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The Great Debt Scare: Why Has It Returned?
It’s the kind of thing I expect to hear from deficit hawks and chicken littles -- from the self-described "fiscally responsible" right, from the scolds Ross Perot and Pete Peterson, from my former cabinet colleague Bob Rubin. But yesterday I was shown slides developed by the putatively liberal Center for American Progress intended to make the point. And today’s front page story in the New York Times, by the eminent David Leonhardt, entitled "Sea of Red Ink: How It Spread From A Puddle," puts the issue right before our progressive noses, so to speak.
The Great Debt Scare is back.
Odd that it would return right now, when the economy is still mired in the worst depression since the Great one. After all, consumers are still deep in debt and incapable of buying. Unemployment continues to soar. Businesses still are not purchasing or investing, for lack of customers. Exports are still dead, because much of the global economy continues to shrink. So the purchaser of last resort -- the government -- has to create larger deficits if the economy is to get anywhere near full capacity, and start to grow again.
Odder still that the Debt Scare returns at the precise moment that bills are emerging from Congress on universal health care, which, by almost everyone’s reckoning, will not increase the long-term debt one bit because universal health care has to be paid for in the budget. In fact, universal health care will reduce the deficit and cumulative debt -- especially if it includes a public option capable of negotiating lower costs from drug makers, doctors, and insurers, and thereby reducing the future costs of Medicare and Medicaid.
Even odder that the Debt Scare rears its frightening head just as the President’s stimulus is moving into high gear with more spending on infrastructure. Every expert who has looked closely at the nation’s crumbling infrastructure knows how badly it suffers from decades of deferred maintenance -- bridges collapsing, water pipes bursting, sewers backed up, highways impassable, public transit in disrepair. The stimulus, along with the President’s long-term budget, also focus on the nation’s schools, as well as America’s capacity to reduce emissions of greenhouse gases. These public investments are as important to the nation’s future as are private investments.
First, some background: Deficit and debt numbers mean nothing in and of themselves. They take on meaning only in relation to something else. And the most important something else, in terms of deciding whether the nation can afford such deficits or debts, is the size of the national economy.
Pay close attention, in particular, to the debt/GDP ratio. True, that ratio is heading in the wrong direction right now. It may reach 70 percent by the end of 2010. That’s high, but it’s not high compared to the 120 percent it was in 1946, after the ravages of Depression and war.
Over time, the basic way America has reduced the debt/GDP ratio is by growing the U.S. economy. GDP growth makes even large debts manageable. When the economy is cooking, more people have jobs and better wages. So they pay more taxes. And they require less unemployment assistance and other social insurance. That’s why it’s so important now, in the depths of depression, that government, as purchaser of last resort, steps in and runs large deficits. Without large deficits this year and next, and perhaps the year after, the economy doesn’t have a prayer of getting back on a growth path, and the debt/GDP ratio could really get ugly.
That growth path, by the way, will be faster and stronger if the nation invests in our infrastructure, our schools, and our environment -- which is exactly what Obama aims to do. In this respect, national budgets are like family budgets. It’s dumb for an indebted family to borrow more money to take a world cruise. But it’s smart even for an indebted family to borrow money to send their kids to college. So too with the Obama budget. Public investments, just like family investments, build future wealth. They allow faster growth. They make the debt/GDP ratio even lower and more manageable over time.
Don't get me wrong. I'm not saying there's nothing to worry about when it comes to long-term deficit and debt projections. I'm just saying now's not the time to worry, and we ought to temper our worries by understanding the larger context.
Not every expert agrees that a deficit-driven stimulus is the best and fastest way to get the economy back on a growth track, or that public investments can speed growth. Conservative economists, Republicans, and many Wall Streeters are skeptical because they don’t think government can do anything well. But look at the record of the last seventy-five years -- look at how the nation got out of the Great Depression, and consider the critical role public investments have played since then in speeding the nation’s growth, investments such as the interstate highway system -- and you have ample evidence that the deficit hawks are wrong. They were wrong when they convinced Bill Clinton to chuck a large part of his investment agenda (the nation is now paying the price) and they're wrong now.
So, back to the mystery. Why are the ostensibly liberal Center for American Progress and New York Times participating in the Debt Scare right now? Is it possible that among the President’s top economic advisors and top ranking members the Fed are people who agree more with conservative Republicans and Wall Streeters on this issue than with the President? Is it conceivable that they are quietly encouraging the Debt Scare even in traditionally liberal precincts, in order to reduce support in the Democratic base for what Obama wants to accomplish? Hmmm.
