Not the result they'd hoped for

[chucky2]

I want what works long term, for the long term benefit of the country, short term doesn't matter. Talking about hot t1ts QE is now if you can't show how it's going to make us better off long term is pointless.

It's like telling someone 'Look I gave that guy with a bad flu the flu shot and he hasn't died yet.' Then you ask the guy if he used the needles from the unsorted bin that had a decent risk of HIV contamination and he says 'Well, uh, yeah, I did.' Bravo sir. To cure his bad flu you may have just infected him with HIV. Go let him know now, see how happy he is. Now tell him you're going to keep pulling from that same bin and keep giving him shots for every ill that crops up.

Somehow I don't think he's going to be happy with that approach long term...

 

[chucky2]

Translation:

You don't have any idea what benefit means. Just snarky, hyperbolic dogma.

Ideology is the enemy Craig, you should know that. I just view Spender ideology as the US long term enemy.

 

[JTsyo]

But nobody is making the argument that deficits don't matter, so why bother saying that?

What people DO argue is that deficit spending now is preferable to cutting deficits. This seems to be quite handily borne out by the evidence as not only has the US' economy grown faster than the UK's, but our deficit/debt picture is better as well. ie: they have sacrificed economic growth and caused themselves enormous damage for nothing, all because they bought into the idea of austerity.

Since you seem to support it, can I ask you what level of failure would be required in order for you to abandon it as a preferred fiscal policy?

A large chuck of the current deficit is from the drop in revenue due to the recession. I think we made the right choice in trying to grow out of it than cut back. The trick though is going to be when things do improve, will there be a national will to balance the budget and even start reducing the debt.

 

[Craig234]

A large chuck of the current deficit is from the drop in revenue due to the recession. I think we made the right choice in trying to grow out of it than cut back. The trick though is going to be when things do improve, will there be a national will to balance the budget and even start reducing the debt.

In the last 30 years, we only really have one test for that, of a Democrat in good times reducing the deficit, and the answer was 'yes', he did. I'm pretty sure Obama would - in fact not many realize it but he's already halved the deficit from when he took office even in bad times.

 

[Sonikku]

A large chuck of the current deficit is from the drop in revenue due to the recession.

True. But I also think some of the drop in revenue is a result of so much of the nations wealth shifting hands from the many to the few. The latter are better equipped to dodge taxes with loopholes/off shore accounts and armies of accountants than the former is.

 

[fskimospy]

I want what works long term, for the long term benefit of the country, short term doesn't matter. Talking about hot t1ts QE is now if you can't show how it's going to make us better off long term is pointless.

It's like telling someone 'Look I gave that guy with a bad flu the flu shot and he hasn't died yet.' Then you ask the guy if he used the needles from the unsorted bin that had a decent risk of HIV contamination and he says 'Well, uh, yeah, I did.' Bravo sir. To cure his bad flu you may have just infected him with HIV. Go let him know now, see how happy he is. Now tell him you're going to keep pulling from that same bin and keep giving him shots for every ill that crops up.

Somehow I don't think he's going to be happy with that approach long term...

Two problems with this. Long term US deficit issues are driven by demographics, not by actions during this recession, which are a drop in the long term bucket. Secondly, austerity has made the UKs debt outlook WORSE,not better.

So again, how to justify this?

 

[fskimospy]

Then no one knows if a QE or austerity approach works out for the best in the long term. Given we're at after QEfarmorethan3, I wouldn't be crowing about it...

You are confusing your terms here. QE is monetary policy, austerity is fiscal policy. They are not comparable.

 

[chucky2]

Two problems with this. Long term US deficit issues are driven by demographics, not by actions during this recession, which are a drop in the long term bucket.

Long term US deficit issues, which is what creates our long term US debt issue, is not driven by demographics, it's driven pricisely by actions. And those actions are the failure of Politicians to correctly spend within the level of real revenue the Fed gov brings in. There simply is no will to reign in the spend, despite any talk of doing so. Perfect example is the sequester.

