Deficit Spending By The American Government

[Engineer]

I agree with Charrison's statements that not all debt is bad, but the current WELL ABOVE GDP debt coupled with the fact that it has occured for so many years still leaves me to wonder if it (when?) will catch up with us. The former posted chart on Wal-Mart's debt vs growth proved that debt, when used the right way, can lead to much faster growth (leading to more revenue).

As for the American people owning most of the debt, that is true of past years, but I would say that the last few years have seen a huge influx of foreign debt, especially China and Japan as they try to prop up the US dollar (since China pegs it's currency to the US dollar).

Also, it should be noted that it's not necessarily good to give huge tax cuts when already running deficits. The lag is so great on recovery (assuming that trickle down even works) that the deficit skyrockets long before revenue recovers enough to cover the shortfalls in revenue.

P.S. I think that the government should run it's debt more like I do...I hate it and pay it as soon as possible!

 

[NeenerNeener]

Well when it does catch up to us. You can be sure that the righties will blame it on social security!

 

[Engineer]

In related news, the US government sets record day for tax collections ($61 Billion in one day)

Corporate tax payment big on that day. Reflects an improving economy.

Estimates for $350 billion deficit this year. First decline in several (5) years (Yes Charrison, the previous years deficits may have been lower than projected for those years, but they still came in higher than the previous year ).

 

[Engineer]

Originally posted by: NeenerNeener
Well when it does catch up to us. You can be sure that the righties will blame it on social security!

Maybe...maybe not. Right now, neither political party "really" wants to hit SS as it provides an extra $100 plus billion into the general revenue. I don't think that they care about the IOU as long as the money is there. (hence, zero "real" dollars in the so called SS trust fund).

 

[alent1234]

Originally posted by: NeenerNeener
" quote:
Originally posted by: NeenerNeener
My hypothesis is that inflation hurts the middle class and helps the upper class, causing a deeper division between the classes.

Not necessarilly. Time for another silly example.

Suppose NeenerNeener earns $40k a year - a middle class salary. Suppose NeenerNeener buys a house for $160k at today's 6% fixed interest rate. The house is 4 times his salary and he can barely afford payments even with eating nothing but ramen noodles and skipping all forms of entertainment and just about all shopping.

Suppose horrible inflation comes around tomorrow. The cost of everything (goods AND labor) goes up by 10 times (see history for examples of inflation nearly this fast). Suddenly tomorrow NeenerNeener earns $400k a year. But since NeenerNeener didn't buy many goods, his expenses don't change much. But, within a few months, NeenerNeener has his entire house paid off! He got a nearly free house. See how inflation helped the middle class?

Suppose a wealthy person was the lender. The wealthy person gave up quite a bit in order to loan NeenerNeener that money (sold some valuable stocks to get the instant cash). Now the inflation hits. The wealthy person gets the money back which can buy 1/10th of the stocks that were sold to raise the money in the first place. Inflation can hurt the wealthy.

Inflation helps those who owe money at fixed rates (the poor and middle class). Inflation hurts those who are owed money at fixed rates (you have to be somewhat wealthy to be owed significant amounts of money)."

Edited: 06/16/2005 at 07:49 PM by dullard

If I went from earning $40k to $400k, I would no longer be a member of the middle class! No matter though, this is the way I look at it. Let's say I own no property or stock and make minimum wage. Inflation hits and my wages don't go up because my boss's rent went up and he can't afford to pay me more. Now my food costs more and I make the same amount of money. Sucks to be me.

However, let's say I'm a member of the upper class, and I own property and stock. Prices go up, but so do the value of my assets. It's a wash, but since I make plenty of money, the inflation doesn't affect my standard of living.

This is how I believe the division occurs.

the stock market hates inflation

watch CNBC sometime or look at the stock market in the 1970's

 

[charrison]

Originally posted by: Engineer
In related news, the US government sets record day for tax collections ($61 Billion in one day)

Corporate tax payment big on that day. Reflects an improving economy.

Estimates for $350 billion deficit this year. First decline in several (5) years (Yes Charrison, the previous years deficits may have been lower than projected for those years, but they still came in higher than the previous year ).

That is must have been what I was thinking when I posted that?

 

[alent1234]

Originally posted by: NeenerNeener
Sounds like a vicious cycle. People want raises cause prices go up. Prices go up because people want raises.

many things have dropped as a percentage of people's salaries in the last 20 years

gas, food are a few and this is why discretionary spending is such a big percentage of people's budget today

 

[frankie38]

Deficit spending is not a bad thing and does not necessarily lead to Inflation. That is, spending for infrastructure such as Highways is an Investment in America. So, borrowing money to spend is not a bad thing we are simply leveraging USA's balance sheet.

With that said, some Inflation is a good thing. Deflation is far worse problem (another thread). The FED's goal is for sustainable growth. When growth is not sustainable then we have a problem. We do not have a inflation problem yet.

The US dollar is the worlds Reserve currency. So, all countries in the world must maintain a US Dollar Reserve to settle trades. Many countries also buy our bonds too. (risk free investment). This is not a problem.