The Great Debt Scare is back.
Odd that it would return right now, when the economy is still mired in the worst depression since the Great one. After all, consumers are still deep in debt and incapable of buying. Unemployment continues to soar. Businesses still are not purchasing or investing, for lack of customers. Exports are still dead, because much of the global economy continues to shrink. So the purchaser of last resort -- the government -- has to create larger deficits if the economy is to get anywhere near full capacity, and start to grow again.
Odder still that the Debt Scare returns at the precise moment that bills are emerging from Congress on universal health care, which, by almost everyone’s reckoning, will not increase the long-term debt one bit because universal health care has to be paid for in the budget. In fact, universal health care will reduce the deficit and cumulative debt -- especially if it includes a public option capable of negotiating lower costs from drug makers, doctors, and insurers, and thereby reducing the future costs of Medicare and Medicaid.
Even odder that the Debt Scare rears its frightening head just as the President’s stimulus is moving into high gear with more spending on infrastructure. Every expert who has looked closely at the nation’s crumbling infrastructure knows how badly it suffers from decades of deferred maintenance -- bridges collapsing, water pipes bursting, sewers backed up, highways impassable, public transit in disrepair. The stimulus, along with the President’s long-term budget, also focus on the nation’s schools, as well as America’s capacity to reduce emissions of greenhouse gases. These public investments are as important to the nation’s future as are private investments.
First, some background: Deficit and debt numbers mean nothing in and of themselves. They take on meaning only in relation to something else. And the most important something else, in terms of deciding whether the nation can afford such deficits or debts, is the size of the national economy.
Pay close attention, in particular, to the debt/GDP ratio. True, that ratio is heading in the wrong direction right now. It may reach 70 percent by the end of 2010. That’s high, but it’s not high compared to the 120 percent it was in 1946, after the ravages of Depression and war.
Over time, the basic way America has reduced the debt/GDP ratio is by growing the U.S. economy. GDP growth makes even large debts manageable. When the economy is cooking, more people have jobs and better wages. So they pay more taxes. And they require less unemployment assistance and other social insurance. That’s why it’s so important now, in the depths of depression, that government, as purchaser of last resort, steps in and runs large deficits. Without large deficits this year and next, and perhaps the year after, the economy doesn’t have a prayer of getting back on a growth path, and the debt/GDP ratio could really get ugly.
That growth path, by the way, will be faster and stronger if the nation invests in our infrastructure, our schools, and our environment -- which is exactly what Obama aims to do. In this respect, national budgets are like family budgets. It’s dumb for an indebted family to borrow more money to take a world cruise. But it’s smart even for an indebted family to borrow money to send their kids to college. So too with the Obama budget. Public investments, just like family investments, build future wealth. They allow faster growth. They make the debt/GDP ratio even lower and more manageable over time.
Don't get me wrong. I'm not saying there's nothing to worry about when it comes to long-term deficit and debt projections. I'm just saying now's not the time to worry, and we ought to temper our worries by understanding the larger context.
Not every expert agrees that a deficit-driven stimulus is the best and fastest way to get the economy back on a growth track, or that public investments can speed growth. Conservative economists, Republicans, and many Wall Streeters are skeptical because they don’t think government can do anything well. But look at the record of the last seventy-five years -- look at how the nation got out of the Great Depression, and consider the critical role public investments have played since then in speeding the nation’s growth, investments such as the interstate highway system -- and you have ample evidence that the deficit hawks are wrong. They were wrong when they convinced Bill Clinton to chuck a large part of his investment agenda (the nation is now paying the price) and they're wrong now.
So, back to the mystery. Why are the ostensibly liberal Center for American Progress and New York Times participating in the Debt Scare right now? Is it possible that among the President’s top economic advisors and top ranking members the Fed are people who agree more with conservative Republicans and Wall Streeters on this issue than with the President? Is it conceivable that they are quietly encouraging the Debt Scare even in traditionally liberal precincts, in order to reduce support in the Democratic base for what Obama wants to accomplish? Hmmm.
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Neier the scare nor the timing are a surprise. This was easily predicted months ago when the stimulus bill was moving through Congress.
Half the Democrats don't believe in it and many of those that do are such cowards they would rather go whichever the wind blows than stand up for what it right and thus take a risk of any kind. The best thing Obama has done is to put out a budget that on the domestic side finally gets to addressing some of the long neglected needs of this nation.
I find it funny that these people are worried about our budget but seem to have no concern over how much free money we have been pumping into the banks or how much we will continue to pump into them. That tells you about all you need to know about from whence this cautioning about debt is emanating.
