Why are people saying that a balanced Federal Budget won't work? State, National, International, posted by two cents, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 16, 2011 at 5:43 pm
I think the proposal to have balanced budget on a Federal level is a great idea - we wouldn't be in the mess we're in if we had to do this all along. Right now Congress expects us to spend money on things that we can't afford to pay for as a country. It seems so logical to have a balanced budget, just like we do at home or sort of pretend to do as a state.
But the media and Obama (whom I voted for but will not again) are saying that it's not workable / not possible. Why not?? It's doesn't even sound like it would even happen all at once . . .
Posted by ardent, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 16, 2011 at 7:34 pm
I believe a balanced budget can work. Start with cutting foreign aid & subsidies. Continue with disallowing corporate tax cuts, do not allow billionaires to send their money to offshore accounts to hide their assets from taxation. Tax drug dealers who make billions of tax free dollars each year while destroying the social fabric. That's the easy part. Now it gets stickier. Start cutting back on military spending. Cut back on useless government workers, cut back on the war against drugs (drug use has gone up astronomically, and again the money is used for cushy government jobs). Cut the loopholes for Goldman Sachs, investment bankers, banks and Wall Street greed mongers. Now it gets tougher, although by now the budget is most likely balanced. Cut back on excessive abuse of retired military medical plans (One person has spent over two million bucks on medical costs - for things like chest pains. The hospital gladly runs $130,000 in bills every time he shows up. Another woman has had over 43 major operations over the last 15 years. Yup, she's got a free medical ride). Now this is where everyone is starting: PENSION CHECKS. The tactic is to scare you. No mention of the other abuses. But if you don't get your check, you will turn on a dime against balancing the budget. Raise that ceiling and keep my check coming. All the fat cats are laughing all the way to the bank because you bought the big con.
Posted by Ardent, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 16, 2011 at 8:13 pm
SlashTheFed, any sovereign country needs a sovereign government. I hope your exaggerations are meant in just. The issue Two Cents raised was about balancing the budget, not wholesale, nonsensical devastation. My suggestion is cutting waste. There's enough left over for everyone at that point.
Incidentally Two Cents' question is real, relevant and complex.
Posted by Voted for McCain, a resident of the Birdland neighborhood, on Jul 16, 2011 at 11:40 pm
Even the generally conservative Washington Post thinks it a bad idea, not to mention the insertion of a gimmick to co-exist in our constitution with rights-extending provisions in our Bill of Rights.
From the Washington Post (of a couple days ago):
"The constitutional cure [namely, the balanced budget amendment], while superficially tempting, would be worse than the underlying disease. A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies. It would revise the Constitution in a way that would give dangerous power to a congressional minority.
The latest push from lawmakers advocating the amendment is to couple a vote on the proposal with an agreement to raise the debt ceiling. On the surface, this argument seems benign enough: Why not give states the chance to decide whether the Constitution should mandate a balanced budget? But policymakers have an independent responsibility to assess whether an amendment is wise. This one, especially in its latest incarnation, is not. It would require a two-thirds vote in both houses of Congress to run a deficit in any year. The same supermajority would be needed to enact any tax increase. Compare those hurdles to the version of the amendment that passed the House in 1995, which called for a slightly lower three-fifths vote in each house to pass an unbalanced budget or increase the debt ceiling and a mere majority vote to increase taxes.
Worse yet, the latest version would impose an absolute cap on spending as a share of the economy. It would prevent federal expenditures from exceeding 18 percent of the gross domestic product in any year. Most unfortunately, the amendment lacks a clause letting the government exceed that limit to strengthen a struggling economy. No matter how shaky the state of the union, policymakers would be prevented from adopting emergency spending, such as the extension of unemployment insurance and other countercyclical expenses that have helped cushion the blow of the current economic downturn. The 18 percent cap on spending is so severe that House Budget Committee Chairman Paul Ryan’s economic plan would violate its strictures. So would any budget passed under President Ronald Reagan. With health-care costs rising and the number of retiring baby boomers increasing, it would be next to impossible to keep spending to that low share of the economy."
Does the proposed amendment call for the need of a super majority to cut taxes? Nope.
But keep up the wishful thinking, boys. Operative words: Superficial. Gimmicky. Cynical. Disingenuous. Transparently deceptive. Who will believe it? A few dumb, ill-educated Americans. This is the kind of proposal which makes me more likely to vote for Obama this second time around.
Posted by Ardent, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 16, 2011 at 11:41 pm
SlashTheFed, I guess you weren't kidding. Well then, I say GREAT IDEAS! Adam Smith's concept of the Invisible Hand of the markets will allow more than enough time to compensate for stabilization on a more "sane" basis. Insanity is a tough row to hoe.
Posted by Blossom, a resident of the Stoneridge Orchards neighborhood, on Jul 17, 2011 at 12:35 am
I too want to avoid the many criticisms of the proposal as raised by the Marxist-Lennonist Washington Post editorial. I never liked the Marx brothers (except Chico), and I always thought John was a showboater. Making superficial reference to an 18th century, long-since discredited economic view certainly works in my book.
Posted by Leland, a resident of the Happy Valley neighborhood, on Jul 17, 2011 at 5:33 am
Bill of Rights? That's where individuals are guaranteed rights to free speech, religion, assembly and all that quaint stuff, right? And women are guaranteed the right to vote. And African Americans are guaranted the right to be treated as an equal person.
So, the Republicans want to introduce an amendment that virtually guarantees the right of rich people not to be taxed by the Democrats.
What's not to like?
You think gays have it bad? You wouldn't believe how us richies are persecuted. Any tax on my Daddy's estate or my 'earnings' is just another form of unjust state persecution of us poor rich people.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 17, 2011 at 9:20 am
Alexander Hamilton, one of our nation's Founding Fathers, was the first to recognize that national debt can actually be a good thing. Hamilton didn't have the advantage of a formal theoretical framework (Keynesianism), but he did realize that if the national government assumed the debts of the individual states and then repaid it, the United States would establish itself as an attractive place for foreign investors.
One of the principles of Keynesiasm--in fact, its central tenet--is that deficit spending and debt during slack economic periods such as recessions and depressions is a good thing. The additional government spending helps fuel an economic recovery by circulating money in the economy. When the private sector recovers, tax revenues will increase, partly covering the deficit, and additional spending can be cut back since the stimulus is no longer required.
This Keynesian strategy is, in fact, what President Clinton pursued. When Clinton left office, the United States had a huge surplus ($236 billion surplus for Clinton's last year in office, the third year in a row the federal government had a surplus), so much that there were forecasts it would wipe out the national debt. Bush Junior squandered the surplus on ill-advised wars in Iraq and Afghanistan, and Congress helped by "spending money like a drunken sailor" to quote Senator McCain.
Right now, the United States government needs to spend more, not less, to create jobs. Our roads and bridges are falling apart; a massive investment of public funds is needed that would not only create jobs, but lay the basis for continued economic growth.
Our present situation was not caused by government overspending. That excuse is a red herring, trailed out for the gullible by both Republicans and Democrats who don't want us to focus on the true cause of the 2007 global economic meltdown, which is massive financial fraud by the so-called "investor class" (including, but not limited to, the Wall Street bankers). This problem is still one that our government has not adequately addressed, and which will come back to haunt us.
But if there are those among you who are dead set on "balancing the budget", then why not start with raising taxes on the rich? The billionaire investor Warren Buffett once said that he paid a lower percentage of his income for taxes than his secretary. Opponents of taxing the rich say that higher taxes would "punish" the rich...but apparently they have no objection to punishing people for working, because somebody has to carry that tax burden. If it's not the rich (who have benefited more than anybody from our society), then it's the middle class and the working poor.
I've also noticed that the budget balancers don't want us to slash military spending. We've already spent between $2 and $4 trillion on the Iraq and Afghanistan wars, and what do we have to show for it, except a lot of war-weary veterans?
Posted by Steve, a resident of the Parkside neighborhood, on Jul 17, 2011 at 10:52 am
Hat, I, too, would like to see Obama end his military follies, but even that and taxing the rich will not be enough. The hole he has dug for us with the accelerated deficit spending since 2008, has buried us in the red for generations to come.
Posted by two cents, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 17, 2011 at 10:52 am
I'm absolutely fine with ending the wars and taxing the rich a bit more, closing loopholes etc if it will get us out of this mess.
I also don't think Keynesiam strategy is working at all - as much as Bernanke would like to think it will. All the stimulus is flowing right back the bankers and hedge funds - it is not being used on infrastructure and creating jobs.
Even the billions IMF money the US is giving to Greece is going right back into hedge funds hands because Greece owes the banks (mainly European), the banks have sold their risk to hedge funds (mainly US), but the hedge funds aren't taking on the risk, because we are not allowing default. Default is scary because of our "new" derivative trading. Well I'm sorry if you're going to get paid 30% interest based on the risk your are insuring and taking on, you darn well should take on some risk and be prepared for some to default We should not allow the governments to bail you out every time so you can keep paying yourselves obscene amounts of money. And both Bush and Obama did this.
We are also clearly overspending. All you have to do is pick up the paper and read about the latest dumb things we're wasting money on. Even the European countries have sorted out their public sector retirement ages to well over 60. The pension spiking is disgusting and still happening. People in CA are doing so well on benefits or various fraudlent attempts to take it that they have no incentive to work. I see it all around me - people totally able bodied and smart enough walking away from homes in foreclosure (or even renting them out while not paying the mortage), dossing with relatives, picking up their unemployment, which in some cases isn't far off our family income, driving nice cars and definitely not willing to do a job they consider beneath them.
Meanwhile responsible people who don't have debt get 0 interest in their bank accounts all. Low interest rates are considered a bad thing because of the people who are in debt - well what about the people who are not in debt? So we're working hard to benefit the irresponsibe on the backs of the responsible.
So I say, let's start acting responsibly and balance our budget. Agree entirely with Ardent and slash the Fed, plenty of areas to cut.
Posted by Yawner, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 17, 2011 at 2:23 pm
Don't see what is the relevance of the above post to a proposed balanced budget amendment, which two cents initially introduced. (See title of this thread.) Guess there's a problem with holding his concentration longer than to get to his next post. Still, it's always nice hearing the same poster time and again remind everyone that he's an independent who voted for Obama last time, which is about as believable as Palin's IQ being in triple figures.
Posted by two cents, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 17, 2011 at 2:35 pm
It's relevant because I was responding to YAT's assertion that people who want a balanced budget don't want to end the wars or tax the wealthy / end loopholes. And I am very supportive of both.
I did vote for Obama and will vote Republican this time if they can find someone with a believable fiscal plan, someone who can see a good compromise when it's right there in front of them and that doesn't have a nightmare social agenda. I would never vote for Palin, I don't think she's at all qualified to run the country.
At least YAT tries to bring a different point of view to a discussion and backs it up.
Posted by Yawner, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 17, 2011 at 3:00 pm
Relevance to proposed balanced budget amendment? You've had your chance for some time now to respond to YAT's objections or the WaPo editorial somebody posted. Unable to drum up any kind of meaningful response or set of counterclaims, instead you provide us with a repetitive string of your facile beliefs -- who cares, really? -- and who you voted for in the last election. Thanks, but no thanks. Not interesting.