Secondly, austerity has made the UKs debt outlook WORSE,not better.

So again, how to justify this?

Sure, the outlook has been made to look worse, for now. In 20 years, 50 years, what is it going to be in reality?

You are confusing your terms here. QE is monetary policy, austerity is fiscal policy. They are not comparable.

I really don't understand how they are not comparable. On one hand you have the Fed gov pumping tons of money into the ecomomy to keep it on life support, i.e. Spenders. On the other hand you have the Fed gov making attempts to live within its means which obviously means taking money out of the economy, i.e. Conservatives (or, some quasi-somewhat example of something in that direction).

Either way it's the Fed gov taking monetary action in regards to the economy. What is wrong with that view? EDIT: And I understand that one is the blowing of money and not fiscal policy, where the other one is your fiscal policy. I'm talking from a practicle standpoint, either is a Fed decision on spending/not spending money in regards to the economy...so what in effect is the difference?

Chuck

 

[Craig234]

I think a problem common on the right - and with some others also - is that since they think all government spending is nothing but taking people's money and some bureacrats burning it in a campfire, they don't understand the idea of cutting some spending INCREASING the debt. They're trying to apply addition and substraction with no idea how the economy works, much less a role for government that's crucial to supporting it.

Sadly, it's their very politicians - the ones who preach 'fiscal conservatism' - who fuel this, with their 'starve the beast' approach to policy.

A good part of the answer would be to return to Democratic super-majorities. Never in our history have those led to anything the debt crisis Republicans give us. FDR spent a lot first on the New Deal and then on World War 2 and led us to economic recovery and low debt after. The Great Society spent a lot that greatly helped the country, AND paid for an expensive war, AND put a man on the moon, paving the way for more economic growth without the kind of debt problem Republicans have given us.

Clinton reversed 12 years of Reagan-created starve the beast deficits to get a balanced budget even while he led the economy overall improvement despite a recession after years of growth. Obama had to deal with Bush's massive economy crash threatening the global economy and has still halved the deficit so far, too much for what's needed for the economy, but planning for long-term debt reduction.

Republicans are the party of debt - used as a weapon against the interests of the people to be able to pay for good government. Wasting massive sums on wars of choice and bloated 'security' spending, on giveaways to their donors, on massive borrowed tax cuts for the rich and other waste.

In fact, take a look at this chart where our deficit is from - look how low it would be without the Bush policies and economic disaster:

That chart doesn't even include the defict-increasing giveaway to big pharma of Bush's Medicare Part D's non-negotiated drug purchases adding hundreds of billions to the debt.

Yes, Obama - who I've called a 'moderate Republican' - shares blame for his happily making the borrowed tax cuts permanent for 99% of Americans.

I could see a short term extension during recovery, but permanent is bad policy, though what we really need is to reverse the massive wealth transfer to the most wealthy.

 

[Fern]

A large chuck of the current deficit is from the drop in revenue due to the recession. I think we made the right choice in trying to grow out of it than cut back. The trick though is going to be when things do improve, will there be a national will to balance the budget and even start reducing the debt.

If that was their objective; they executed it horribly.

The TVA, building the interstate system, improvements in ports etc all contribute mightily to GDP growth. Paving roads (unless they really need it) and kicking money down to states etc does not. I think the stimulus was more a 'short term bridge' hoping to carry us through until the economy picked back up. And IMO that was far more for political purposes than economic.

If we can't identify real, solid projects that clearly boosts (real) GDP growth improvements then IMO we shouldn't be spending. All of these people who want to boost spending, any spending because they claim it's all stimulus, continually fail to take into account the other side of the equation: The burden of that additional debt. Interest rates are cyclical, always have been. When the rate is back up to normal levels it's going to take a huge bite out of our national budget. That money will have to taken from somewhere else in the budget, a cut for all practical purposes, or borrowed and that just exacerbates the problem.

Fern

 

[chucky2]

FDR...haha....

