Bush's deficits and the coming crunch.

[Kidlicious]

Originally posted by Oerdin
Tell that to the countries which have experienced liquidity crisises.

Such as.....?

[Dinner]

Here's a list off the top of my head of countries which have experienced liquidity crisises in recent years: Thailand, Korea, Argentina, Brazil, and Indonesia. Going a bit further back Mexico can also be added to that list. Thailand and Argentina are likely the best examples though.

[Lawrence of Arabia]

argentina? when?

[Dinner]

Not a liquidity trap but a liquidity crisis.

Noun 1. liquidity crisis - a state in which there is a short supply of cash to lend to businesses and consumers and interest rates are high. Also called a credit crunch, squeeze, economic condition, financial condition.

Argentina recently experienced a liquidity crisis when its national government borrowed heavily to finance deficit spending for government programs but also to maintain an artificial peg to the US dollar. The result was when the debt load reached a critical level Argentina defaulted on its national debt and the economy suffered a liquidity crisis since domestic capital flight combined with a refusal of international banks to loan money at anything less then obscience rates. The shortage of capital was so severe that many people resorted to barter.

Kid had claimed debt didn't matter so I pointed out that for countries which have experienced a liquidity crisis their debt loads were the key thing that caused the crisis.

[Vanguard]

Your assertion was that we paid off the WW2 debt with high tax rates.

First, no one paid those high rates because of all the loop holes in the tax law. We didn't pay off the debt by collecting taxes. We If wpaid off the debt because the economy grew. e would have tried to tax our way out of debt we would have returned to depression. When the highest margnal tax rates were lowered many loop holes were closed and there was little difference in tax collection. The difference, however, was enough to still lower the debt.

Second, anyone who cares so much about paying off govt debt, has their priorities screwed up. It's no where near as important as economic growth. If you sacrifice economic growth to pay off debt you hurt everyone. If you want to complain about the deficit, that's one thing, but worrying about the debt is pointless.

Did the economy grow dramatically during the 50's and 60's? Of course it did.

But so what? If we had not paid down our WW2 debt with high tax rates during this time period, that debt would also have grown dramatically, due to a little financial trick known as "interest".

This "interest" also explains why the US still has a large national debt today, despite the fact that the fact that our economy grown over the past twenty years(albeit not at as high a rate as it did when we had 70% tax rates). And why our debt is not decreasing despite the fact that our economy is growing. And why it never will.

When the US economy grows fast enough to reduce debt as a percentage of GDP, it grows fast enough to cause inflation. When inflation comes along, the Fed must raise interest rates to stop it. But raising interest rates decreases growth while increasing the interest on our debt ----- which then grows faster than than the economy.

We didn't pay off the debt by collecting taxes. We If we would have tried to tax our way out of debt we would have returned to depression. When the highest margnal tax rates were lowered many loop holes were closed and there was little difference in tax collection.

Sorry, I'm not a Bush conservative. You can't just assert any falsehood you like and expect me to postulate it as true.

We did "try to tax our way out of (our depression and WW2) debt". It succeeded. That was the whole point of high taxes. And, not only did high marginal tax rates not hurt growth, it resulted in the longest period of sustained growth in US history. That is the empirical economic evidence. There is, I'm afraid, no comparable evidence for your theory.

On a side note, there were fewer loopholes in the pre-1970's tax code than there were after that. Or now. Loopholes were not "closed" when rates were lowered in the 1970s. On the contrary, they were added in large numbers. Also, the idea that "No one" paid the highest marginal rates, is demonstrably untrue.

[Dinner]

The real question is did the economy increase more rapidly then new debt along with interest was being accumulated? I doubt it though with inflation it might slowly sink in real terms. The more likely answer is the government increased tax rates and paid down the debt.

The Republican policy of slashing taxes and exploding the debt is not good long term economic policy though the politicians love it since it allows them to promise the moon and give the bill to someone else.

[Lawrence of Arabia]

Not a liquidity trap but a liquidity crisis.

Noun 1. liquidity crisis - a state in which there is a short supply of cash to lend to businesses and consumers and interest rates are high. Also called a credit crunch, squeeze, economic condition, financial condition.

Argentina recently experienced a liquidity crisis when its national government borrowed heavily to finance deficit spending for government programs but also to maintain an artificial peg to the US dollar. The result was when the debt load reached a critical level Argentina defaulted on its national debt and the economy suffered a liquidity crisis since domestic capital flight combined with a refusal of international banks to loan money at anything less then obscience rates. The shortage of capital was so severe that many people resorted to barter.

Kid had claimed debt didn't matter so I pointed out that for countries which have experienced a liquidity crisis their debt loads were the key thing that caused the crisis.

are you talking about the 2001 currency crisis in argentina?

[Kidlicious]

Originally posted by Vanguard
Did the economy grow dramatically during the 50's and 60's? Of course it did.

But so what? If we had not paid down our WW2 debt with high tax rates during this time period, that debt would also have grown dramatically, due to a little financial trick known as "interest".

Not necessarily. If interest rates remain low worrying about deficits is silly. Low interest rates should be taken advantage of, just like in business. If interest rates get high then I can see your point.