Posted by two cents, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 17, 2011 at 4:50 pm
Hi Mike, I appreciate your point. But are you saying that balancing our budget is extreme? Why you think this? I honestly think it's a good idea. And if there are years when we need more money for an emergency, then we'll have to think of somewhere to cut. It would mean that we wouldn't just pour money into programs or wars we can't afford, we'd really have to think more seriously about it.
I'm very very concerned about the way our economy and debt and general attitute towards spending is going.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 17, 2011 at 4:52 pm
Obama did not follow a classic Keynesian strategy. If he had done so, Obama would've kept his campaign promise to wind down the wars in Iraq and Afghanistan ASAP, and wouldn't have allowed the banks off so easily (to date, none of the Wall Street crowd have been prosecuted, despite massive evidence of financial fraud).
Had Obama followed a classic Keynesian strategy, Obama would've worked with the Democratic Congress to pass a much larger "stimulus" bill that would have been aimed at putting money in the hands of the American middle class and working poor. This strategy would have had these key elements:
*Huge investment in infrastructure (roads, bridges, schools, water treatment plants, etc.) over a 20-year period. This would have created at least 1.2 million new jobs and ones that can't be exported to India or China, since construction work must be done in the USA, of course.
*Military spending would be coming down instead of going up, with an eventual target of 80% of current expenditures (it should be 50%, but I'm realistic about the power of the military-industrial complex).
*More stringent regulations on the banks in conjunction with criminal prosecution of the key figures in what is, by any objective account, a massive multi-year international financial fraud that makes Bernie Madoff look like a petty pickpocket.
*Higher taxes on the rich. Not a bit more, but a lot more. One reason that corporations didn't pay their executives such outrageously high salaries from the end of World War II to the early 1980s was that the top tax rates were so high, it didn't make sense to get paid more, since the government took all of it, anyway. I'd settle for an effective 70% tax rate on anybody earning over $1 million a year, and taxing capital gains like ordinary income, instead of giving it preferential tax treatment.
The Republican Congress is, if anything, worse on all of these counts; they want to not only not move forward, but move backwards, destroying even the relatively weak new financial regulations that Obama and the Democrats passed in the first two years of the President's term.
Keynesianism is the only thing that has been historically proven to pull our nation out of recession or depression. But we are now not only not practicing Keynesianism, but Monetarism, focusing solely on the money supply.
To reduce my analysis to its simplest terms: We cannot get out of this recession until consumers start spending again. Consumers won't spend until they have jobs. The government needs to reduce the unemployment rate with a massive infrastructure investment program. Once we start investing trillions (yes, trillions) in new roads and bridges and so forth, people will start buying new cars, new appliances, new clothes, and then private industry will start hiring again because there will be demand for their products and services.
See how it works? In other words--
We need the federal government to kickstart the economy by creating jobs. That Obama hasn't done so is the major failure of his presidency, but the Republican solution is no better and is, in fact, far worse.
The path of cutting spending and tightening our belts may be very morally satisfying, but it is economic suicide. We need to increase revenue by raising taxes on the rich (the only ones who are prospering in this economy) and creating jobs for the middle class and working poor. That's the path to the light at the end of the tunnel, and we are moving away, not towards, that goal.
And none of this is "liberalism"; it's just sound economic theory.
(By the way, Canada, the Scandinavian countries, Australia, and Germany have followed Keynesianism and their economies have emerged from the global recession.)
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 17, 2011 at 4:56 pm
And I should add: Keynes himself said that a balanced budget is the ideal situation, but that you cannot pursue a balanced budget in times of recession or depression.
Deficit spending now will lead to surpluses later. That's what happened during Clinton's presidency and we can make it happen again. But we are going in the opposite direction, cutting spending and talking about a balanced budget amendment that would put future governments in a straitjacket that would make it impossible for them to deal with the ups and downs of our economy.
You may want to believe that if the government just stays out of things, private industry will manage just fine. Well, the government took a hands off approach to Wall Street, and the result was a financial crisis that nearly plunged us into another Great Depression.
I believe a balanced budget is a worthy goal, but not one that we should always pursue. As Emerson wrote, "A foolish consistency is the hobgoblin of little minds."
Posted by two cents, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 17, 2011 at 5:12 pm
YAT - I agree with much of what you say above - if the trillions in extra money we have just wasted had gone into solid infrastructure projects that helped create real jobs things might have been different now. Obama has failed to get this right and it's going to cause a lot of pain. He is spending way, way too much money and it's on the wrong things. And as you mention, the moneterism is making things much worse. Having said that Bush was an absolute failure too and I think Obama is a nice person who is trying - it's just not working out.
I honestly can't see how the public will now trust anyone with the kind of spending you suggest above. It's just not going to happen. They had the chance, they got the money and have lost the plot. So we're going to have to think of another way to solve this.
The balanced budget being suggested is a long way off in being put into place anyhow and I think if people see real reform - and cutting the crazy spending, maybe they would have more trust in government to use their money wisely and be more willing to raise taxes. Same in Pleasanton and CA actually. Trust is the issue.
Posted by Another Mike, a resident of Livermore, on Jul 17, 2011 at 5:29 pm
Mike, I don't know much about economics either. But Laurence Lewis' brief summary rings pretty true and reminds me of why I continue voting the democratic ticket.
"Ronald Reagan used the deficit as an issue when he ran against President Carter. As president, Reagan ran up the largest deficit in U.S. history. The Republicans of his era talked a lot about a Balanced Budget Amendment, while consistently voting to run up the largest deficit in U.S. history. Reagan's successor, the heir to the Bush dynasty, outdid his mentor by running up an even larger deficit. President Clinton raised taxes, eliminated the deficit and created a surplus, and just [not so] coincidentally oversaw an enormous economic expansion and near full employment. The next heir to the Bush dynasty cut taxes, eviscerated the Clinton surplus, and outdid both his father and Reagan by breaking their records for creating the largest deficits in U.S. history. He also all but broke the economy. This isn't complicated. This isn't difficult to explain."
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 17, 2011 at 5:51 pm
Well, that's the problem...Obama and the Democrats may have had one chance to get the stimulus right, and spent most of the money on the wrong people (the bankers, not middle class jobs).
So what are our alternatives?
Another stimulus program, this time done right? Politically, it may not be feasible unless Obama is turned out of office and the next President is, by some miracle, a Keynesian. Since Obama's successor would be a Republican, the chances of that are small.
The Japanese might attack Pearl Harbor and the Germans might invade Poland...but let's not count on that.
What is most likely to happen is what's happened in Japan, which also had a series of governments who mishandled their economy after their own financial and real estate bubbles burst in the early 1990s. The Japanese have had a stagnant economy ever since then, just sort of stumbling along and never quite breaking out of the recession doldrums. The Japanese have never mustered the political will to undertake a true Keynesian program that might bust them out of their rut.
There is "no other way out of this"...it's either a Keynesian solution or permanent stagnation.
Fortunately, we still have a living President who actually knows how to manage an economy to prosperity: Bill Clinton! In retrospect, Mr. Clinton's management of the economy was quite good compared to his two successors, so I think we ought to listen to what he has to say with an open mind.
Mr. Clinton has outlined his own modest, but economically AND politically feasible, plan in Newsweek.
The article is entitled "It's Still the Economy, Stupid".
Read the plan. It has true bipartisan appeal (excepting the ideologues at both ends of the spectrum) and is something even the hapless Obama should be able to both sell and implement properly.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 17, 2011 at 6:03 pm
Don't want to monopolize the thread, but here's an excerpt from that Newsweek interview with former President Clinton:
"I’m sympathetic with the objectives of the Bowles-Simpson commission; we do need to do something about long-term debt. It’s a question of timing, really. If we cut a lot of government spending while our economy still has so little private investment, we risk weakening the economy even more and increasing the deficit because tax revenues can fall more than spending is cut. That’s why the Bowles-Simpson report recommends we delay big spending cuts until next year. So what should we do? More infrastructure initiatives now would put a lot of people back to work. But President Obama doesn’t have the votes in the Congress to get another stimulus package. When asked why he robbed banks, Willie Sutton said, “Because that’s where the money is.” We have to unlock that money and take steps to get U.S. corporations to invest some of the $2 trillion they have accumulated."
Clinton, in other words, is saying Stimulus Part 2 is not politically feasible, so we have to look at other solutions, none of which are sufficient by themselves but, when combined, may just kick the economy into gear.
The United States of America is a job engine. We are a creative, industrious people. Don't listen to the people who say we are unimaginative, lazy, and inefficient. They either don't know the facts or are trying to sell you something. I look back on the past 235 years of our history and I see a nation that has always rebounded from its crises. I don't think this economic crisis is unsolvable, but we are going to have to stop looking for the Big Fix.
The balanced budget amendment to the Constitution and another multi-trillion dollar stimulus package are both Big Fixes, and neither one can or should happen. Instead, we'll have to do things more along the lines of Clinton's plans. We need to get people back to work! What distresses me is that Obama and both the Democrats and Republicans in Congress still seem as if they only care about the rich and the bankers, and don't care about creating jobs. Certainly Mr. Bernanke, the head of the Federal Reserve, has said that job creation is not his top priority.
This is the same road Japan took in the early 1990s, but it's not too late to backtrack and take another path.
Posted by Another Mike, a resident of Livermore, on Jul 17, 2011 at 6:34 pm
Wow! YAT, what do you think is causing U.S. corporations to sit on that 2 trillion you alluded to? What do you think might be done to encourage them to get off their keesters?
So much stimulus money was directed at the banks, and I heard on NPR a couple months ago that the money was "sent upward" to be used not by the banks to give out loans to start-up businesses but rather to be "sat upon" by their holding companies. Sometimes I think the big holding companies are sitting on it as a way of holding Obama's feet to the fire. There needs to be more regulation of wall street and the banks, but they've got this money they're holding over Obama's head and threatening not to use it if Obama attempts any regulations beyond the mild measures undertaken thus far. At other times I get to thinking maybe the banks and their large corporate holding companies are simply biding their time with a wait and see attitude regarding the 2012 election. If Obama gets ousted by a Repub, the regulations won't be enforced and they can again engage in the shenanigans that got us into trouble in the first place. Or am I being "too political" with either of these "reads"?
Posted by two cents, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 17, 2011 at 11:14 pm
Thanks for your comments YAT, I do think you have a lot of interesting points. I'm not sure I agree that the US workforce is where it used to be. I'm in my 40's and I think it's changed a lot from when I was in my 20's.
I have worked extensively for international companies and get the sense that people in other countries work harder and smarter than we do now. Not most of Europe, but even they are changing a bit. Many other countries have that hunger to succeed that the US used to have in spades, but I see less evidence of that these days. Now more people expect to have things without doing the hard work first. The things included in the contracts in some sectors in the US are a joke and are openly laughed at abroad. People in the US a couple of generations back had more pride than to do the types of things I'm reading about and seeing live in action today. People laugh about making money out of government spending, which is supposed to be for people with genuine needs.
