Bacon's Rebellion

Democracy Thrives in Sunlight

Quote of the Day: Jim DeMint

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by

James A. Bacon
in

From a viewpoint written by Sen. Jim DeMint, R-SC, and published by the Republican Joint Economic Committee:

“Just as Greece enjoyed years of low interest rate loans to finance their debt due to the backing of the Euro’s good name, the United States is today enjoying a time of artificially low interest rates as a result of loose monetary policies from the Federal Reserve and global markets’ assessment of the United States as a relative safe haven. The era of cheap borrowing for the United States will eventually end, and the longer Congress waits to enact serious fiscal reforms, the more painful that day will be.”

When U.S. interest rates start rising, that’s when the deck of cards starts collapsing. It doesn’t matter who’s running the country. The only question remaining is how long we can stave off the inevitable. Boomergeddon cometh.

— JAB

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  1. larryg Avatar
    larryg

    if you look at the growth of interest on the deficit – it’s headed to disaster no matter what happens to treasury interest rates.

    my reading says that even if we accepted ALL of the GOP “cuts”, we’d still have to extend the debt about 5 trillion.

    so what this is about is apparently an attempt to move the Dems on the Sequester agreement and Bush tax cuts expiration – both of which occur in December.

    The GOP is unfit to govern in my view. There is no way to truly cut the budget without including DOD in the cuts. It’s painful but no more so than the cuts that will have to occur with entitlements.

    You simply cannot wipe out the entitlements to keep from making cuts in DOD.

    and yet..that appears to be what they want…

  2. DJRippert Avatar
    DJRippert

    All of you guys forget the easiest way out of this mess – pay off the debt with a massively debased currency.

    Want to cut the deficit in half in four years? Generate 18% inflation.

    Just because the Clown Show in Richmond is unable to understand inflation (see: frozen gas tax for 26 years) that doesn’t mean that the The Card Monty Machine on Capitol Hill doesn’t understand.

    The real trick is keeping inflation substantially higher than interest rates for years on end.

    Jimmy Carter is still eligible for a second term, no?

    Maybe time for a reprise of President Malaise-Stagflation.

  3. thebyurokrat Avatar
    thebyurokrat

    DeMint certainly is the kind of “bright light” that would compare the economics of Greece’s debt with that of the United States. It is blazingly obvious that these two economies are comparable, and enjoy a similar position of prestige and importance in global debt and currency markets. Greece’s debt disaster – as an underdeveloped European economic backwater with 11 million residents, few natural resources, low labor productivity, lack of a national currency, and a GDP smaller than Maryland’s – certainly portends doom for the United States.

    1. James A. Bacon Avatar
      James A. Bacon

      Byurokrat, Of course the parallels between the U.S. and Greece are not exact. But the dynamics of excessive indebtedness are similar. If you don’t think the U.S. could follow a similar path — with the main difference being that we can keep things going a bit longer by monetizing our debt and inflating the currency — then you are very, very naive, my friend.

      1. thebyurokrat Avatar
        thebyurokrat

        But I do believe that is the case, and your implication of naivete is insulting.

        We could use a good bout of inflation at this point, for several reasons. First, it would help to rebalance our currency on the global market, and make our products more competitive relative the currency manipulators. This would increase employment, and demand. Secondly, companies would be incentivized to actually invest their money, as sitting on stockpiles of cash would no longer be a beneficial for them (I’m looking at you, obscenely profitable tech sector!) A third benefit is that, yes, the real cost of our national would be reduced (as would my mortgage, student loan, and any other debt with a fixed interest rate). I could go on, but I imagine at this point you’re too busy thinking of your counter-argument.

        You are right that at extremes (such as the situation in Greece), debt is an issue. However, they are not suffering from inflation, they are suffering from severe deflation. Because they do not control their own currency, they are in a deflationary spiral while inflation targeting by the ECB is kept low in order to satisfy the demands of Germany and France. Hence economic activity slows, government revenue is reduced, this leads to government spending cuts, these cuts lead to a further slowdown of the economy and further depress wage levels. Wash, rinse, repeat until the country is in flames.

        You see this dynamic particularly with Spain and Italy. Over the past two decades, both Spain and Italy ran primary budget surpluses in most years, and deficits rarely surpassed the 3% benchmark set for Eurozone members. However, when their economies tanked, unemployment and the budget deficit began to rise. In countries that control their own currency, a natural response would be to allow inflation to increase economic activity. However, because Spain and Italy are subject to the inflation targets of the ECB, they are without this as an option. Instead, they’re stuck in a feedback loop in which spending is slashed, further depressing economic output and monetary velocity, which requires further spending cuts, etc. etc.

        The U.S. need not suffer this fate. Only continued consideration of inflation through some antiquated moral lens prevents us from increasing the competitiveness of our economy.

        1. James A. Bacon Avatar
          James A. Bacon

          Ah, the inflation gambit. There’s only two problems with that argument.

          (1) We tried it before, in the 1970s. We ended up with “stagflation,” high unemployment, low growth and low productivity growth — the worst of all worlds. Inflation does redistribute income from debtors to creditors, but it also distorts price signals and creates economic inefficiencies.