June 11, 2009 1:31 AM | Reply | Permalink
Sorry, the first word should be "neither"
June 11, 2009 1:37 AM | Reply | Permalink
Yeah, the "nor" kind of gave that away...
June 11, 2009 12:40 PM | Reply | Permalink
Maybe you'd like to straighten this line out, too:
"...they would rather go whichever the wind blows than stand up for what it right..."
Maybe add a "way", and swap an "s" for a "t"?
I'm just bustin' your chops. I often have the same problem -- my mind works a little faster than my fingers.
Cheers!
-- ARG
June 11, 2009 4:05 PM | Reply | Permalink
Yes, and lately my keyboard has not been doing it's job in a completely reliable way either. The combination creates a real frustration.
June 11, 2009 8:02 PM | Reply | Permalink
It's easy for them to get away with it because of a mostly dumbed down population who don't bother to find out themselves what is really going on and instead listens to the drivel being force fed down their throats by the MSM.
I agree it is not easy for most of us to understand this mess, but we have ourselves to blame for being so intellectually lazy.
Not the folks here at TPM I must say. Probably some of the smartest posters I have seen (yours truly excluded)
June 15, 2009 2:39 PM | Reply | Permalink
As Reich points out, the debt/GDP ratio was 120% after WWII.
But do we want to live as our grandparents did while that debt was built up? Rationing, long hours of work, and a standard of living reduced to pre-WWI levels?
Because that's how they built up their debt -- and why it didn't lead to inflation.
Comparing the 1940s with the 2010s is comparing apples to oranges.
June 11, 2009 2:09 AM | Reply | Permalink
The debt in 1946 was mostly a result of military spending during WWII. It didn't lead to inflation because there was almost no civilian spending. Is that what you mean?
June 11, 2009 6:45 AM | Reply | Permalink
That and the fact that workers who had nothing to spend their wages on bought up the government debt -- sort of forced savings.
If we do that today (that is, workers saving 10-12% of wages) consumer demand will fall and the economy will keep bumping along the bottom. If we don't the Fed will have to buy the debt (monetize it).
In the first case "money" is pulled out of the economy (deflation) -- I buy a bond and hand the Fed my dollars. In the second case "money" is added to the economy (inflation) -- the Fed buys my bond and hands me its dollars.
N.B. 1) Foreigners and foreign central banks aren't likely to buy more than around $300 billion USTs a year.
2) If household debt is destroyed (foreclosure, bankruptcy, walking away, etc.), then, government debt may act as a substitution for that destroyed debt (no inflation because no change in total public/private debt?).
June 11, 2009 9:00 AM | Reply | Permalink
Where we were in 1946 led to directly into two decades of the most sustained growth of in both GDP and real family median incomes in history. Public investment played a huge role in that growth.
Now, what are you scared of? That such an concerted prioritization of investments may mean you have fewer toys for a few years, that spending has to be more responsible? Yes. It does. And ten years out we'll all be far the better for it.
June 11, 2009 12:31 PM | Reply | Permalink
The worry is that those still earning massive incomes may not get to hold onto every last penny. It is the worry that CEOs of corporations may not continue to be paid 7 figure "salaries". It is the worry that somehow someone will interfere with the right of the wealthy to accumulate ever more vast piles of wealth.
Sorry - this is a sore spot for me.
June 11, 2009 12:34 PM | Reply | Permalink
It's a sore point for me, too, hoppycalif2. Even at 90% taxes on the extremely wealthy, they'll find ways "around" a lot of it; and they will still only have millions and millions perhaps billions of dollars to invest and/or to "live" on.
It is time, again, for the US Government to be concerned about not just providing for the common defense, but also promote the general welfare.
June 11, 2009 12:52 PM | Reply | Permalink
Oh you can see ten years into the future, can you? What a gift!
June 11, 2009 12:44 PM | Reply | Permalink
Inflation and Growth. Reich thinks that's the way out of debt to the glories of full employment and prosperity.
Inflation is simple. Debase the currency. Cheat the creditors.
But growth. What does that mean?
He takes about infrastructure maintenance. Sure that's necessary but far from sufficient. Maintenance alone will never provide enough work.
Nor does he want to return to a bloated financial sector. We all know where that led.
Perhaps, he thinks we can somehow survive as a service economy; I do your laundry and you polish me shoes. I doubt it.
What he means is more manufacturing. More houses, more offices, more cars, more airplanes, more TVs, and a growing population.