I read and like many of Clinton's ideas that you linked. There's a lot of good sense in there and he's working on the real problem - jobs, which is great and I think many of the ideas could be implemented by Obama easily. There's still housing and run away spending (and I agree - it goes to banks) to deal with too though.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 17, 2011 at 11:17 pm
The reason companies are sitting on their piles of cash and not hiring is simple: No customers.
How do we get customers for them? Well, somebody has to hire. Private companies won't until they have customers.
So the federal government has to "hire" by creating jobs through infrastructure projects. The money that went to Wall Street went into a black hole, or into that oh-so-necessary fourth or fifth mansion for some hedge fund manager, and did absolutely nothing to create jobs (nor will it ever).
It's time to move our economy away from shuffling around money (the stock in trade of Wall Street) and building things, making things. Americans are good at that, if we're given a chance.
There is no question that the big banks are holding both the Republicans and Democrats hostage to their agenda. It's up to we, the people, to break the power of the big banks, because they have so thoroughly compromised both parties. As Democratic Senator Dick Durbin of Illinois said: "The banks own the place (Congress)." And one might add, the White House, too.
But it's not their Congress nor their White House. The Congress and the White House belong to us. But nobody is going to give us anything; we have to stop blaming the wrong people and start the work of taking back our government.
Posted by Another Mike, a resident of Livermore, on Jul 17, 2011 at 11:23 pm
I just finished reading Krugman's NYT piece on Obama going soft on the banks. The piece dances around why Obama isn't being tougher on them; but the piece doesn't begin to address the above questions I've put to you, the answers to which I personally have no clue. Banks have returned to a working 'normalcy' thanks to Obama's stimulus help, yet they (and their holding companies) appear unwilling to loosen up the money needed to help re-stimulate the economy. I understand how they may be gun-shy about giving out loans to high risk ventures; but why the apparent foot-dragging in so many other respects? This question is simply a close cousin to the one I raised earlier above. If you can't answer it, that's cool. (Nobody else seems to be answering it either!) But you seem pretty deft in using Keynesian theory to understand what is happening, and so I thought maybe you could answer this for me.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 17, 2011 at 11:42 pm
I don't work on Wall Street, so I can't say why they're withholding funds.
I have three possible scenarios:
1. Conspiracy scenario: Wall Street doesn't want a Democrat in the White House, even one as mild and moderate as Obama. So they're deliberately doing their bit to keep the economy in recession to help skew the 2012 election towards the Republicans.
2. Supply and Demand Theory: How can you invest in expansion of businesses, or starting new ones, when there's no customers? Americans are very deeply in debt, and a lot of that is from the housing boom (millions are now "underwater" in their homes). The official unemployment rate is 9.4%, the actual unemployment rate likely in the 15% - 17% range. Who would invest in expansion or starting a business in these circumstances? As I wrote above, we need somebody to kickstart the economy and get people working and spending again, and that somebody is the federal government. And yes, Obama bungled another chance to solve part of this mess by demanding that, as part of their bailout, the banks write down their outstanding home loans to reflect the current market value of homes. So for example: if you owe $500,000 on your home but it's now only worth $320,000, you are "underwater". The way to get consumers out of debt is for banks to write down the value of that loan to market value, $320,000. That's what the German, Canadian, Australian, and Scandinavian banks did in answer to their own burst housing bubbles, and it worked brilliantly.
3. Wall Street Doesn't Do Business That Way: Wall Street stopped investing in "real things" like factories, stores, etc., 30 years ago. The Wall Street boys prefer financial speculation; it's potentially much more profitable, and much, much riskier. But hey, wouldn't you risk $100 billion if you knew that (a) you'd get your $10 million salary bonus whether you made a profit or not and (b) the taxpayers guarantee your profitability no matter what bad business decisions you make? Wall Street is Las Vegas on steroids now, the center of a vast international casino that's playing the roulette wheel with OUR tax money.
Pick one of these, or a combination of the above. I personally think the first theory credits the Wall Streeters with more ingenuity than they deserve, and that the true answer is a combination of #2 and #3.
Posted by Stacey, a resident of the Amberwood/Wood Meadows neighborhood, on Jul 17, 2011 at 11:59 pm Stacey is a member (registered user) of PleasantonWeekly.com
BTW, Hamilton-era debt was utilized for purposes of expansion, not maintenance on current infrastructure. It was an investment in Imperialist aspirations. America had the whole west to expand into and exploit.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 18, 2011 at 12:52 am
No surprise that Hamilton didn't advocate debt for America's current infrastructure in the 1700s, Stacey, since we didn't have one yet.
How do you think we got one? Foreign investment. How did we attract it? By accumulating debt and then repaying it in full and on time. The USA has always been seen as a very good "credit risk" among nations.
"Uncertainty" falls under the "Supply and Demand Theory": businesses aren't hiring or expanding because they're uncertain whether or not they will be able to keep those new employees on board and/or use additional manufacturing capacity/retail space. They're "uncertain". Unless you'd care to expand beyond a cryptic one-word explanation?
Posted by Another Mike, a resident of Livermore, on Jul 18, 2011 at 7:49 am
Thanks for the very clear and helpful analysis, YAT. It also goes a good way in helping to understand why the Republicans' assault on middle-class incomes (on pretenses of unsustainable public sector salaries and need for proposed balanced budget amendments) is no solution but actually part of the problem. Wish my kids had you for a teacher!
Posted by Tennessee Jed, a resident of the Jensen Tract neighborhood, on Jul 18, 2011 at 8:58 am
First of all, let me just say that I'm a simple person. A debt limit ceiling? My credit card is a perfect example to relate to the federal debt limit. The banks only trust me up to a certain point based on my history. So it should be with the federal government. The limit on my credit card is not for my protection, it is for the banks protection... So it is, with the limit on the federal deficit, and the limit on my credit card. And remember, the bank that needs protection in this case is you and me, the taxpayer. So the limit protects the taxpayer.
I don't need any technical analysis, or instruction in economic theories, or any other intellectual deconstruction or information. All I know is that I have to live within my means, which does not mean running my credit card up to its limit and then asking the bank to raise my limit every time I get to that point. Get my point?
So I thank everyone for their input, but it just makes my head hurt going through these postings... I wouldn't expect any more of the government than I expect of myself.
Posted by steve, a resident of the Parkside neighborhood, on Jul 18, 2011 at 9:03 am
Nice repetition of the Dem talking points, A. mike.
R's 'assault' on the middle class (which is a reality check for uncontrolled public sector salaries AND benefits, pensions, etc.) is a wake up call to taxpayers footing the bill for the policies embraced by socialist Dems and their willing accomplices. The example of Greece is probably over used at this point, but what's it going to take for us to learn from their experience?
Posted by Minnesota Eugene, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 18, 2011 at 9:31 am
Hey Tennessee Jed, the world is larger than your bellybutton. Fortunately we have educated people who are adept at going beyond their own bellybuttons in order to make sense of this complex world. (By the way, had you finished high school you might have learned that there's a concept for those who attempt to see the world through their own bellybuttons. It's called 'individualist fallacy' -- a wrong-headed and short-sighted effort to analyze complex social and political problems with sole reference to an individual's own behavior. (BTW, since we're on the topic of ignorance, are they still banning the teaching of evolution in Tennessee classrooms?)
Yes, the example of Greece is indeed overused. I can see how some, unable to offer up a useful analysis, might find it necessary everyday to honk out Greece. Oh, yes, and the sky is falling. Oh, yes, and a tsunami is coming. Thanks for bringing it up again though. Adds much depth to the discussion. Lost and can't find the kiddy pool?
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 18, 2011 at 10:41 am
Comparing the management of a household economy (your personal savings, debt, and spending) and the management of a national economy always leads to false conclusions.
People who say "I have to balance my household budget, why shouldn't the government balance its budget?" don't understand that a balanced budget is not always good at the national level. It's not terribly complex: just think of deficit spending and debt as a way to "kickstart" the economy.
Greece and the United States do not compare for many reasons. A few of the more important ones are:
1. Greece's debt has always been too high in relationship to its GDP (Gross Domestic Product). Greek governments have ignored warnings for decades about the debt levels, and now the chickens have come home to roost.
2. Greece is part of the EU and uses the common currency of the EU, the Euro. Therefore, it doesn't have the option to devalue its currency to boost exports. The United States has its own currency and has that option.
3. Rich Greeks have always viewed paying taxes as optional...and they opt not to do so! (Surprise, surprise!) Tax evasion in the United States does occur, but not on the scale that it does in Greece. Tax evasion by rich Greeks has starved its national government of much-needed revenue since the end of World War II.
I wonder why none of the "Greek tragedy" crowd ever point to the examples of Scandinavia and Germany: both have already come out of recession, due in large part to generous unemployment benefits (that's Keynesianism at work, keeping money in people's pockets), strict regulation of their banks, and relatively low spending on their militaries. Germany and the Scandinavian countries are far more "socialist" than Greece, but also far more prosperous. The Scandinavian countries and Germany also have high tax rates for wealthy individuals, something that Greece and the United States lack.
In today's world, there is no alternative to a government-managed economy, other than anarchy. The question is, who will benefit from this management? In Germany and Scandinavia (and also Canada), everyone in society benefits; in the United States and Greece, only the rich. The results in the latter two countries has turned disastrous, and it has nothing to do with over-generous public pensions and pay.
To repeat: it's financial manipulation by unregulated banks that has gotten us into this mess and which perpetuates it. We need a government that will stand up to the bankers, demand a restructuring of mortgage debt on a national basis, and stop the banks' casino-style gambling with taxpayer money.
And this long answer is not in rebuttal to 'steve'; he's proven himself an unserious person who merely parrots whatever talking points are on Fox News at the moment. No sense talking to somebody like that, as they are absolutely uninterested in facts or practical solutions.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 18, 2011 at 11:05 am
One further note on Greece: More than a year ago, the Greek government agreed to exactly what the Balanced Budgeters wanted, an austerity program. The Greek national government slashed public spending.
The result? The Greek deficit got worse, not better. That's because, contrary to Keynesian theory, the Greeks took money out of circulation at a time when their economy was in recession. People spent less and the Greeks lost more tax revenue than they saved by the austerity program.
Now both the British and American governments are following the Greek example. What makes matters worse in the USA is that the states cannot deficit spend, which means that the federal government must take up the slack. The President and the Congress are acting as if they are running New Mexico or Indiana, not the entire country. What is appropriate and required at the state level is not appropriate nor prudent at the national level.
Those who do not learn from history are condemned to repeat it.
Posted by I’m not an intellectual, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 18, 2011 at 2:27 pm
"GDP = C + I + G + Net Exports
But either raising taxes or cutting spending has side effects that cannot be ignored. Either one or both will make it more difficult for the economy to grow... This is true for all times and countries.
Now, what typically happens in a business-cycle recession is that, as businesses produce too many goods and start to cut back, consumption falls; and the Keynesian response is to increase government spending in order to assist the economy to start buying and spending; and the theory is that when the economy recovers you can reduce government spending as a percentage of the economy – except that has not happened for a long time. Government spending just kept going up. In response to the Great Recession, government (both parties) increased spending massively. And it did have an effect. But it wasn’t just the cost of the stimulus, it was the absolute size of government that increased as well.