This "interest" also explains why the US still has a large national debt today, despite the fact that the fact that our economy grown over the past twenty years(albeit not at as high a rate as it did when we had 70% tax rates). And why our debt is not decreasing despite the fact that our economy is growing. And why it never will.

Again. The size of the debt doesn't really matter so long as you have low interest rates. If rates are high then we should do what we can to lower them.

When the US economy grows fast enough to reduce debt as a percentage of GDP, it grows fast enough to cause inflation. When inflation comes along, the Fed must raise interest rates to stop it. But raising interest rates decreases growth while increasing the interest on our debt ----- which then grows faster than than the economy.

There is such a thing as growth without inflation. I'm not opposed to raising taxes, or even cutting some spending, if interest rates get to be a problem. That doesn't seem to be the current situation however.

Sorry, I'm not a Bush conservative. You can't just assert any falsehood you like and expect me to postulate it as true.

That's good, but I didn't assert any falsehood.

We did "try to tax our way out of (our depression and WW2) debt". It succeeded. That was the whole point of high taxes. And, not only did high marginal tax rates not hurt growth, it resulted in the longest period of sustained growth in US history. That is the empirical economic evidence. There is, I'm afraid, no comparable evidence for your theory.

And what was the point of the tax loopholes?

On a side note, there were fewer loopholes in the pre-1970's tax code than there were after that. Or now. Loopholes were not "closed" when rates were lowered in the 1970s. On the contrary, they were added in large numbers. Also, the idea that "No one" paid the highest marginal rates, is demonstrably untrue.

There were different loopholes. The loopholes that existed were specifically targeted for the rich who would have been otherwise paying very high tax.

[Kidlicious]

Originally posted by Oerdin
Not a liquidity trap but a liquidity crisis.

Noun 1. liquidity crisis - a state in which there is a short supply of cash to lend to businesses and consumers and interest rates are high. Also called a credit crunch, squeeze, economic condition, financial condition.

Argentina recently experienced a liquidity crisis when its national government borrowed heavily to finance deficit spending for government programs but also to maintain an artificial peg to the US dollar. The result was when the debt load reached a critical level Argentina defaulted on its national debt and the economy suffered a liquidity crisis since domestic capital flight combined with a refusal of international banks to loan money at anything less then obscience rates. The shortage of capital was so severe that many people resorted to barter.

Kid had claimed debt didn't matter so I pointed out that for countries which have experienced a liquidity crisis their debt loads were the key thing that caused the crisis.

I'm not saying that deficit spending should be so extreme that it causes high interest rates and does those things. Just having a "large" national debt does not create high interest rates. Newly created capital is not absorbed by debt, only deficit spending. Even interest paid on debt is just transfered to debt holders, and so long as they are domestic the money is circulated in the economy.

[Dinner]

* 3 Ghz Intel Pentium 4 or equivalent processor
* 1 GB System RAM
* ATI X800 series, NVIDIA GeForce 6800 series, or higher video card

Well, I have the video card and the RAM but not the CPU.

I'll have to check into upgading possibilities.

(Wrong thread)

[DinoDoc]

Wrong thread, Oerdin.

[MrFun]

Don't you get it, DD? Oerdin is blaming Bush's bad economic policies on him not having a good CPU.




duh

[Barnabas]

Buy gold!

Buy gold!

the dollar will become worthless!

[Dinner]

Interesting article in the Economist on Bush's continuing deficits.

Forecast
Mar 16th 2006
From the Economist Intelligence Unit
Source: Country Forecast

The president, George W Bush, is struggling to build momentum behind his domestic policy agenda. Mr Bush's approval ratings are low, public concern about military intervention in Iraq is high and his Republican Party is suffering from a series of scandals. Mr Bush will find it difficult to push ahead even with his pared-down domestic policy agenda, particularly in the run-up to the November mid-term election. Federal finances will remain in deep deficit, given the demands of defence and homeland security and limited resolve to plug holes in the budget. Monetary policy tightening will continue at a measured pace, but the upward cycle of US interest rates is nearing its end. The final rate increases in the first half of 2006 and still high oil prices will have an adverse effect on highly indebted US consumers. Real GDP growth is forecast to slow from 3.5% in 2005 to 2.8% in 2006 and 2.5% in 2007, as consumer fatigue grows. Imbalances in the economy could trigger a much less benign scenario. The US dollar will come under renewed downward pressure in 2006 and 2007 as market attention returns to the US current-account deficit, which is forecast to remain above 6% of GDP in both years.

Key changes from last update

Political outlook

Renewed focus on the federal government's bungled response to Hurricane Katrina in 2005 is hitting Mr Bush's approval ratings. With investigations into various Republican scandals likely to come to the fore in the middle of the year, Mr Bush's legislative accomplishments will be few in 2006.

Economic policy outlook

The Bush administration has acknowledged that it will grossly overshoot its budget deficit target for fiscal year 2006. The Economist Intelligence Unit stands by its forecast that the budget deficit will exceed US$450bn this year.

Economic forecast

We have revised upwards our forecast for oil prices in 2006-07. Higher prices will hit consumer demand, especially in 2007, when overall growth is forecast at 2.5%.

http://www.economist.com/countries/USA/profile.cfm?folder=Profile-Forecast

[Kidlicious]

I think they're right about the oil prices and the deficit.