Friday, September 24, 2010
Here we go again: Hoover got us in, and WWII got us out. Bush got us in, and
to his credit, started trying to get us out. Though, mostly he gave money to Wall Street bankers.
In the Great Depression, Roosevelt tried deficit spending, but he and the country ran out of money.So then he stopped in 1937 and the economy nose-dived. It took the humongous spending on the war effort of WWII to pull us out of the Great Depression. The spending was for jobs that lasted four years building airplanes, tanks and guns. This change the economy from depression into overdrive.It was not the WPA or a myriad of other make work programs that Roosevelt fostered. It was the building of a sustainable industrial base that employed millions of people for decades.
Of course after the war, we had to pay off a huge national debt, but during that time, from 1946 to 1980, the economy was quite prosperous. We hit a bad recession when Reagan took office, and his early deficit spending made sense (though he didn’t know it). But then he began to cut taxes and let the companies and the people keep more of their hard-earned money and the economy boomed!
We are now headed into the worst slump since 1938, and you itf you have a false hope that Obama can fix it because he is spending money with the help of an elitist Congress that is only too anxious to “bring home the bacon for his constituents.You are sadly wrong!!
The main thing to remember is that, with consumer spending going down, business is going to lay people off—not hire them. You can’t blame business for this. It’s just a vicious cycle that the economy gets into. And you can’t blame consumers for not spending in bad times. The only way out of this, is for the government not to spend, continue to pay unemployment insurance, or give tax breaks to people that only last for one year.
It is to cut taxes and extend the tax brakes the president Bush signed into law that will expire if not extended before they expire in 2010.
Obama should stop saving the Wall Street bankers, and just let those who perform poorly fail. There is only one thing that is too big to fail, and it is the USA!!
One of the charts above is showing government debt as a percentage of GDP by Curious Cat Investing Economics Blog, Creative Commons Attribution, data from OECD, March 2009.
The USA federal government debt is far too large, in my opinion. We have been raising taxes on future taxpayers for several decades, to finance our current spending. Within reason deficit spending is fine. What that reasonable level is however, is not easy to know. One big problem with the past few decades is that during very prosperous economic times we spent money that we didn’t have,and despite the warnings from economists who are not in the hip pocket of Obama, Congress continues to spend!!
This will only transfer to our children and grand children trillions of dollars of debt that will have to be paid or this country will become a “banana republic” very soon!
By not even paying for what we are spending when times were prosperous we put ourselves in a bad situation when we have poor economic conditions – like today. Even if we did not pay down debt, just by not increasing the outstanding debt while the economy grew the ratio of debt to GDP would decline. Then when times were bad, we could afford to run deficits and perhaps bring the debt level up to some reasonable level (maybe 40% of GDP – though it is hard to know what the target should be, 27% seems within the realm of reason to all but Obama sycophants. But today we have the debt to GDP ratio at 98% when you count in the unfunded guarentees that are included in entitlements!
There is at least one more point to remember, the figures in the chart are based on reported debt. The USA has huge liabilities that are not accounted for. So you must remember that the actually debt is much higher than reported in the official debt calculation.I mentioned them in the previous paragraph.And a Boston College Economist estimated yesterday that our actual debt is 200 trillion when you included unfunded social security, mediare and medicaid!
Now on to the good news. As bad as the USA has been at spending tomorrows increases in taxes today, compared to the OECD countries we are actually better than average. The OECD is made up of countries in Europe, the USA, Japan, Korea, Australia, New Zealand and Canada. The chart shows the percentage of GDP that government debt represents for various countries. The USA ended 2006 at 62% while the overall OECD total is 77%.Most probably because of the financial debacle in Greece. A subject I will discuss later in this post.
In 1990 the USA was at 63% and the OECD was at 57%. Japan is the line way at the top with a 2006 total of 180% (that is a big problem for them). Korea is in the best shape at just a 28% total in 2006 but that is an increase from just 8% in 1990.And rember just 50 years ago they were involved in a War with North Korea and China that many of our brave men and women died to keep them from become Communist!
Iin Europe, Greece has already accumulated a mountain of debt that will be difficult if not impossible to pay off. The government has borrowed more than 110 percent of the country’s economic output over the years, and if investors lose confidence in the bonds, a meltdown could happen as early as next year.
Although this is a country far away we should learn from their experience that spending money you do not have and “fudging” the debt numbers can result in a similar outcome here at home!
When the government borrowers in Athens will be required to refinance €25 billion worth of debt — that is, repay what they owe using funds borrowed from the financial markets. But if no buyers can be found for its securities, Greece will have no choice but to declare insolvency — just as Mexico, Ecuador, Russia and Argentina have done in past decades.Will the USA be far behind?
This puts Brussels the seat of the European government and monetary system, in a predicament. European Union rules preclude the 27-member block from lending money to member states to plug holes in their budgets or bridge deficits.If only we had a law against bailing out States like California and New York!
And even if there were a way for the EU to circumvent this prohibition, the consequences could be disastrous. The lack of concern over budget discipline in countries like Spain, Italy and Ireland would spread like wildfire across the entire continent. The message would be clear: Why save, if others will eventually foot the bill? It says a lot about the future we are preparing, or I should say Congress and the Obama administration is preparing for our future generations with the tax and SPENDING running unchecked!
Central bankers in the euro zone are already speculating, behind closed doors, what would happen if the Greeks started printing euros without ECB approval. There is no answer to the question, and that makes central bankers from Lisbon to Dublin even more nervous than they are already.
The Greeks managed to increase their official gross national product by a hefty 25 percent, partly because they included the black market and prostitution in economic output. This brought down the deficit rate — on paper, at any rate — to 2.9 percent.
The government in Athens received a rebuke from Brussels, but so far, however, the Greek government has shown little inclination to take any significant steps. It does intend to reduce the deficit, but only to 9.1 percent next year. This is far too little for many European foreign ministers. As the new Greek finance minister, Giorgos Papakonstantinou, recently announced, the country will need at least four years to get its deficit under control “without jeopardizing the economic recovery.” If only we here in the USA could predict that we could get the deficit under control in four years!
With the debt approaching 13 trillion over the next ten years there is a good possibility that we will become insolvent and our money will be worthless if the brave few that oppose BIG government can succeed in repealing the Health Care Bill and stopping Cap and Trade bills, but I am afraid it is a fait complete!
Soon we will have to decide whether it’s “guns or butter”! And with the present administration it will decimate the military to further their march to socialism. Then who will protect us?
When the government deficit will have reached about €400 billion, or about 150 percent of GDP. Servicing that amount of debt, even at current interest rates of about 5 percent, will make up at least one-third of government spending.
A London investment banker is betting on the continued decline of prices for Greek bonds in the short-term, while simultaneously waiting for the right time to start buying the securities again. He jokes: “If someone has €1,000 in debt, he has a problem. If someone has €10 million in debt, his bank has a problem. And the bank, in this case, is Europe.”
Will we be next?
Source: Telegraph uk.com