You are correct in the growing disparity in wealth across the US. (another thread). This issue has been raised before.

The real question is how to raise the lower wealth parts of our population. We should look to lower the wealth of our successful citizens.

 

[rahvin]

Originally posted by: Jhhnn
Part of what current deficits do is to falsely maintain the high value of the dollar, encouraging offshoring and overseas investment. It soaks up and props up what would otherwise be excess dollars in international markets by providing a safe investment avenue for those dollars.

This absolutely opposite to how the market works (at least how I understand it). Defceit spending lowers the value of the dollar, in fact in the mid to late 90's when it became apparent that there would be strong domestic surpluses and that the US would pay it's debt down there was an immediate and corresponding increase in the value of the dollar. When it became apparent that Bush was going to pursue a deficiet spending policy there was an immediate and corresponding drop in value of the dollar. Without increasing interest rates while increasing borrowing the value of the dollar begins to fall.

Now I could be unaware of some international currency trading or something that influences this relationship but the past 10 years of currency movement confirms what I have said. Anyone with a CPA and understanding of international currency values (Michael?) want to respond and confirm or deny which of us is right?

 

[ElFenix]

Originally posted by: rahvin

Originally posted by: Jhhnn
Part of what current deficits do is to falsely maintain the high value of the dollar, encouraging offshoring and overseas investment. It soaks up and props up what would otherwise be excess dollars in international markets by providing a safe investment avenue for those dollars.

This absolutely opposite to how the market works (at least how I understand it). Defceit spending lowers the value of the dollar, in fact in the mid to late 90's when it became apparent that there would be strong domestic surpluses and that the US would pay it's debt down there was an immediate and corresponding increase in the value of the dollar. When it became apparent that Bush was going to pursue a deficiet spending policy there was an immediate and corresponding drop in value of the dollar. Without increasing interest rates while increasing borrowing the value of the dollar begins to fall.

Now I could be unaware of some international currency trading or something that influences this relationship but the past 10 years of currency movement confirms what I have said. Anyone with a CPA and understanding of international currency values (Michael?) want to respond and confirm or deny which of us is right?

currency trading is a function of supply and demand, just like everything else. in the late 90s the US economy was booming. the booming economy created the surpluses. it also created a demand for investing in the US. when people invest in the US they need to pay for those investments in US dollars, so demand for the dollar increases. that increases the price of dollars on the international market, ceteris paribus. when bush came into office it was pretty clear that the US economy was tanking. the tanking caused the budget deficits and caused people to look for investments elsewhere. the lowered demand for US investments caused a lowered demand for dollars, lowering the price of the dollar onthe international market, ceteris paribus.

 

[Jhhnn]

If it weren't for govt borrowing creating additional demand for dollars, their international value would be considerably less than it is at the moment, due to the glut of overseas dollars- reference the trade deficit. By keeping the dollar value high, offshoring is encouraged and expedited, simply because dollars go farther than they would if the value were equalized. Foreign dollar holders, particularly banks, want US Treasuries because they're the safest investment in the world. Even if the dollar value declines, they'll get what Uncle has promised them. As the likelihood of devaluation increases, they'll simply demand higher returns- more interest....

The decline in the economy is only partially responsible for the current deficits- the majority is due to taxcuts and increased spending. Refusal to recognize that is to accept some very serious propaganda as "truth"... Kinda like cutting taxes and running deficits was to stimulate the economy, except that the majority of cuts are just starting to kick in, and since the economy is now peachy, we need to maintain those deficits to uhh, err, yeh, uhh- Stimulate the economy! and to, uhh, spread Democracy, and fight the terrarists over there vs over here and uhh, yeh, that's it....

 

[NeenerNeener]

"The decline in the economy is only partially responsible for the current deficits- the majority is due to taxcuts and increased spending."

THANK YOU!

 

[NeenerNeener]

And more of the same fiscal insanity!

 

[dmcowen674]

Originally posted by: NeenerNeener

My hypothesis is that inflation hurts the middle class and helps the upper class, causing a deeper division between the classes. History tells us that if this division grows too great, the working class seeks revolution. For instance, Karl Marx's "workers of the world unite", or Hitler's appeal to the proletariat, or perhaps the French Revolution.

This is something that most of us don't want to happen in the states. How do we prevent it though? Economics is a complex issue with many more variables than the ones above. Even friends I have that I consider "very intelligent" many times become resigned when trying to discuss issues of the american economy. So what do we do?

"So what do we do?"

You answered your own question already

"History tells us that if this division grows too great, the working class seeks revolution."

 

[NeenerNeener]

Revolution is only necessary when we become powerless over our oppressors. If we can vote the ones out who pursue these insidious policies, revolution won't be necessary. That's only if our voting isn't predetermined or augmented by tabulation software. Besides, I don't like the idea of revolution very much. The post revolution leadership tends to be bad if not worse. The first American revolution excluded, of course.

 

[BBond]

To say that Bush spends like a drunken sailor is an affront to drunken sailors.

As a matter of fact, for the sake of accuracy, "spending like a Bush" will now be used in place of "spending like a drunken sailor".

 

[NeenerNeener]

Hah!