And now massive deficits are projected for a very long time, unless we make changes. The problem is that taking away that deficit spending is going to be the reverse of the stimulus– a negative stimulus if you will.
There are only two ways to grow an economy. Just two. You can increase the working-age population or you can increase productivity. That’s it. No secret sauce. The key is for us to figure out how to increase productivity. Let’s refer again to our equation:
GDP = C + I + G + net exports
The I in the equation is investments. That is what produces the tools and businesses that make “stuff”and buy and sell services. Increasing government spending, G, does not increase productivity. It transfers taxes taken from one sector of the economy to another, with a cost of transfer, of course. While the people who get the transfer payments and services certainly feel better off, those who pay taxes are left with less to invest in private businesses that actually increase productivity.
…If the government “dis-saves” or runs deficits, it takes away potential savings from private investments. That money has to come from somewhere. Of late, it has come from QE2, but that is going away soon. And again, let’s be very clear. It is private investment that increases productivity, which allows for growth, which produces jobs. Yes, if the government takes money from one group and employs another, those are real jobs; but that is money that could have been put to use in private business investment. It is the government saying we know how to create jobs better than the taxpayers and businesses we take the taxes from.
This is not to argue against government and taxes. There are true roles for government. The discussion we must now have is how much government we want, and recognize that there are costs to large government involvement in the economy. How large a drag can government be? Let’s look at a few charts…”
““The real growth in GDP has come from the U.S. government borrowing money. Without that growth in debt, we would be in what most would characterize as a depression.
This is why Paul Krugman and his fellow neo-Keynesians argue that we need larger deficits, not smaller ones. For them the issue is final aggregate consumer demand, and they believe you can stimulate that by giving people money to spend and letting future generations pay for that spending. And sine WW2 they have been right, kind of. When the U.S. has gone into a recession, the government has embarked on deficit spending and the economy has recovered. The Keynesians see cause and effect. And thus they argue we now need more “hair of the dog” to prompt the recovery, which is clearly starting to lag behind what they think of as normal growth.
But others (and I am in this camp) argue that business-cycle recessions are normal and that recoveries would come anyway, and are not caused by increased government debt and spending but by businesses adjusting and entrepreneurs creating new companies.
Let’s see what Rob Arnott says about this conundrum:
“GDP is consumer spending, plus government outlays, plus gross investments, plus exports, minus imports. With the exception of exports, GDP measures spending. The problem is, GDP makes no distinction between debt-financed spending and spending that we can cover out of current income.
“Consumption is not prosperity. The credit-addicted family measures its success by how much it is able to spend, applauding any new source of credit, regardless of the family income or ability to repay. The credit-addicted family enjoys a rising “family GDP” – consumption – as long as they can find new lenders, and suffers a family “recession” when they prudently cut up their credit cards.
“In much the same way, the current definition of GDP causes us to ignore the fact that we are mortgaging our future to feed current consumption. Worse, like the credit-addicted family, we can consciously game our GDP and GDP growth rates – our consumption and consumption growth – at any levels our creditors will permit!”
- excerpts from a article written by John Mauldin
YAT, you seem to completely ignore the effects of large government and taxes in your analysis. Why is that? I would like you to read what I consider an excellent article that challenges your conclusions while providing more depth, balance, and argumentative support.
The excerpts I’ve provided are to peak your intellect in the hopes you read and respond to the article. What are your thoughts? thoughts.
Debt and the Deficit: Back to the Basics: Web Link
Posted by Bone tired of reading dumb posts, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 18, 2011 at 5:42 pm
Yes, that is what nonintellectuals (translated: poorly educated) in the grip of a pernicious ideology tend to do. They parrot and plagiarize someone else's piece, then fob it off as if it were their own.
What education teaches us (most of us) is that one counters another's arguments by addressing in a rational manner the shortcomings of those arguments and then advancing one's own validity claims as remedy. Those who are poorly educated, who never learned how to argue, left to fend for themselves without much by way of cognitive resources to work with, feel they must resort to mindless posting of gibberish as compensation. Sad. But it gives us reason to continue our efforts to improve the quality of education for subsequent generations.
Posted by I'm not an intellectual, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 18, 2011 at 6:08 pm
Hi, Bone tired...of trying to remember which of your 20 aliases you're using today. Is that you blossom...
I didn't plagiarize anything, so why are you making that claim instead of responding to the arguments?
You: "Yes, that is what nonintellectuals (translated: poorly educated) in the grip of a pernicious ideology tend to do."
Me: OK, I already said I'm not an intellectual. I think your response qualifies you as a pseudo intellectual on your best day. Considering your "shoot the messenger" tactics my first thought is that title is probably a stretch. After thinking about it, pseudo intellectual IS your appropriate title.
If you want to respond why not at least read the article? If you did read the article why not respond to the content? Is it because you're not as intellectual as you think (regurgitating union talking points isn't really intellectual is it?)? Or, maybe, you just don't have an intelligent argument to the authors comments. Could that have something to do with the weak/non-argument/deflection/non-response?
Posted by Bone Tired, After Her Nap, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 18, 2011 at 10:06 pm
Problem for me is that YAT -- a teacher, and a good one -- shows himself/herself capable of suffering idiocy far more gracefully than I do.
When someone (such as YAT) poses a set of arguments which express his/her own thoughts and does so in a highly lucid manner, the burden upon the _reader_ is to respond to the arguments using his or her _own_ thoughts and words. That way, YAT, as well as people reading him/her, can offer up a rejoinder with some certainty that the responder has a brain and willing to engage in dialogue. See, for example, YAT's initial arguments, which then spurred comments (in their own words) from others, including Mike and Another Mike. YAT then clearly and effectively responded with another set of arguments, which actually were extensions of his/her initial ones.
Then comes along someone like Arnold, who apparently has no brain and is unable to think for himself. He does, however, have a base set of interests cast in narrow ideological terms -- don't tax me, me, me, and big govt and unions are bad, bad, bad, and other tea party nonsense. But because there's no brain but only appetites (give me back my my my tax dollars!), about the best he can do is search the internet for anything that feeds his cravings/interests.
The brainless one then posts a lengthy set of quotes from a pundit and wants others to respond. But the problem with this is, (1) it suggests that the brainless one is unable to formulate arguments by himself that might actually attempt to engage another's (YAT's) points and (2) suggests further that after someone like YAT (it won't be me) takes the time and effort to systematically slice and dice the badly reasoned pundit piece (which, for example, sends off alarms about big govt taxation of the rich _without acknowledging_ the fact that we live during a time of historical lows for taxes upon the rich) that the brainless one will do anything but either scurry back under his rock or, maybe worse, simply post another piece he has located on the internet.
An analogy. Someone like YAT poses a set of arguments predicated on validity claims. Arnold: My my my favorite color is pink!!! YAT extends his or her argument with care and precision. Arnold: Read this!!! YAT: Yes, but have you grasped the points I've been making? Arnold: I don't know, who cares, read this!!! If Arnold can't/won't respond to the arguments of others in his or her own terms, then he has proven himself to be not a very effective participant in dialogue. At best, he's proven himself to be a propagandistic poster who feeds the base appetites of himself and others, with little or no consideration of the facts or arguments already presented by others. At worst, he's blowing smoke in an effort to divert people's attention from someone's set of reasoned arguments to a little propaganda piece whose author isn't even here to read someone's (like YAT's) response.
Not being an intellectual is no excuse for demonstrated unwillingness to engage in a basic pragmatic activity: arguing with others.
Posted by Arnold, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 18, 2011 at 11:46 pm
I absolutely LOVE your post. I've acknowledged I'm not an intellectual and asked a simple question regarding an article I've linked on this thread. You, being the pseudo-intellectual that you are, have wasted much effort in trying to dismiss my post that calls into question everything YAT said in his 5-10 know it all diatribes (above). I wasn't dismissing YAT's argument. I was merely providing an alternative argument using excerts from a respected source. I think you called that plagiarizing. What I did do is state that YAT's analysis was lacking substance and completely ignored the role of big government and taxes. The article addresses that issue.
My favorite part of your character assassination of me (keep it coming):
"Then comes along someone like Arnold, who apparently has no brain and is unable to think for himself. He does, however, have a base set of interests cast in narrow ideological terms -- don't tax me, me, me, and big govt and unions are bad, bad, bad, and other tea party nonsense. But because there's no brain but only appetites (give me back my my my tax dollars!), about the best he can do is search the internet for anything that feeds his cravings/interests.
The brainless one then posts a lengthy set of quotes from a pundit and wants others to respond. But the problem with this is, (1) it suggests that the brainless one is unable to formulate arguments by himself that might actually attempt to engage another's (YAT's) points and (2) suggests further that after someone like YAT (it won't be me) takes the time and effort to systematically slice and dice the badly reasoned pundit piece (which, for example, sends off alarms about big govt taxation of the rich _without acknowledging_ the fact that we live during a time of historical lows for taxes upon the rich) that the brainless one will do anything but either scurry back under his rock or, maybe worse, simply post another piece he has located on the internet."
Great stuff...although I think I've quoted your intellect enough for one night.
Can you put that same amount of effort into addressing the questions you've worked so hard to avoid?
Posted by Bone Tired, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 12:51 am
"What I did do is state that YAT's analysis was lacking substance and completely ignored the role of big government and taxes. The article addresses that issue." Stop it! The statement you refer to, as usual, is completely unfounded. Re-read above posts, not that it will likely do you any good.
"Great stuff...although I think I've quoted your intellect enough for one night." Yep, you're a good quoter, Arnold/Steve.
"Can you put that same amount of effort into addressing the questions you've worked so hard to avoid?" Instead of stating untruths, spewing biases, and displaying a remarkable inability to rationally address someone's set of arguments, you fall back on the oft-used Steve/Arnold recipe for retreat. Fact is, Steve/Arnold, you haven't raised any questions, with the exception of: "What about pink? You haven't answered my question! I've done my best to deflect attention away from your know-it-all analysis, now answer MY question!" YAT stated pretty clearly an unwillingness to engage you as your Steve persona; it's impossible to have a rational discussion with you, for reasons well beyond my pay grade to say. So you apparently change your name in hopes someone will address your cries to be recognized as a serious contributor? Doesn't work. Idiocy is as idiocy does, no matter what name you paste to it.
Thanks a bunch for elevating the discussion as you always seem to do.
Posted by Chemist, a resident of the Downtown neighborhood, on Jul 19, 2011 at 8:34 am
Cut up the government's credit card and pay down the balance. Furlough 80% of all government employees and shut down the bureaus for which they work. In a few months the economy would be booming again. This government is nothing but a drag on the economy: fees, forms, taxes, regulations, rules, etc. Half the private sector is working to comply with government regulations - if we only counted the production of goods and services in our GDP numbers, this real GDP would be anemic. By the way, if we only counted the production of real goods and services in the GDP, not counting tax accountants, lawyers, compliance officers, and other "services" that no one really wants, Keynesian economic theory would show itself to be hopelessly flawed. Government spending only raises the GDP if it is counted as part of the GDP.