Gee, what happened to environmental worries? Where are we going to get the land? The wood? The metals and chemicals? If peak oil is real do we want to put additional pressure on remaining supplies - especially since that's exactly what China, India and everyone else is doing?
And how come expansion and growth are good for us, even absolutely necessary...but anathema for Israel? We certainly can't get the necessary raw materials within our own borders. Those days are long gone. So we have to buy them from others or - if they don't want to sell them or want too high a price - take them.
Reich and other economists are certainly aware of these problems. Why don't they address them? Hmmm.
June 11, 2009 5:51 AM | Reply | Permalink
Oh for God's sake. Israel is free to expand, in the senses Reich is using the word in this article, to its heart's content. More the better. Prosperity is good. It just needs to do it within its own borders.
June 11, 2009 12:00 PM | Reply | Permalink
Look at a map.
Look at resource map.
Look at a settlement map.
Look at demographic trends.
Look at a military map.
Read Dore Gold article (Jerusalem Post) on the history of legal claims to the West Bank.
I mentioned Israel because so many posters on this site are focused on it. But what I've said is true everywhere. China is expanding to the West at the expense of the Uighers, into Tibet, and into Siberia, and buying access to resources in Africa and Latin America. The search for oil is world-wide. Forests are being decimated everywhere. The developed world is being inundated by economic refugees. On and on like that.
Wake up.
June 11, 2009 12:38 PM | Reply | Permalink
Where did he say "Inflate!"? And you're well aware that bond prices take into account inflation predictions, right? If there is inflation (or not) the creditors bargain for what they get with eyes wide open.
As for "maintenance," letting our bridges crumble obviously ruins us. It will cost many billions just to keep them from doing that, employing hundreds of thousands. What's the argument for not getting straight to that business? After we've got all the maintenance issues addressed, if there's still slack in the economy, we can address that then. But we've got years of backlog on maintenance, and "A stitch in time saves nine" you know.
"Growth" is a matter of whether it's healthy growth or cancerous. It's not growth that's good or bad. We need plenty of healthy growth, less of the unhealthy sort. Better schools, better power systems, better research ... all healthy stuff we should invest far more in urgently, to have a richer economy tomorrow that can easily pay off our debts of today.
June 11, 2009 12:39 PM | Reply | Permalink
The argument is not that maintenance is bad, or that it shouldn't be done. It's that it doesn't provide enough work to resuscitate the economy. Not in the long term, not in the medium term, not in the short term.
Can the snake oil peddling. Where do we get the additional land, the commodities, the energy? Are you going to build more housing, create more farms at the expense of the natural world, etc. or will people start living in schools and eating research?Better would be retrofitting buildings for energy savings, and doing what we can to convert from oil use to something sustainable. That, at least, would move the problem out a few years into the future.
But that's all they do. Postpone. Unless we come up with a way to completely replace oil (which is not even remotely possible now).
June 11, 2009 1:04 PM | Reply | Permalink
You have fallen into a trap here:
You assume that economic growth requires an increase in resource utilization. (To be fair, historically, it mostly has gone that way.) Consider microchips though: the original VLSI microprocessors were physically enormous and contained 10,000 transistors. Modern microprocessors are tiny and contain over 10,000,000 transistors. The reason is the "shrink".Mathematically speaking, one can have an infinite series that sums to a finite number. To the extent that we can replicate this in "real life", we can have infinite growth that occurs in a finite space. (Or: "fractals are fun!" :-) )
June 11, 2009 1:42 PM | Reply | Permalink
So houses and factories and schools and farms will gradually decrease in size (presumably along with people) so that we can have infinite growth without consuming more resources.
Marvelous! Did you think that up yourself...or was it in some science fiction comic book that somehow made its way to your library?
June 11, 2009 2:13 PM | Reply | Permalink
Upon further thought I think you should go into the diet business. If there's anything to your idea fatsos will love you forever.
June 11, 2009 2:17 PM | Reply | Permalink
Additionally, there's a problem with the data. For example, government said we lost around 350,000 jobs last month, but the best private estimate was around 600,000. That's a huge discrepancy, and it gets worse as you look farther ahead.
Then there's Leonhardt's analysis of the components of the debt.
First is the business cycle which accounts for more than a third. We don't have control of that...but, barring a miracle, it doesn't look like we're going to see a quick recovery. In fact, robust growth is not even on the charts.
Second, are Bush's policies - principally, I suppose, his tax cuts and wars. They'll be difficult to repair. Because, you DON'T increase taxes during a severe recession. Because we cannot just walk away from our commitments, and cannot EVER return to the pre-WWI , isolationist days where we spent virtually nothing on the military.