 

[Craig234]

FDR...haha....

Quality argument.

 

[fskimospy]

If that was their objective; they executed it horribly.

The TVA, building the interstate system, improvements in ports etc all contribute mightily to GDP growth. Paving roads (unless they really need it) and kicking money down to states etc does not. I think the stimulus was more a 'short term bridge' hoping to carry us through until the economy picked back up. And IMO that was far more for political purposes than economic.

If we can't identify real, solid projects that clearly boosts (real) GDP growth improvements then IMO we shouldn't be spending. All of these people who want to boost spending, any spending because they claim it's all stimulus, continually fail to take into account the other side of the equation: The burden of that additional debt. Interest rates are cyclical, always have been. When the rate is back up to normal levels it's going to take a huge bite out of our national budget. That money will have to taken from somewhere else in the budget, a cut for all practical purposes, or borrowed and that just exacerbates the problem.

Fern

No one ignores that, what gave you that idea?

The thing is that interest rates are unlikely to go up until the economy has recovered... which of course leaves us in a much better situation to handle the additional interest payments. So no, it doesn't necessarily mean cuts in other places because natural stabilizer payments will have decreased, tax receipts will be up, etc, etc.

As shown so many times, austerity catches countries in a downward spiral where budget cuts hurt GDP, which makes the deficit worse, which leads to more budget cuts. It's why every country trying austerity constantly misses their deficit improvement projections and it's why the US has surpassed the UK in deficit/GDP ratio despite the UK focusing on that so relentlessly.

It's pretty crushingly sad to see an economic philosophy failing this badly and yet still not meriting a rethink.

 

[fskimospy]

Long term US deficit issues, which is what creates our long term US debt issue, is not driven by demographics, it's driven pricisely by actions. And those actions are the failure of Politicians to correctly spend within the level of real revenue the Fed gov brings in. There simply is no will to reign in the spend, despite any talk of doing so. Perfect example is the sequester.

Not really, it's driven by demographics. Specifically, health care costs. Now you might argue those come from the choice to have Medicare and that's true... but it's not like if we got rid of Medicare those health costs would just disappear. Either the elderly would simply drop dead, or the less efficient private health care system would be picking up the same tab. I'm going to presume that your answer isn't 'let all the old people die', so these costs exist no matter what.

Sure, the outlook has been made to look worse, for now. In 20 years, 50 years, what is it going to be in reality?

I can't see how that matters. The future is always uncertain and we might get hit by a meteor tomorrow, but that hardly excuses bad policy now and hoping for some deus ex machina to save conservative economics in the future doesn't sound like much of a plan to me.

I really don't understand how they are not comparable. On one hand you have the Fed gov pumping tons of money into the ecomomy to keep it on life support, i.e. Spenders. On the other hand you have the Fed gov making attempts to live within its means which obviously means taking money out of the economy, i.e. Conservatives (or, some quasi-somewhat example of something in that direction).

Either way it's the Fed gov taking monetary action in regards to the economy. What is wrong with that view? EDIT: And I understand that one is the blowing of money and not fiscal policy, where the other one is your fiscal policy. I'm talking from a practicle standpoint, either is a Fed decision on spending/not spending money in regards to the economy...so what in effect is the difference?

Chuck

A few reasons. First, the Federal Reserve is not really the federal government, at least not how it is commonly understood. While you're right that quantitative easing is stimulative, the difference between monetary and fiscal policy is that monetary policy has to do with the total amount of money in the system while fiscal policy has to do with how much the government spends and takes in. Also, and very importantly, the two are not mutually exclusive. In fact in a healthy economy you can use monetary policy to offset fiscal austerity, which is the way you're supposed to do it.

Expansionary monetary policy frequently doesn't have much to do with the government 'living within its means', as the government doesn't control the fed and therefore the creation of currency, and deficits and the money supply aren't directly related. Are you arguing that the Fed should decrease the money supply? If so, what are you basing this on? Basically all economic literature I'm aware of states that such action would be utterly catastrophic.