Posted by Hayek, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 8:42 am
YAT - While I suspect I am politically the opposite of you, I did value your posts above and appreciated the thoughtful debate direction you were trying to take this blog. I do hope others will follow your lead and transcend above the ideological name-calling (which is happening from both sides of the isle).
I do have two questions/comments I'd like to get your take on:
1) Keynes' theory suggested that governments save up resources during good times and then spend those resources during bad times to smooth out demand. As the vast majority of governments around the world don't have the wherewithall to save and instead use the Keynes' theory to justify their continued deficit spending, is the modern-day version of Keynesianism really defensible? If so, can you point to an example where it actually worked?
2) You suggest above that Japan made a mess of their economy and really didn't pursue a true Keynesian approach. But isn't it true they have been deficit spending for decades and now have the highest debt/GDP ratio in the world for developed countries (over 200%)? What would you have them do differently? And aren't they suffering from what we are now suffering from - the lack of recognition of bad debt that is saddling the balance sheets of banks and homes? Aren't they and us burdened with so much debt that we can't afford to do anything more?
3) For Greece, you are suggesting that austerity has made things worse. I tend to agree with this as it is putting a damper on their economic growth rate. But maybe there is no choice and they need to go through the episode of pain to make up for all the deficit spending and mal-investments in the past. What would you have then do differently? Are you suggesting they continue their deficit spending ways and have the rest of the world subsidize their standard of living that they clearly can't afford? What specific Keynesian approach would you suggest?
Posted by steve, a resident of the Parkside neighborhood, on Jul 19, 2011 at 8:42 am
Entertaining sniping, for such self-proclaimed 'intellectuals'. You started out sounding like schoolyard taunters and you've only descended from there. Here's hoping you put your 'intellect' to work and find a productive job and spend less time posting here. I guess once your 99 weeks on the dole are up, that'll force the issue. Good luck pounding the pavement.....I have to get back to work now.........
Posted by Leland, a resident of the Happy Valley neighborhood, on Jul 19, 2011 at 9:50 am
One thing that absolutely must not be done is forcing my banks to restructure loans to reflect so-called fair market value. Some poor slob approaches me about financing for a 1 million dollar home, I give it to him, no questions asked. Now he can't pay his mortgage. Well his wife got laid off, and he's earning less because of being furloughed and to top it off, the house is now only valued at 400,000. How was I supposed know that would happen? Now a bunch of sick liberals want me to restructure the loan so that the poor slob only needs to pay off the 400,000. Do you know what that'll do to me? I'd rather see foreclosure with the house sitting vacant for a couple years. But to have BIG GOVERNMENT force little ol' me to write down the loan? That's armageddon, and more sooner than later a title wave tsunami will sweep my Daddy's banks out from under me. Where will we be then, huh? Answer my question!
Posted by ?, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 10:09 am
Leland - If I understand you correctly, you are suggesting that the bank write down the loan and take the loss while the homeowner gets to keep the house at the new lower price/loan. I agree that assets on the bank's balance sheet need to reflect reality, but isn't a bit unfair to allow the homeowner to abdicate complete responsibility? Unfortunately both parties entered the transcation at the peak of the market. Shouldn't they both share in the cost of restructuring? Alternatively, the homeowner has the option of walking away from the house and then forcing the bank to recognize the true value of the home when it is resold.
I got caught in a similar situation in SoCal in the early 90s when that housing market dropped. I sat for years with an underwater house and used my sweat equity to turn it into a rental which I ultimately sold at a profit. Never once did I expect the bank nor the government to change the terms of my loan. I was just unlucky and had to deal with that poor situation in as best of manner as I could.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 19, 2011 at 11:10 am
I'll respond to Hayek, since he/she posed actual questions rather than quotes pulled from some right-wing pundit on the Internet:
Examples of where Keynesianism has been proven successful: Germany, Canada, the Scandinavian countries, are all out of recession now. All three have high rates of taxation for the rich, strict regulation of the banks, and engaged in deficit spending that was aimed at keeping CONSUMER DEMAND high (German workers who became unemployed, for example, still had 90% of their pay as jobless benefits).
That's the key: Deficit spending must be aimed at keeping consumer demand high. In Germany, deficit spending went into the pockets of consumers; in the United States, deficit spending has gone into the pockets of bankers. Therein lies the difference.
Same thing in Japan: the Japanese have never been willing to stand up to their big banks and make them just write off bad debts. The Scandinavian countries, which faced the bursting of an asset bubble at the same time as the Japanese (in the early 1990s), moved swiftly and ruthlessly to write off or write down bad assets, take over failing banks, restore them to health, and then sell them back to private concerns (the Swedish government actually earned a significant profit for the taxpayers when it sold back the bad banks it had taken over).
The Greek situation is complicated, of course, but what the Greeks need to do is reform their tax system and actually make the rich pay, institute an honest accounting system for their national government, and redistribute their national income towards poor and middle-class Greeks. The Greek governments have been "cooking the books" for decades now and have dug themselves into a deep hole; austerity programs are just going to deepen the hole. What Greece really needs is not more loans that will burden future generations, but loan forgiveness from the banks so that it can start over. But the precursor to that has to be an honest, transparent government budget, which so far it has lacked.
The "debt burdens" only exist because the big banks want them to exist. The big banks want to keep us in debt, and to keep our national governments in debt, for perpetuity. But we forget that the governments hold a strong hand of cards: the Argentinians, faced with an impossible debt, simply defaulted on part of their external debt in 2002. The world did not end for Argentina when it did this: eventually, the Argentinians renegotiated about 75% of their external debt so that they exchanged their old bonds (debt) for new bonds (debt) with 25%-35% lower value and with a longer repayment plan. This is akin to you renegotiating with your credit card company to replace 36 months of car payments at 12.9% with 60 months of car payments at 8.4%. A huge difference!
Argentina shows that if a nation holds firm, it CAN successfully renegotiate its national debt without plunging its people into generations of poverty and privation. Unfortunately, the Greeks, as part of the EU, are under pressure to capitulate to the IMF in a way the Argentinians were not.
Posted by Leland, a resident of the Happy Valley neighborhood, on Jul 19, 2011 at 11:14 am
? ... you are my hero. That's so impressive. Being upside down on your mortgage, have sucker renters make up the difference for you, and then sell at a profit.
But I was referring to the poor slobs who can't even begin to pay their monthly mortgage rates. I agree with you. They shouldn't be able to just walk away from a bad situation. They should be forced to leave behind their second car or something. Or a kid.
Heck, my banks weren't even the ones that sold the house to the poor public sector worker slob. And don't get me started on these sleezeball public sector workers who whine about furloughs and pay cuts. Quit crying and get a second or third job. My Daddy told me that's what a lot of his workers had to do back in the days when he was growing his billion dollar empire. But I digress....
Like I was saying, my banks didn't even draw up the loan. We just bought the mortgage as part of a big bundle that we were hoping to get richer on. I know, you're probably thinking somebody like the original bank should have checked out the poor slob more thoroughly; but why bother when you're just going to bundle it up with other bad loans, have some loyal kiss-up rater rate it as A+ quality, and then sell it to some other bank down the road whose looking to do the same thing? I mean, that's what we did. It was a CULTURE. It's the beauty of capitalism, don't you think? No production. No product. Just pure profit based upon ponzi scheme upon ponzi scheme. And, better yet, we were able to use our assets on the books to speculate at a 60 to 1 rate. For every "dollar" we have in that million dollar loan, we take 60 more and buy up more bundled loans.
Now some sick liberals want us to write down the loan so that it reflects reality? I know, I know, we'd still make a profit; but not nearly as big as we stood to make when we were bundling up the loan and passing it along to the Greek banks. What a joke. And now, just because they gave us a hand-out, BIG govt thinks it gets the right to regulate us? What a joke! Elizabeth Warren or the other socialist chump they're planning to put in charge can go kiss my foot.
If the balanced budget amendment does what it's designed to do, big govt won't be able to raise my taxes. In order to stimulate the economy they'll have to go someplace else. Just cut teacher salaries and pensions, that's what I say. Cutting public worker salaries, or even the threat of doing so, will certainly cause them to buy more products, and then the economy will be humming once again. Like the ponzi schemes, the logic has a beauty of its own.
Posted by Vancouver Yankee, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 11:50 am
You are incorrect, I live in Canada and it is not as you state. The corporate tax rate is very low (I think about 22%), everything is heavily regulated up here, Canada has a very balanced budget and does not run deficits or does not like to and immediately conducts cost reduction to balance the budget, and lastly the quality of living is not so good here and they do not live nearly as well as we do. Socialized medicine is a failure and they are looking to reform it because they cannot sustain it at all. By the way, socialized medicine only covers the basics if you walk into a clinic. No dental, no vision, and if you need surgery, an MRI you will wait months and months. Up here you cannot write off any interest expense on home loans and they do have extremely tight bank regulations and it is very hard to get a loan. As an example, if you want a home loan you must put 20% down minimum or forget the loan. They also spend no money on defense nor the military which is a great advantage they have.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 19, 2011 at 1:22 pm
You must live in another Canada. The one to which I'm referring is located directly north of the United States, on the continent of North America, and is the subject of this editorial/article:
"Wednesday, October 13, 2010Canada records biggest deficit in history
It's official. Stephen Harper's government has managed to out-do Pierre Trudeau, and take the crown as the biggest deficit spender in Canadian history.
Clocking in at an impressive $55.6 billion, the Harper government has single-handedly managed to inflate the size of the Federal government since taking office in 2006, by approximately 50%.
Remember: conservatives warned us that we had to dispose of the out-of-control spending of previous Liberal governments, which delivered eleven years of balanced budgets, reducing Canada's debt-to-GDP ratio from almost 90% down below 50%.
Stephen Harper and Flaherty have managed to increase Canada's Debt-to-GDP ratio back up to about 80%, erasing almost a decade of debt repayment. Based on current trends, and given Flaherty's own estimates for a return to surplus in 2016, Canada will essentially be back in the same fiscal shape it was in 1995 (or worse) when all is said and done."
Posted by Hayek, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 1:22 pm
YAT - Thanks for responding to my questions above. If I summarize your suggested approach above, it would be:
- Provide significant financial support for the poor/middle class
- Significantly tax the wealthy to pay for this
- If there is not enough money via taxation, borrow the money
- If the debt burden gets great, default on it like Argentina did
Did I capture your suggested approach correctly? If so, isn't it a bit unfair to the debt holders (pensions, other citizens, banks, etc.) to shaft them because of ones own fiscal profligacy?
I do agree with you regarding banks and how government's protection of those interests (here, Japan, Europe) is to the detriment of the overall economy and standard of living of the average person. We should have let more of them fail due to their stupid decisions. But I think we need to keep in mind that while some banks did get some of the bailout money, much of that money went to support state/local governments, auto companies, tax rebates, etc.
Last question, what happens in a Keynesian world if one is able to conduct unlimited deficit spending and yet an economy does not recover? What happens then? Are you suggesting unlimited deficit spending/default like Greece has been doing for the past 100 years? What if the entire world did this?