Third, as Leonhardt says, cheap health care reform is baloney. It'll be very, very costly and it won't be on a pay as you go basis.
So we are now in the position of General Motors 5 years ago. We're running huge deficits. Nobody wants what we make. We've run out of quick and dirty fixes. The only thing which separates us from them is that people are still lending us money. But if we plan to pay them in debased currency, and if we have no plan to return to profitability, you can bet that will stop. Soon.
So what to do? If we continue the analogy the answer is grim. Very, very grim.
June 11, 2009 6:36 AM | Reply | Permalink
When you try to solve a problem, but before starting, set aside any tactic that might help solve that problem, you don't solve the problem, you create the California economy.
It is not true that during a recession "you don't raise taxes". That is a real comfort to those who are reaping great benefits from the recession, but not a tactic that lets you get out of the recession.
It is long past the time when we need to bury forever the idea that the wealthy have an irrefutable right to keep every last penny they ever "earned".
June 11, 2009 12:32 PM | Reply | Permalink
You need professional help with your "sore spot".
June 11, 2009 12:41 PM | Reply | Permalink
It would appear Hoppy's sarcasm went over your head.
June 11, 2009 3:11 PM | Reply | Permalink
A tiddly wink would do that easily.
June 11, 2009 3:37 PM | Reply | Permalink
Well, if true then you win on this one...and you've fooled "revjmike", too. But, of course it isn't true. You're pissed as hell that people are richer and smarter than you are. It colors all your posts. Get help.
June 11, 2009 5:11 PM | Reply | Permalink
It's true that some are richer.
June 12, 2009 8:33 PM | Reply | Permalink
Re: Because we cannot just walk away from our commitments, and cannot EVER return to the pre-WWI , isolationist days where we spent virtually nothing on the military.
I don't think anyone is suggesting we spend nothing on the military, But we could cut the defense budget in half and still spend more than anyone else on the planet does.
Re: Third, as Leonhardt says, cheap health care reform is baloney. It'll be very, very costly and it won't be on a pay as you go basis.
While we may transfer more of our medical spending onto public sources, overall, it won't be any more expensive than it would be if we did nothing (and there's good reason to think it may be less expensive-- it's happened like that in every other country that move to a universal healthcare system). It's not as if people will get sicker or suffer more injuries. Our healthcare tab will be what it will be regardless of what we do now.
Re: Nobody wants what we make
The US is the source of 23% of the world's manufactured goods-- our next competitor, China, clocks in at about 13%. Seems like lots of people are buying what we make or we wouldn't be making it.
Re: The only thing which separates us from them is that people are still lending us money.
Only because we refuse to raise the revenues the old fashioned way, by taxing ourselves. We could certainly do so. America is a rich country; we simply refuse to own up to that reality.
June 11, 2009 7:29 PM | Reply | Permalink
If only it were true.
Did you pull that figure "half" out of the hat? How do you know how much we could cut the military, when no one else does. It would be a very good thing if we could reduce tension, distrust, and violence, but, meanwhile, on this planet, we do what we think we have to.
We are not everyone else. We have our own culture and history. Under our system, even if Obama gets his reforms, medical care is very, very expensive and not at all likely to drop significantly. Thus insuring many more people means much higher costs.
Besides, everyone else is facing similar problems (read Sarkozy).
General Motors still sells a lot of cars, too. That's not the point; General Motors doesn't sell enough to cover its costs. It has too much capacity. The United States faces a similar problem. We are losing market share.
Translated, that means we face a very serious, long term, unemployment problem, and government will have a serious decline in revenues. Of course, we can raise taxes in an attempt to keep our life style, our entitlements. It won't work. Business will attempt to pass on the costs or, failing that, will simply leave the country or close.
June 12, 2009 5:57 AM | Reply | Permalink
Forget trying to explain anything to ordinary. That is a lost cause.
June 15, 2009 2:41 PM | Reply | Permalink
Your point about a "robust" recovery is correct, or lack of one. The problem I see in comparing today's recession to that of the 1933-1946 depression/robust recovery area is the fact that in 1946 we were the winners and the only economy left standing after the war. In short, we quickly became an economic powerhouse essentially because we were the only economic powerhouse left standing after WWII. Not so today. Things, as they say, have changed.