          (2) Interest rates shoot up. You see, investors catch on to the fact that the value of their Treasury holdings are being eroded, so they demand higher interest rates. Because of the added uncertainty of how bad the inflation will get, they will demand a risk premium as well. Now, if our national debt was really low, that might now make much of a difference. But it’s $15 trillion+, so higher interest rates will add hundreds of billions of dollars annually to the national debt.

          There is no painless way out.

  4. larryg Avatar
    larryg

    Did someone say stimulus?

    Merkel Says She Is Open to Stimulus for Greece

    1. DJRippert Avatar
      DJRippert

      Merkel is a smart woman but she’s fallen into panic mode.

      Stimulus for 11M Greeks? Sure.

      Stimulus for 47M Spaniards? Uuugghhg! Maybe.

      Stimulus for 61M Italians? Nein! Deutchland uber alles.

  5. larryg Avatar
    larryg

    the conservative mantra these days is pretty much that any country with social insurance for retirement and health care is on a trajectory for bankruptcy.

    These “socialist” countries read like a who’s who of all the industrialized countries in the world and include developing countries who also have social insurance programs.

    I keep asking two things:

    1. – name the best countries in the world who are economically superior as a direct consequence of not having “socialist” safety net programs.

    just list them… the top 3 will be sufficient.

    2. – Explain why Germany has had social programs for 100 years and is still a top 5 economy in the world and how did Sweden actually balance it’s budget when it is the number one ranked country in social spending?

    The Conservatives take these things as article of faith but they fall far short on doing much more than picking one or two “bad” countries to “illustrate” what “can” happen to “all” “socialist” countries.

    translation: social programs are bad, evil, doomed to fail .. even if it takes 300 years for it to happen.. it WILL happen.. it HAS to… orthodoxy requires it.

    the US corollary is that we “have no choice” but to have an armed forces that is bigger than the next 10 in the world and because of that – we must get rid of social programs and cut taxes to generate more revenues to fund DOD.

    Jim B aligns himself with these folks … but then when directly confronted tip toes back … only to not able to keep himself from sipping more kool aid and returning….with fresh conservative “ideas”.

    1. James A. Bacon Avatar
      James A. Bacon

      Larry said, “The conservative mantra these days is pretty much that any country with social insurance for retirement and health care is on a trajectory for bankruptcy. … social programs are bad, evil, doomed to fail .. even if it takes 300 years for it to happen.”

      Some countries are in a death spiral while others are on a glide path to ultimate disaster. That’s because some countries are more fiscally disciplined than others — Germany and the Scandinavian countries among them. Unfortunately for them, their birth rates are extremely low and demographics will clobber them.

      The other problem for Germany is that much of its prosperity is tied to exports. As the most economically competitive nation in the E.U., it enjoyed the benefit of the large E.U. market, which was pumped up during the flush times by all that borrowing in the PIGS nations. If those countries go down the tubes, they will cripple Germany’s exports. It has a lot to lose if the status quo dissolves.

      As for Sweden, everyone still thinks of it as the poster boy for the democratic socialism. But the Swedes have moved to the right on a lot of issues in the past decade. While the welfare state is still strong, its economy is one of the freest in the world.

      Meanwhile, Europe goes from bad to worse, followed close behind by the U.S., and liberals exercise all their ingenuity to… blame Republicans. Dude, the problem is so much bigger than Ds and Rs. We’re talking about the collapse of a system that has enjoyed bipartisan support for the most part.

      1. DJRippert Avatar
        DJRippert

        Ask and ye shall receive …

        http://www.forbes.com/sites/paulroderickgregory/2012/05/13/look-to-sweden-obamas-high-tax-gurus/

    2. DJRippert Avatar
      DJRippert

      Larry, Larry, Larry ….

      There you go again.

      It’s always black and white with you.

      The question is never whether there should be taxes, the question is always how high the tax rate should go. The question is never whether there should be a government, the question is how big the government should grow.

      In Zimbabwe, the government spends 97.8% of the country’s GDP. Is that a good plan?

      In Cuba, the government spends 78.1% of the country’s GDP. Is that a good plan?

      Iceland 57.8%
      France 52.8%
      United Kingdom 47.3%
      Greece 46.8%

      Brazil 41%
      Canada 39.7% (Within 1% of the US – Does Canada suck?)
      The United States 38.9%

      Japan 37.1%
      Australia 34.3% (Does Australia suck?)
      Switzerland 32% (Does Switzerland suck?)
      India 27.2%
      Costa Rica 20.9%
      Hong Kong 18.6%
      Taiwan 18.5%

      Larry – your problem is your innate belief that the government in the US somehow needs to be bigger (aka – spend a higher percentage of our GDP). You talk about how all other countries have social programs better than the US. But somehow, countries like Canada, Switzerland and Australia manage to do that without soaking up vastly more of their GDP.

      I am sure you will say, “defense spending” and to a large degree you would be right. Here are the GDP percentages of defense spending for a few countries – United States 4.7%, Australia 1.8% , Canada 1.4% . Even crazy old Switzerland manages to spend 0.8% of its GDP on defense.

      America’s non-defense government spending as a percentage of GDP is 34.2%.