Please keep in mind that peak debt/GDP ratio prior to the Great Depression got to 225%. Only when that debt was paid down/restructured over the next 10 years, did the economy start to recover (WWII helped too). Prior to our most recent depression/recession, peak debt/GDP was 370%.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 19, 2011 at 1:26 pm
Ah and one more thing...there has been a 12.7 trillion dollar increase in the national debt. The reasons for the increase?
The Pew Center reported in April 2011 the cause of a $12.7 trillion shift in the debt situation, from a 2001 CBO forecast of a cumulative $2.3 trillion surplus by 2011 versus the estimated $10.4 trillion public debt we actually face in 2011. The major drivers were:
*Revenue declines due to the recession, separate from the Bush tax cuts of 2001 and 2003: 28%
*Defense spending increases: 15%
*Bush tax cuts of 2001 and 2003: 13%
*Increases in net interest: 11%
*Other non-defense spending: 10%
*Other tax cuts: 8%
*Obama Stimulus: 6%
*Medicare Part D: 2%
*Other reasons: 7%
Get rid of the Bush-era tax cuts, roll military spending back, and you've got 28% of the $12.7 trillion gone, voila!
Wait...those tax cuts benefited the rich...can't get rid of those. What was I thinking?
Posted by Vancouver Yankee, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 1:29 pm
Live right here and have for the last 8 years or so and here is something you will enjoy. I had to go down to the states to sign up for social security benefits and while there my wife who is a Canadian citizen was asked if she was going to sign up for social security benefits as well. She said she was Canadian and they told her that because she was married to an american she is entitled to social security benefits even though she has never worked nor lived in the states. How do you like that for giving money away? Oh yes live up here and what and listen to what US politicans say about Canada and just snicker because they are misinformed just like you are. Come up and visit and I think you will be surprised. By the way, shopping in the states is very good for us now that the dollar is worth less than the Canadian dollar...........cheers!!!! By the way, Harper is a conservative and now that he has the majority in the house he is going to do further tax reduction and also get rid of the HST in BC.
Posted by Stacey, a resident of the Amberwood/Wood Meadows neighborhood, on Jul 19, 2011 at 3:34 pm Stacey is a member (registered user) of PleasantonWeekly.com
YAT wrote: "No surprise that Hamilton didn't advocate debt for America's current infrastructure in the 1700s, Stacey, since we didn't have one yet. How do you think we got one? Foreign investment. How did we attract it? By accumulating debt and then repaying it in full and on time. The USA has always been seen as a very good "credit risk" among nations."
I'm not sure how you got from Hamiltonian-era infrastructure to today's infrastructure, but anyway... You mentioned roads and bridges falling apart and putting people to work on infrastructure projects as a means to create jobs (I interpreted that to mean jobs for repairing bridges and roads that are falling apart). I merely pointed out the difference of using public debt for expansion versus maintenance. That isn't to say that roads and bridges not be maintained.
Maintenance is status quo, the broken window fallacy which would have one believe that all that we needed to do to recover from the recession is to break stuff to create jobs. All it leads to is temporary jobs. Expansion is real growth. It leads to more permanent jobs. It drives innovation. New demand may require new technologies and new jobs/companies who can provide/invent those technologies. Public debt used for expansion allows a nation to move faster on expansion before competitors are able to capitalize. It's an investment in a nation's future. One can sum it up in the "cut and invest" strategy elucidated by Thomas Friedman (Web Link) and repeated by Obama. Public debt for maintenance can't create that kind of "win".
Posted by Leland, a resident of the Ruby Hill neighborhood, on Jul 19, 2011 at 4:57 pm
Thank you Stacy for making my point. Here's the choice. Either have the govt stimulate the economy by, say, building a supertrain from Los Angeles to San Francisco. Or give multimillionaires like myself tax breaks so I have more to futz around with in the speculatives trading market (my favorite hobby) or, better yet, that I can invest in more of my coal burning plants in China. It's a no brainer, isn't it?
There's this myth out there about the end of the American frontier. But for me, there are no nat'l boundaries. I have no allegiance to America (no disrespect intended), but I'm free to do whatever I want to with the 1/2 billion I inherited from my Daddy. Some of you chicken littles who think the global warming sky is falling might think the better investment is with the supertrain. But I'm certain a huge majority of you fiscal conservatives out there recognize the beauty in my taking my tax-break money and investing abroad: Profits for me!
I understand how some of you might want to begrudge me my god-given right to take my money out of this country in order to start up and invest in companies wherever I darn well please. Rough rocks. You say it robs you of your sorry belief that I will keep my tax savings here in this country for the betterment of the country? Too bad. Don't go after me. If you need money, aren't there union teachers' salaries you need to be going after instead? Go to it, Stace!
Leland, Ruby Hill (back and forth between here and Happy Valley)
Posted by No Lurking Turkeys, a resident of the Birdland neighborhood, on Jul 19, 2011 at 6:20 pm
Sorry to offend you, Leland and Stacey, but this much I know....
This country, for the first time in 30 years, is having a serious national dialogue about the idea of raising taxes on the rich instead of slashing them. And we have just one person to thank for this: President Barack Obama. I am happy to see the REVENUE issue finally in the national spotlight and it will obviously remain so through the 2012 election.
Posted by ?, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 6:33 pm
Have you people honestly looked at the numbers and understood the implications of them? Let's start with the numbers YAT posted above. Say we increase tax rates to the Clinton era (which I support), that will only cover a fraction of our deficit. Say we confiscate all the wealth of the top 1%, that will only be a fraction of the entitlement promises we are on the hook for.
This mythical idea of taxing the rich more and all ills will be solved is in fact that ... mythical.
Per Leland's tongue-in-cheek post above, what do you think the super rich will do if in fact you go after their wealth? Leave the country. As an example, look at all the tax dogde antics of the super-wealthy in Europe.
Historically, the Federal government has not been able to collect more than 20% of the GDP regardless what the tax laws say.
So assuming you can magically collect more from the super-wealthy, what else are you going to do to make up for the huge difference?
Posted by Boner, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 7:18 pm
Eventually I think this is the way this is all going to shake out nationally. Significant cuts to welfare, defense, and social programs very deeply. Elimination of many tax deductions for individuals including complete elimination of home mortgage interest expense deduction and this all will only get us part way. The rest will be much harder. For California, well I think we are going to fall and fall extremely hard and the hardest hit will be those on government pensions because we are going to run completely out of money to pay.
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 19, 2011 at 9:30 pm
The state of the USA infrastructure is so dire that the jobs wouldn't be "temporary" in the sense that I understand it. Conservative estimates are that the USA had deferred maintenance of about $8-$10 trillion in infrastructure projects. And those jobs cannot be exported, but have to be given to people living and working in the USA.
What's more, infrastructure may not be "sexy" but it's what makes this country the economic growth engine that it is: our roads, bridges, waterworks, and so forth, used to be the best in the world. With investment and ingenuity, it can be again. Every time I see the Golden Gate Bridge (or even the Bay Bridge), or the Hoover Dam, I'm reminded of the great feats of which our nation IS capable--not WAS, IS.
Ah, the old argument about taxing the rich. If you tax them, it won't cover even a small part of the deficit. And if you do tax them, they will flee the country. To these "arguments", I have three things to say:
1. 1% of the American population takes home 24% of the income. You absolutely cannot make a dent in the deficit without taxing the super-rich, because they have one-quarter of the national income. The top 1% of the population only had 9% of the national income in 1976. 20% of the population takes home 50% of the national income. When that Commie Eisenhower was President, the top tax rate for that 1% was 91%.
2. The per capita income of Americans in 2010 was $40,584. That means the top 20% of Americans (61 million Americans) have a cumulative income of $2.4 trillion. The current top tax rate on those folks is 35%. Double that to 90% and you would (assuming Congress doesn't throw in any loopholes) raise $840 billion in additional revenue every year. This year's federal budget deficit is close to $1 trillion, so raising taxes by that much would cover 84% of the current deficit. I can see why some Pleasantonians wouldn't like this plan, as they fall firmly in that upper 20%. But let's shovel the dirt over the "you can confiscate all the money of the rich and not make a dent in the deficit" lie, ok?
By the way, even doubling the 35% top rate to 70% just for the upper 1% of income earners would give the feds an additional $415 billion in revenue, and increasing the next step below that to 50% for the top 20% would give us a total of about $600-$630 billion a year in new revenue. And we haven't even stopped spending on the useless wars in Afghanistan and Iraq yet!
3. If we sharply raise taxes on the rich, they'll flee for (name the country).
Let them go. But their income is still earned HERE, due to the unique advantages that the USA provides for wealth creation, and it will be taxed HERE. If they want to give up their citizenship just so they don't have to pay taxes, well...they're not real Americans, are they?
Posted by Yet Another Teacher, a member of the Hart Middle School community, on Jul 19, 2011 at 9:34 pm
Vancouver: You may live in Canada but people live in the USA and know many "facts" that just aren't true.
I provided facts that directly contradict what you said. You responded with an anecdote that absolutely cannot be proven or disproven--smart move, because if you present any more "facts" I will research them and show that what you are saying is absolutely mistaken.
So stick to unproven and unprovable anecdotes, they are your métier and all you have in the absence of any objective facts.
Posted by Banker, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 19, 2011 at 9:40 pm
All this is a distraction from the too big to fail problem that got us in to this recession, caused a huge decrease in tax revenue, and induced the Treasury and the Federal Reserve to spend trillions that it wouldn't have otherwise spent. This too big to fail problem was not fixed by the Frank/Dodd bill. The problem is even bigger now, and who knows what will happen when the current speculative bubble pops. Our first priority has to be fixing too big to fail. The deficit stuff can wait.
Posted by Leland, a resident of the Ruby Hill neighborhood, on Jul 19, 2011 at 10:35 pm
Just like I've been sayin'. heh-heh-heh. I kind of have you by the short an' curlies don't I? You raise my taxes another penny and I'm going to fold up and move lock, stock, and barrel. And who's going to replace me? Cuz how many people know how to run a bank or a credit card company like I do?
Posted by Vancouver Yankee, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 6:57 am
You need to stop sitting on your computer and scanning websites for the info which fits your socialistic views and go out and experience what life is really like. Come up to Canada and visit for say 6 months and experience the lifestyle and the cost of living and I think you will change your tune. By the way, historically Canadian's are very envious of americans and the american lifestyle as they knew it. Now a common phrase up here is that "is is like watching the demise of a once great republic right before our eyes", all of the things which made america great are being swept away by the wave of wanting what others want rather than working and achieving as individuals. Let's see which way this story ends but I am betting that unions and socialism must be defeated otherwise the US and Calfornia in particular are in very bad shape.
Posted by ?, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 7:17 am
YAT - I wasn't trying to argue against taxing the wealthy. I was pointing out even if you did so, there would still be a large gap between revenue and obligations. I was curious to get your take on what you would do then. I still would be interested to hear your thoughts on that.