 

[Fern]

No one ignores that, what gave you that idea?

The thing is that interest rates are unlikely to go up until the economy has recovered... which of course leaves us in a much better situation to handle the additional interest payments. So no, it doesn't necessarily mean cuts in other places because natural stabilizer payments will have decreased, tax receipts will be up, etc, etc.
-snip-

I think you gloss over the issue of higher interest rates far too easily.

Interest rates often go up on the mere expectation of a higher GDP or inflation, meaning your payments/expenses increase before revenues rise.

And I think the assertion that revenue will sufficiently rise to offset additional costs in the interest burden needs much more support than a mere proclamation on the interwebz.

And it just might not be our countries increased GDP that drives up rates. Other countries could become attractive investment alternatives, particularly as ours becomes less attractive due to increased debt. The 'we can just print all the money we want' refrain doesn't fool many either, at least not the ones who actually have such capital. Inflation is like the haircut in Greek bonds, it just goes by a different name.

Fern

 

[fskimospy]

I think you gloss over the issue of higher interest rates far too easily.

Interest rates often go up on the mere expectation of a higher GDP or inflation, meaning your payments/expenses increase before revenues rise.

And I think the assertion that revenue will sufficiently rise to offset additional costs in the interest burden needs much more support than a mere proclamation on the interwebz.

And it just might not be our countries increased GDP that drives up rates. Other countries could become attractive investment alternatives, particularly as ours becomes less attractive due to increased debt. The 'we can just print all the money we want' refrain doesn't fool many either, at least not the ones who actually have such capital. Inflation is like the haircut in Greek bonds, it just goes by a different name.

Fern

You realize that people have been expressing the exact same ideas for going on four years now and have been absolutely wrong every time, right? I don't gloss over the issue of higher interest rates, I just look at conservative economists predicting them over and over again... and failing over and over again.

Furthermore, unemployment has been going down for several years and revenues have been increasing... and still no interest rate hikes to be seen. At some point we all just need to accept the fact that conservative economists don't understand the economics as they are playing out in this situation. You also mistake the argument of 'we can print all the money we want'. It's not about printing all the money we want, it is about our inability to default.

Finally, each increased point of interest adds about $150 billion in interest a year. A return to say, 4% 10 year rates would add $300 billion a year. That could certainly be made up for by increased revenues, reduction in Medicaid, unemployment, etc expenditures.

Seriously, why keep listening to people who have been so wrong for so long?

 

[Fern]

I think to say we can easily absorb $300 is more than suspect. Sequestration was a mere $85B.

I also suspect there won't be as much savings from medicaid as some may think. In many states merely being unemployed does not qualify one for Medicaid. IIRC, neither does just being poor. I believe in some states a young child need be involved and in some cases Medicaid is limited to their expenses.

Likewise with unemployment. So many people have been unemployed for so long they no longer qualify for benefits. We could literally hire millions without ever taking someone off unemployment benefits. The unemployed rate (U3) has been going down in large part because people have given up looking for work. I suspect they admit to giving to not looking because their benefits have run out. To receive unemployment benefits you must attest that you are actively seeking a job.

And 4% strikes me as a bit low:

The outstanding feature of this graph is clearly the 50 years beginning around 1960. During this period, we have seen yields go from less than 4% to more than 15%, and back again. The average rate has doubled, from 3.3% to 6.7%, and the range of rates has quadrupled! Are interest rates normally as consistent as they were from 1900 to 1960? Or, is the boom-bust cycle afterwards more typical? It's difficult to tell from this graph.

http://observationsandnotes.blogspot.com/2010/11/100-years-of-bond-interest-rate-history.html

I haven't researched it, but suspect that we have more debt in short term treasuries than usual. With these historically low rates I don't know why anyone would buy anything but short-term bills (1 yr or less). If true that we have a unusual amount in S/T bills, I think that would likely increase interest rate volatility.

In short, I don't think it's a risk to be lightly brushed aside.

Fern