      Australia – 32.5%
      Canada – 38.3%
      Switzerland – 31.2%

      Let’s look at those four in order:

      Switzerland – 31.2%
      Australia – 32.5%
      USA – 34.2%
      Canada – 38.3%

      Larry – that’s with no defense spending. None, nada, zip. Even then, America’s government spends a bigger share of the country’s GDP than Switzerland or Australia.

      Our government sucks because our government sucks – not because it spends too little.

      The federal government is a classic case in point. I can find you dozens of dedicated, hard working people who have left the employ of the federal government due to its hopeless and impossible tangle of bureaucracy and mis-management. I offered one guy I know a really good job starting up our federal business. He worked in private enterprise and then as a government employee for years. He wouldn’t take my job offer. He’d rather spend his savings to zero than go back and deal with the federal government in any way, shape or form. He told me that he’d take any other position I had. So, I hired him as a contractor at less than half of the pay I offered for the federal position. He does marketing and training work and never has to deal with the federal government. He is perfectly happy with that trade-off.

  6. larryg Avatar
    larryg

    Not sure where you got the idea that I think govt should spend more.

    We need to spend LESS but we cannot balance the budget or even comes close by carving out DOD.

    What I point out is that social spending in our countries ALONE is not a precursor to bankruptcy.

    Look at Singapore and Hong Kong – both have very high mandatory payroll taxes for social insurance… Sweden is ranked number 1 in social spending but it has a balanced budget.

    I’m NOT advocating that we follow suit; I’m showing that social spending is not a slippery slope to disaster.

    The slippery slope to disaster is spending more than you take in – in revenues – no matter what you spend it on. You can even go broke spending nothing on social insurance and way too much on national defense.

    I question the conservative orthodoxy. They have one simplistic view about this and it’s wrong. If they were in charge of the country, we’d be in the middle of a depression and/or stagflation just as the Countries in Europe are that instituted austerity.

    It’s not boomergeddon.. it’s stupid-geddon.

  7. larryg Avatar
    larryg

    How Smart Fiscal Rules Keep Sweden’s Budget in Balance

  8. larryg Avatar
    larryg

    re: inflation – inflation is how you get money to flow that currently is sitting.

    money that sits still during inflation ..loses…

    with all the brickbats that Bernanke gets.. here is his view on inflation:

    ” “Does it make sense to actively seek a higher inflation rate in order to achieve … a slightly increased pace of reduction in the unemployment rate? The view (of top Fed policymakers) is that that would be very reckless.”

    http://www.deseretnews.com/article/765574349/Flirting-with-higher-inflation-could-prove-risky-and-treacherous.html?pg=2

    yet Conservatives take every opportunity to whack Bernanke….

  9. larryg Avatar
    larryg

    The structural deficit that we have right now was not built by Obama – he got the larger part of it from the previous administration or more correctly, the previous Congress.

    Obama (nor Bush) can ADD spending…to the budget without Congress.

    take a look at this chart:

    http://en.wikipedia.org/wiki/File:CBO_Forecast_Changes_for_2009-2012.png

    this shows pretty clearly the thing that have caused the structural deficit.

    one can argue all he wants about tax cuts “working” but this chart shows that tax cuts actually contributed to the deficit.

    I’m not advocating tax increases per se. I’m saying that we had a balanced budget – until we cut taxes – on a theory that did not work and at the end of the day -those tax cuts are not part of the structural deficit.

    There is no way to produce a cuts-only budget that is balanced when DOD is excluded from the cuts.

    You could zero out every single entitlement and you’d still have a deficit.

    this is why you hear the GOP argue for “cuts” but the never show how – except for two people. Paul Ryan and Ron Paul.

    Ryan’s budget is a joke. It does not “balanced” until 2037 and it’s premised on more tax cuts.

    Ron Pauls – balances in 5 years but includes draconian cuts to not only DOD but half the cabinets. At least give Paul credit for not being a hypocrite like his fellow GOP is.

  10. larryg Avatar
    larryg

    one more budget – Rand Pauls:

    ….” cut the average Social Security recipient’s benefits by nearly 40 percent,

    reduce defense spending by nearly $100
    billion below a level the Pentagon calls “devastating,” and

    end the current Medicare program in two years — even for current recipients, according to the Senate Budget Committee staff. It would

    eliminate the education, energy, housing and commerce departments, decimate homeland security, eviscerate programs for the poor, and

    give the wealthy a bonanza by reducing tax rates to 17 percent and eliminating taxes on capital gains and dividends.”

    http://www.washingtonpost.com/opinions/rand-pauls-cynical-budget/2012/05/16/gIQAmyogUU_story.html?hpid=z2

    now.. I have to give CREDIT to Mr. Paul. He DID produce an actual cuts budget.

    the next question is – is it a real proposal subject to compromise?

    or is it yet another cow pie thrown on the floor for effect?

    this is why I say the GOP is unfit to govern.

    what is the real purpose of such a proposal beyond it’s bomb-throwing for effect?

    what are they trying to accomplish? It’s like you’re dealing with adolescents who don’t like what is going on but the only tactic they know is vandalism.

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