In addition, we have a few very heavy financial burdens coming due. The baby-boomer generation moving into Medicaid/Medicare dependency and Social Security moving into pay-out status, rather than collection status. These two strains on and "robust" economic recovery can't help but to slow it down.
ex animo
davidfarrar
June 14, 2009 9:27 PM | Reply | Permalink
Why are we worried now?
First, individuals are in debt to an extent they hadn't been before. There's a big difference between government debt and household debt (no household can claim to be the world's reserve currency) but people tend to think it's all the same -- living beyond your means is bad, etc and so people panic.
Second: we almost had this problem licked in recent memory and we blew it. When Clinton left office we had surpluses. I remember people in the bond market complaining that we would never issue 30 year Treasuries again, robbing the market of an important benchmark. We were all amazed by how quickly those surpluses evaporated.
And this brings me to a final worry -- what if something goes wrong again now? If the Clinton surpluses had been saved and protected rather than squandered on wars and tax giveaways the financial crisis could have been easily stopped in its tracks. We could have rescued banks out of current accounts, preserving our ability to borrow at low cost for years to come. The dollar would be worth more than the Euro allowing us cheaper access to raw materials and saving us from the temporary resource hyperinflation we had to endure in 2008 in the midst of a recession. It would have been a whole different ball game.
Instead we had to deal with the crisis from a period of terrible weakness and now we do have growing debt for a long while and the prospect of at best tepid economic growth ahead. So what do we do if we dip back into a recession 2 years from now because some other industry implodes. How do we spend our way out of that? Or what if the economy doesn't grow fast enough to create jobs and increase living standards? How do we pay to fix that? There is some limit to what we can borrow, isn't there?
June 11, 2009 7:31 AM | Reply | Permalink
Interestingly, Sec Reich's measure of Debt/GDP makes Bush look pretty good. At the end of 2000 it was 35%, at the end of 2008 it's estimated to be 38%. Obama's is estimated at 70%. That IS scary.
Moreover, comparing Obama's spending to WW2 and the Great Depression is just fraudulent.
Meanwhile the real effect of this is a huge spike in mortgage rates from 4.75 to 5.625% nearly over night. That effectively cuts the grand plan to reflate the economy via mortgage refi's in half. Not to mention screwing up my own house hunt. Sellers are going to have to drop their prices even more to compensate.
As an aside, Clinton had surpluses because he was in the right place, at the right time with the right policies. Namely, budget discipline with a tax cut, during a bubble. After the market starting sliding in 2000, there was not a prayer of maintaining a surplus, no matter what anyone did. Most of the credit goes to Y2k and a Republican Congress not Clinton.
June 11, 2009 8:27 AM | Reply | Permalink
There's false accounting there. Crumbling infrastructure is a debt. Where before there was wealth (a working bridge), now there's an expensive obligation (a requirement to repair the bridge quickly or lose it). Those debts - that crumbling infrastructure - were run up tremendously under Bush.
But because our economists and especially government-massaged statistics are in general horribly over-simple and unrealistic, the state of our infrastructure, while recognized by the general public, has never been properly accounted for as the massive debt that it is. Having to fix a bridge to keep it is no different than having to pay a mortgage to keep a house. It's a debt. You only own that house or bridge on condition of substantial future payments.
At least when a house gets repossessed society as a whole still has that house (most often); when a bridge is lost the loss of economic value is total.
June 11, 2009 12:47 PM | Reply | Permalink
"False accounting" is a common Republican trick, so it is no surprise that Shootyouintheface uses it. :-)
June 11, 2009 1:46 PM | Reply | Permalink
I don't understand this argument. Are you saying people are wrong to worry about
1. a dysfunctional political setup which prevents long-run responsible fiscal policy, and hence
2. the risk of a decision to inflate/devalue away the debt burden
There is no conspiracy here, people are scared of the US fiscal position, and with reason. I wouldn't be buying long-term T-bills these days at under 5%, others are reticent to, without any sign that Washington is willing and able to make the hard decisions - on controlling health care costs, on fixing the FIRE sector, military spending. What percentage of the stimulus package actually goes to productive investment? There were some nice-sounding pet projects in there, but too much of it was just wasted.
Unless Congress starts to produce bills with real change, real investment, real cost-control, no one believes the US can grow its way out of the new debt-burden. But meanwhile, you keep buying those T-bills, Professor Reich...
June 11, 2009 8:37 AM | Reply | Permalink
ordinary writes: "...people are still lending us money. But if we plan to pay them in debased currency, and if we have no plan to return to profitability, you can bet that will stop. Soon."
Isn't this the essence of the "debt scare?"