Posted by Freddie, a resident of the Birdland neighborhood, on Jul 20, 2011 at 8:57 am
Nice try deflecting from multiple causes. How about Fannie mae and Freddie Mac, underfunded pension funds, people spending more than they make, easy loans, sub prime mortgages, federal government deficit spending, Obama bailout of the auto companies, stimulus spending, Obamacare, Bush medicare program, Clinton Pell Grants......give me a break.
Posted by Banker, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 9:24 am
1. Fannie mae and Freddie Mac -- yes, they certainly were a big part of the too big to fail problem. I don't know why you think I was excluding those two. They had explicit government guarantees, which made matters even worse.
2. underfunded pension funds -- Not a cause for the recession or for the federal government deficit. It is problem for the future, but in no way a comparable to the too big to fail problem that we face today and that got us into this recession and caused large deficits.
3. people spending more than they make -- I'm not sure exactly how you want to solve this problem other than not encouraging people to borrow more than they can afford.
4. easy loans, sub prime mortgages -- This is certainly not a problem today. I'd say this one is solved. As to it being a cause for the recession, it was a factor, but no where near as big a factor as the crisis on Wall Street that led to the passage of TARP. That crisis happened largely in the derivatives market.
5. federal government deficit spending -- Certainly not a cause for the recession. It was bad, but made far worse by the recession because induced the largest government bailout in history and caused tax revenues to drop dramatically.
6. Obama bailout of the auto companies, stimulus spending -- Caused by the recession, not causes of the recession. There is nothing we can do at this point to change these things because they are already done.
7. Obamacare, Bush medicare program, Clinton Pell Grants -- Not sure where you are going with these, other than that they are examples of government spending.
The bottom line is that the deep economic downturn we experienced had is causes in unregulated financial speculation backed by a government bailout -- the "too big to fail" problem. Deficits wouldn't be anywhere near as big as they are today, and unemployment wouldn't be anywhere near as high, had it not been for that. The speculation with government backing continues today. This is the root problem we need to solve, or none of the rest of it will matter.
Posted by ?, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 9:44 am
Banker - Can you elaborate on your logic for why unregulated derivates were the cause of this recession? I'm not quite following. Yes, I agree derivatives were/are an issue, but I'm not sure they were the starting cause of the recession.
Isn't it more accurate to say that:
- interest rates were too low for too long which created mal-investments in real estate
- Goverment policies (Freddie/Fannie/etc.) as you highlight above made it easier for unqualified people to take on debt
- Financial engineering (CDOs, etc.) made it easier to package up that bad debt and sell it to uninformed buyers
- With all this new debt (e.g. people using their homes as ATMs), people went on a spending binge and pulled forward years of demand
- Now that people are saddled with more debt and lower-priced assets, they are forced to scale back on their spending until their balance sheets improve
- Given that there is this significant pull-back in spending, we have our current recession/depression
Posted by Freddie, a resident of the Birdland neighborhood, on Jul 20, 2011 at 9:59 am
If you want to get excited about something take a look at todays currency exchange rates. The US dollar is becoming extremely weak. One US dollar is only worth 78 Japanese yen and one US dollar only buys 94 cents Canadian. Bloomberg reported this morning that because Canadian interest rates have risen and are now .5% higher than the US China is now buying Canadian bonds rather than US treasury bonds. This will force the US to raise the yield on interest rates otherwise the only countries with money, China, will not buy our debt.
Posted by Banker, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 10:17 am
"Can you elaborate on your logic for why unregulated derivates were the cause of this recession?"
I'm saying they are the primary cause for the recession becoming the "great recession". I agree that all the factors you outlined would have caused a pull-back and possibly a recession, independent of the derivatives problem. But the derivatives problem caused this downturn to be the worse since the depression.
Think back to 2008 when Henry Paulson asked congress for $700+ Billion immediately. With no strings attached. Credit had frozen. Banks, insurance companies, and hedge funds didn't trust each other at all. They wouldn't loan each other anything. This was no normal pull-back. It happened all at once and it was all encompassing. But many of these companies had come to rely on over-night loans just to do their daily business. One of the big problems with derivatives is that they are stubbornly opaque. They aren't traded on regulated public exchanges like stocks. No one, including the government, really knew who owed how much to whom. It was a true financial panic. That led not only to enormous bailouts (enormous deficit spending), but also enormous unwinding and devaluing of assets. One company, AIG got over $180 billion in bailouts alone. That is a staggering amount. It would have fully funded the US Space program for most of its history. It was all to cover losses in derivatives, not mortgages or mortgage backed securities. It was all essentially side bets the company had allowed third parties to make, but whom AIG couldn't pay as these third parties won their bets. Many other bailed out institutions did the same thing.
When I look at the size of the various causes of the downturn, when I put real numbers to it, I'd have to say that unregulated derivatives trading with a government bailout guarantee was the biggest cause. We have done very little to fix this problem. We need to get derivatives on a regulated public exchange, just like stocks. But more importantly, we need to take away the implicit government bailout guarantee.
All this talk about cutting spending and raising taxes can wait until we've solved too big to fail.
Posted by ?, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 10:57 am
Banker - First I agree with your comments regarding the destructive nature of unregulated and opaque derivatives. Just yesterday Geithner came clean on the size of this monstrosity - $600 Trillion. Try to imagine how large that number is.
However, I beg to differ with you regarding the start of our current recession/depression. It was simply too much debt and leverage. Yes, derivatives helped to hide that leverage so I guess in some way I agree that derivatived some role. But regarding debt/leverage and derivatives, which is the cart and which is the horse? IMHO debt/leverage came first. Or maybe they came at the same time? I don't know.
This I do know, the Great Depression was caused by too much leverage and incorrect monetary and regulatory responses to the crisis. Keep in mind that total debt/GDP rose to 225% prior to the Great Depression. Prior to this most recent depression/recession, debt/GDP rose to 370%. 370%! Both then and now we are in a "balance sheet" recession because of too much debt/leverage.
So while our government has masked the pain of our current downturn with massive deficit spending, we won't get out of this until debt/leverage is brought down either through paying it off or via default.
Net I believe it is too simplistic to place blame of this downturn on derivatives. That is just a convenient way to avoid the reality of what else brought this on us and the responsibility many had in making it happen. E.g. it is too easy for the left to blame this on Wall Street and ignore the impact their own policies had in this debacle. Likewise it is too easy for individuals to blame this on someone else rather than taking an honest look at their irresponsible spending habits.
Lastly in case someone accuses me of defending Wall Street - I'm not - they are some of the biggest bad guys in this sad story. It is just that they aren't the only ones.
Posted by Ph.D., a resident of the Foothill Farms neighborhood, on Jul 20, 2011 at 1:36 pm
I admit to a good part of the blame, too. For years I taught my students to look beyond their own bellybuttons. Instead of attempting to show them what a just society might look like, I show have been teaching them to think like the Founding Fathers did with their me-first and screw everyone else attitude. I am sooooo ashamed. I deserve to be prosecuted right alongside the hedgefund managers.
Posted by Boner, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 2:05 pm
I must be messed up in my thinking. I work as hard as I can in order to make as much money as I can in order to live a great lifestyle and one which makes me as comfortable as possible. If everyone thinks that I work this hard so that I can pay more taxes to support those who do not work nor do as well as I do they are sadly mistaken.
Posted by Leland, a resident of the Ruby Hill neighborhood, on Jul 20, 2011 at 3:14 pm
I agree completely with Boner. Except the part about working. I don't have to work because my Daddy gave me hundreds of millions before he kicked the bucket.
There's nothing wrong with Boner's thinking at all. Now, obviously, on a cognitive development scale, his ego-centered mode of thought would place him pretty far down on the evolutionary latter. Just goes to show you that even someone with a 10 year-old's mentality can make money in this great system of ours. See, for example, Donald Trump. (Whatever happened to him, anyway. Wasn't he the self-proclaimed genius who was going to be president?)
Boner, I'm putting a pretty little star on your forehead.
Posted by Bill, a resident of the Amberwood/Wood Meadows neighborhood, on Jul 20, 2011 at 3:27 pm
Boner's self interest (a very good thing) is the driving factor behind all of mankind's progress. Leland's implied write answer of socialism is the parasitic element that wants to draft off of the efforts of people like Boner.
Isn't it interesting how most of these blog discussions come down to the same point - the productive people of this society who want to protect their gains and the parasitic people who feel entitled to draft off the Boners of the world and feel the system is unjust unless there are rules that force the productive people to and over an increasingly larger portion of their gains?
It is amazing how many closet socialists/communists we have in this country.
Posted by Leland, a resident of the Ruby Hill neighborhood, on Jul 20, 2011 at 3:41 pm
Good thinkin', Bill. Without self-interested people working under the whip in Egypt, how would the pyramids have been built. And without self-interested pharoahs whipping them, nothing ever would have been accomplished.
As a parasitical fat cat myself (inherited from my Daddy), I hire the Boners of this world and hold the threatened withdrawal of a paycheck in front of their money-sniffing noses everyday. Boner shows up for his four-hour stint everyday as if it were church. He actually _believes_ in the system. Makes my life easy, that's for sure!
Sweatshop workers epitomize what I think Bill is getting at. Without self-interested child laborers, how could GAP have made its fortune? And what about the hero job creators who make it possible for them to work?
Posted by Boner, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 3:58 pm
I do not show up for work because I am employed by me and the hours I work are mine to work or not, but not working means less money and more work and hours means more money. Every decision I make and every dime I spend are mine. I take all of the risk and hopefully gleam a reward. I have gotten up early everyday for the past 35 years and did the best I could everyday. Sometimes my best was not good enough but I tried and will continue to do so. I may be wrong in what I am going to say but I firmly believe mankind needs to work and achieve something otherwise the successes and failures for that matter are not appreciated for what they are. I have learned a lot in my years and honestly have learned a lot more from my failures than my successes and believe everyone needs some skin in the game.
Posted by Leland, a resident of the Ruby Hill neighborhood, on Jul 20, 2011 at 4:46 pm
Two sparkley little stars on Boner's forehead! Next he'll tell us that he came into this world alone and will go out alone. And in between? Just Boner, Boner, Boner.
Socrates divided classes of humans into three: Gold, Silver and Bronze. The gold are people like me who have a lot of wealth and comfort, don't have to work, read and write and tell my subordinates to satisfy my every desire. The silver are people who are artistic, who realize that there is very little money in poetry, but also very little poetry in money, and they opt for the poetry. Then there's the Bronze. The common grunters and groaners who must labor and spend most of their day attending to basic necessities: laboring, consuming, expelling, sleeping, getting up, doing it again, all in hopes of alleviating the pain of their pathetic lot in life. So mired in the necessities of daily life, they're unable to recognize the fulfillment that comes from connecting with the community in a just manner and the joys of engaging together in collective action. Nearly animal-like in their orientation, all they can do is labor, attend to their most base instincts, and wish they had more. I like the way capitalism has turned grunting labor into a virtue, and that guys like Boner buy into it like a religion. It sure makes things easier for me.
Posted by Arnold, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 4:52 pm
YAT: “Comparing the management of a household economy (your personal savings, debt, and spending) and the management of a national economy always leads to false conclusions.
People who say "I have to balance my household budget, why shouldn't the government balance its budget?" don't understand that a balanced budget is not always good at the national level. It's not terribly complex: just think of deficit spending and debt as a way to "kickstart" the economy.”
