrease in spending.
ReplyDeleteAnd sadly, I've been looking at some of the CBO reports out on the national debt and without tax increases it will take decades to pay down the national debt if spending is reduced by a reasonable 3% (the level of inflation). Because of this, I'm quite sure that to actually pay down the national debt, increased taxes are coming.
Of course, corporations and the wealthy will be exempt and we'll see the middle class bear that burden in the form of some sort of regressive consumption tax.
So, in the case of the Bush tax cuts you are saying we required simimlar reduction in spending to consider the tax cut funded?
ReplyDeleteGoing forward, we need to scrap the tax system and replace it with a flat tax and consumption tax system. As I have proposed a few times, the implementation will also inlcude the elimination of tax credits thus ultimately making filing taxes a thing of the past. Then again if health care reform holds up in court we'd need to submit our insurance info.