Our deficit must be financed. But if the investors of the world lose interest in American Treasury bonds, and thus turn to other sources that appear safer, then who buys our bonds?
The Chinese economy appears to be emerging from this current financial rearrangement as the most vigorous in the world. But if the major investment players in that country (and other places) divert their funds toward commodities or other currencies, or SDRs, instead of US Treasuries, then who will finance our debt for us? Wall Street? The Fed? John Q. Public? That could be like borrowing from Peter to pay Paul, while Peter is himself looking surreptitiously for a bailout.
It is more than slightly ironic that the world's largest "communist" economy is now admonishing us to keep our financial house in order, as was seen in Premier Wen Jiabao's comments at the recent G-20 conference.
If surplused fund managers perceive, from across the ocean, greenbacks that are losing value instead of good ole steadfast dollars--those new financiers will gradually lose interest in our risky instruments. They'll turn to safer havens in countries that are truly in growth mode, like ours was a hundred years ago.
We need a new game plan. And this one is up to the people. And I mean really, the people. We the people. It's up to us. Americans, it's time for innovation. It's time to become resourceful, prudent, and wise, instead of profligate. We must do for ourselves what the Uncle Sam cannot. Together we can bail him out, because he's not going to bail us out, although he thinks he can.
This initiative begins in your neighborhood. What can you do to improve life for yourself and those whom you hold dear? Ask not what your (neighborhood, town, city, state) country can do for you, but ask what, together, we can do to restore the productivity and liquidity of our collective enterprise, the USA.
Carey Rowland, author of Glass half-Full
June 11, 2009 8:46 AM | Reply | Permalink
That's amusing.
True, but comparing the about-to-roar American economic engine of the 40's and 50's as the US Empire expanded, with the sputtering and coughing of a down-sized engine of a dying Empire spending way too much for military hardware and adventures is highly questionable.
As the individual obligation for the public debt nears forty grand for every man, woman and child in America we all should worry, if we care as much for the future as we do for the present.
June 11, 2009 9:24 AM | Reply | Permalink
The New York Times(!) I believe it was, did an analysis of the deficit a few days ago
Still amused?
June 11, 2009 11:43 AM | Reply | Permalink
3 = Bush programs Obama's continuing
June 11, 2009 11:44 AM | Reply | Permalink
Oh, I'll take that to the bank. Something grand for almost nothing, I believe it is. Such a deal.
Universal health care has not even been defined yet and some say it will cost $1.5 trillion over ten years. We know it would be expensive but we really don't know how expensive.
June 11, 2009 12:08 PM | Reply | Permalink
No one should ever again pull that scare tactic - a good health care program costing us $XX over Y years. No matter what it costs, if you use a big enough number of years the cost is scary. Furthermore, $1.5 trillion is roughly what we gave to the banks and other financial companies to keep them afloat. We did that not in 10 years, but less than 10 months.
And, don't forget the disaster in Iraq. That fiasco will end up costing at least $1.5 trillion in 10 years, and our country reaped not one single benefit from it, even though much, if not most of that money went to the chosen few who were the war profiteers.
It used to be "if we can put a man on the moon, we can.....". Well, now it will be "if we can afford the continuing Iraq fiasco, we can afford...." The only difference is that the latter statement is true.
June 11, 2009 12:46 PM | Reply | Permalink
Re: Universal health care has not even been defined yet and some say it will cost $1.5 trillion over ten years.
That's a cost shift, from the private sector to the federal government. It does not represent new costs in the overall economy.
June 11, 2009 7:26 PM | Reply | Permalink
You can take it where ever you want
I report you decide
http://www.nytimes.com/2009/06/10/business/economy/10leonhardt.html?em
June 11, 2009 8:35 PM | Reply | Permalink
The American "Empire" expanded in the 40's and 50's? How did that work out in Korea? Or subsequently in Viet Nam?
America's peak moment of power was the end of WWII, since we were the winning ally with the least damage from the war. Since then the story has been about the rise of various other countries and regions, especially in Europe and Asia and even Latin America.
There was never an empire. Those who thought to pretend we had one only led us to folly and weakness.
June 11, 2009 12:54 PM | Reply | Permalink
America was one of the Four Hegemons in the history of World Capitalism
1. Spanish
2. Dutch
3. Brits
4 USA to about 1970
June 11, 2009 8:42 PM | Reply | Permalink
When Republicans are in office "Deficits don't matter" but as soon as we elect those "tax and spend" Democrats it's the most important thing in the country. (funny how that would imply spending that's paid for, not deficits)
Seriously, I worried about the debt for the last 8 years while we were giving tax breaks to the wealthiest and fincancing an illegal war with our grandchildren's money. If we had been more responsible then and paid down some of that debt, we might not have needed to pass such a huge stimulus package to revive the struggling economy.