- Considering that we have been “kick starting” the economy for several years, using several different “stimulus” mechanisms, when does the amount of leveraged debt work against us?
“What's more, infrastructure may not be "sexy" but it's what makes this country the economic growth engine that it is: our roads, bridges, waterworks, and so forth, used to be the best in the world. With investment and ingenuity, it can be again. Every time I see the Golden Gate Bridge (or even the Bay Bridge), or the Hoover Dam, I'm reminded of the great feats of which our nation IS capable--not WAS, IS.”
I’m with Stacey and his “broken glass theory”. Aside from that, why do you think government spending on infrastructure maintenance is a more productive use of capital than funding companies that improve efficiency and create jobs? What has the Obama stimulus package really done other than maintain job security for government employees and help to fund compensation packages that otherwise would have naturally corrected as city revenue declined, even with union interference?
The answer is nothing. Most of the that STIMULUS money (95%) went to government employee unions. Now, the feds, through the SAFER Grants, are now funding Fire Department hires up and down the state (they didn’t receive anything in the original stimulus package) in an effort to maintain compensation levels for a group of employees that are overcompensated by any rationale measure. I guess my point is that the Obama/Biden stimulus money was spent on maintaining excessive compensation, which doesn’t stimulate anything and actually has the opposite effect, while completely ignoring the private sector that was suffering through tremendous unemployment issues. And what happened to the all shovel-ready jobs? And since you are YAT, did the stimulus funds actually save teachers jobs and student programs, or did those funds just end up as part of the budget that helped fund teacher/administrator raises. How does that stimulate the economy? You don’t have to answer that rhetorical question
Not only is this region founded on innovation but it also provides jobs that are second to none. As the article I linked stated, one of the two ways to beat a recession is though productivity gains, and spending money to maintain compensation levels of overpaid government employees isn’t one of them. Allowing the private sector to Invest capital in technology that produces productivity gains is are best hope (globally, we can’t come even close to competing on the cost of labor). But what are we doing? We’re taxing companies to death, at least in CA, so we can fund the massive indirect and unfunded compensation costs of public employees- most of which (costs) will soon move from the footnotes to the balance sheet, and all of which are increasing rapidly even if we are fortunate enough to hold direct costs (salaries) in check.
YAT, I think you make some excellent points. Where I draw the line is when your universe of solutions ignores the obvious. When are you going to quit blaming everything on Wall Street (and they are part of the problem) and include the unions in your list of reforms? You’re All In - or you aren’t!
I read an article today that said one employee group earned an average of 60K per year, and police earned 100k. After reviewing both the CC Times & State Controller databases the actual compensation numbers for the PD, they were over 120K, didn’t include the 41% employer/employee Calpers contribution made entirely by the city ($49,200.00), nor did it include the city paying the employee share meaning the employee compensation was adjusted up 9% for the sake of pensions, the 14 paid holidays, cash-out of sick leave, ability to buy service credits of 5 years to add to the pension, retirement healthcare fully paid after 5 years service, longevity pay, overtime paid for every non-scheduled hour worked (even if you had the entire week off except the overtime shift), etc…I wish the papers would learn how to properly report government employee compensation.
Posted by Pleasanton's Finest, a resident of the Downtown neighborhood, on Jul 20, 2011 at 5:59 pm
Seems like Citizen Arnold doesn't like the police. He can't imagine any justification for paying cops over 100 grand. I wonder what Arnold does for a living? He sells women's shoes I bet. Well, something seems to have escaped him. With the help of unions, working people have been able to get the kind of salary that they've always deserved but that selfish skinflints like Arnold have always denied us. You don't get to set the bar, Arnold. Just because you and your ancesters were able to exploit our labor by paying us just enough for us to eke out a living, that doesn't make it right. The world is changing, Arnold. And you're going to have to pay for it. Sell your shoes, or manage your warehouse, or suck on your Daddy's bottle like Leland. Do whatever you want. But like it or not, the world is changing and rational people are becoming aware that cops are more important and deserve a higher salary than the shoe salesman. You should've studied up to become someone who contributes something to society, instead of the unproductive naysayer whiner you seem to be.
Posted by Arnold, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 6:28 pm
Mr. Finest, I am trying to contribute to society by exposing the abuse taxpayers have been subjected to for over a decade. I would have been at it sooner if I'd known the extent of the problem. Now that we are beginning to see the first rays of sunshine (salary databases), and the internet is certianly a big help, it is obvious that the 100K is significantly more than a shoe salesman makes and doesn't come close to the actual dollar amount (180K) that a police officer receives. If you need 65-75% of your employment income during retirement, why are taxpayers paying to fund 98% of your salary in the first year, and including lifetime medical for your family - while you double dip.
I don't think the pension system was estasblished to enrich retiree's, and certianly not 50 year old retirees, but that is exactly what is in place.
Posted by Pleasanton's Finest, a resident of the Downtown neighborhood, on Jul 20, 2011 at 6:30 pm
Bill, Bravely spoken. So, what's your occupation, sir? You and Arnold don't seem to have one. What do you consider a more important job than a cop? C'mon big guy, we're waiting.
I earn the salary I do because that's what was established through collective bargaining. It's not an entitlement. The only entitlement here is that you think you're entitled to hide behind a curtain and throw rocks at someone whose job it is to protect and serve, and who does it very professionally. Now, what did you say your profession is again?
Posted by b, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 20, 2011 at 8:16 pm
Latest debt limit proposal WILL bankrupt the middle class to pay for high-income tax breaks.
The proposal is to massively slash the major middle class tax breaks (mortgage interest, charitable donations, etc) in order to pay for a reduction of the top tax rate from 35% to 29% (on income exceeding $379k).
Bankrupting the middle class does not strike me as an especially good way to get the economy back on track.
Posted by Brett Taylor, a resident of the Bonde Ranch neighborhood, on Jul 21, 2011 at 8:55 am
That is not true and I actually like the latest version that President Obama is supporting by the gang of 6. This plan would call for reduced spending to the tune of about 3.5 trillion dollars primarily in the areas of defense, elimination of foreign bases, donations to other countries, and some reduction in the retirement age for military. Revenue increases by 1.5 and to achieve this calls for elimination of the mortgage interest expense deduction (we are the only country that I can think of which currently offers this) allows all of the Bush tax cuts to expire at the end of 2012 which will generate a tremendous amount of revenue. Afterall, everyone who pays taxes received basically a 5% reduction in taxes they paid and allowing this to expire would only take us back to what we were paying before. The other large ticket item here is elimination of state income taxes from the federal return. We need to support President Obama as he moves forward to raise the debt ceiling. Shared sacrifice is the way to go.
Posted by b, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 21, 2011 at 1:02 pm
Brett - I'm confused. You said that my statement is not true, and then proceeded to confirm that it is true.
There are a few good things in this proposal, but it is ultimately going to be a massively great deal for the wealthy, and a horribly expensive deal for middle-class professionals.
All the major news outlets have confirmed what I just said:
- Massive slashing of middle class tax breaks, including mortgage deductions and charitable donations. Going from $1m to $500k on the mortgage deduction is certainly massive, and will certainly massively affect Bay Area professionals. $500k doesn't buy that much around here. The typical professional Pleasanton family is going to see a huge increase in their taxes as a result of this change.
- This is being done to pay for a massive tax cut for those earning over $379k/year.
Posted by Brett Taylor, a resident of the Bonde Ranch neighborhood, on Jul 21, 2011 at 1:55 pm
I think we should get rid of all the Bush tax breaks because we all got them including me the middle class. We all are going to need to belly up to the bar and pay our fairshare. My dad does a lot better than me and I was shocked when I saw the tax rate he was paying because of how much he makes while at the same time my brother with 5 kids does not pay a dime and as a matter of fact got a rebate from Obama because he made so little money. We need to eliminate the home mortgage interest write off as well as the other things because we cannot afford them. We have just spent to much and we support so many projects and countries we all are going to need to pay. Don't get me wrong because I enjoy the mortgage interest write off and writing off state income taxes off my fed tax but it is not affordable so we all need to pitch in.
Posted by One of Pleasanton's Finest, a resident of the Downtown neighborhood, on Jul 21, 2011 at 2:06 pm
Still waiting to hear from the two big mouths Bill and Arnold. Both of them seem to think they know what's a fair salary for law enforcement personnel. Both of them seem to think that their job is more important than mine and that they deserve to rake in a higher salary.
Do Bill and Arnold know what the suicide rate is for active and retired law enforcement officers? Divorce rate? Yet they continue to degrade my occupation. By the way, I haven't seen either one of the cowards being eager to step forward and tell us how selling women's shoes is more important than law enforcement.
Posted by One of Ptown's Finest, a resident of the Downtown neighborhood, on Jul 22, 2011 at 6:45 am
Look at the cowardice of big-mouths like Arnold and Bill, it doesn't seem to take much to earn from them cries of being bullied. Guess they don't encounter too much stress while fitting women's shoes. I'm simply asking what these two little guys do for a living that earns them the right to criticize what I earn without knowing a thing about my job other than what they watch on television.
Real bullies are actually cowards who try to take salaries away from others while disguising their qualifications to do so.
Posted by b, a resident of the Another Pleasanton neighborhood neighborhood, on Jul 22, 2011 at 3:45 pm
I would be VERY happy to see the Bush tax breaks eliminated. They have not worked as advertised, and we were never in a position to afford them. That change would hurt us all, and help us all.
My problem with the proposal I mentioned is that it massively increases taxes on middle-class and upper-middle-class taxpayers (typical Bay Area professionals) in order to subsidize a massive tax break for those earning >$379k. That's just wrong.
We have a big problem to fix as a nation. We ALL need to feel a little pain in order to contribute to the solution, not just the poor and middle-class.
Posted by Leland, a resident of the Ruby Hill neighborhood, on Jul 24, 2011 at 7:34 am
Well, b, there's the nub of the matter. You're willing to experience a little pain in order to help get us out of this mess. Arnold and the rest of my posse aren't. We're patriot taxpayers who have a right to not contribute if we don't want to. It's easier to put the squeeze on teachers, police officers, and other lowlifes who apparently don't mind giving up a day or two here or there, or getting their pay cut here or there. You see, that's what got my Daddy where he got. Patriotic to the core, he only cared about himself, and if he had a chance to rob others (e.g., exploitation of his work force) then he would. That's what got him on top, and it's what keeps me on top too. Smile, Be Happy, and Have a Nice Day.
Posted by Sick and Tired, a resident of the Castlewood Heights neighborhood, on Jul 24, 2011 at 8:27 am
I'm so sick and tired of people saying I only care about myself. My efforts to wrench money from the corrupt police and thuggish unions is to preserve this great nation for my children. My efforts to withstand an expansionist and intrusionist state from raising my tax ceiling from 34 to 35% is all about the children. I care so greatly for the children. Why don't you do-gooder libs who want to spend my money on some of the 45 education programs that have recently been cut or eliminated see this? If we don't cut education now, my kids will have to pay as high as a 36% tax rate in the future. I'd rather die!