June 11, 2009 12:05 PM | Reply | Permalink
Republicans lied about the importance of the debt. Democrats are lying about the importance of the debt.
Wanna know why? Because if they told the truth the entire populace would drop dead from fear.
June 11, 2009 1:47 PM | Reply | Permalink
I'm glad that we have you here to keep us well informed. I think it is called ordinary thinking?
June 11, 2009 3:42 PM | Reply | Permalink
personally speaking, i think it is because we have, um,
some preexisting jitters which pre-date Obama
1. we don't have very much trust right now in either the financial intitutions and their reigning CEOs and wizards, or the government's ability to stand up to them or act independently ...i.e. big interests seem to have always trumped everything...
so the reaction stems, understandably from watching this whole
financial nightmare happen , while we, the 'little ' people , out here on our own, haven't fared so well.
2. Obama's first order of business was to shore up the financial institutions, so we the 'little ' people are still out here and the stimulus package is still sort of abstract.. (note: as a small business person, with a take home of less than the poverty level, i was missed by ALL of the tax credits)
3. we aren't sure congress or the senate will follow through with Obama's plans i.e. we aren't sure they will give him follow through.
4. We still don't trust that the stimulus money, though well intentioned, will get sucked up by those greedy entities who are standing close to the spigot, not living out here at the end of the last little bit of hose. and we don't trust the huge rumbling bureaucracy that seems to soak up funds like a huge sucking sponge.
5. we haven't yet seen evidence or heard talk about those new jobs. we really WANT to hear about those new jobs and projects.
4. that said I WANT him to follow through, because the next part IS the important part....even though i have the willies about it.
June 11, 2009 4:27 PM | Reply | Permalink
I don't get any of the numbers or percents thrown around in the OP or the comments. I guess quantitative accuracy isn't relevant here.
"The Great Debt Scare is back."
I also don't get that, except as a strawman invention. The "Red Ink" story referenced seemed pretty sensible to me.
"the debt/GDP ratio ... may reach 70 percent by the end of 2010"
Isn't it over that already, if you mean government debt? And if you look at total domestic debt, it is of course waaaaay over that? Why look at only a small part of a problem, unless your goal is to over or under state the situation?
Comments throw numbers around loosely, too. $1.5T is a big number, but it's over 10 years, so that' $150B/yr out of a GDP of around $12B, aka 1.3% or so.
"Sec Reich's measure of Debt/GDP makes Bush look pretty good. At the end of 2000 it was 35%, at the end of 2008 it's estimated to be 38%."
Huh?? How does 38% equate to over 2/3? Maybe the writer meant 68%.
June 11, 2009 6:35 PM | Reply | Permalink
s/b 'around $12T"... so much for shortcuts
June 11, 2009 6:37 PM | Reply | Permalink
For GDP history go here.
For Treasury debt history go here.
June 11, 2009 8:29 PM | Reply | Permalink
2008 is 10.7/14.1 in unadjusted dollars, or 75% > 70% already, as I suggested. Today's debt is listed as 11.4T
Likely 2010 ratio given recession flattens out and rough deficit for 2yrs is > $2T is about 100%.
So I say again, WTF is Reich (and others) talking about?
June 12, 2009 2:50 AM | Reply | Permalink
EDS try this out....
http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf
It's a history of budgets, revenues, and expenditures, along with debt, in nominal, constant, and percentage of GDP measures. If you go to table 7.1, to the right is the heading "As percentages of GDP". The first column heading "Gross Federal Debt" is just that, but it's comprised of debt that is legislated for SS IOU's and such... and debt that is bought by the public. That debt is what politicians can affect, and what I refer to.
I also presume these are what Reich uses as well.
June 12, 2009 7:50 AM | Reply | Permalink
Sorry but old estimates/data which are wrong are not acceptable. That was apparently done under Bush before realistic accounting and budgeting methods. It wouldn't include actual outlays or debt and it doesn't say anything about Obama's budgeted deficits which should be the main issue in talk about future debt issues. But thanks to YOU anyway for providing some kind of basis for your wrong-headed notions. BTW, 7.1 doesn't deal with your allegations about percentages in your earlier comment, as far as I can see.
Again, WTF are you guys on about?
June 12, 2009 4:31 PM | Reply | Permalink