Default 3

The saddest part was the name calling.  Extortionist, hostage takers, and even terrorists.  Apparently this disturbs me more than most people.  I generally assume that people who stoop to name calling don’t have a very good argument.  But in this case everyone says the Ds won and the Rs will pay a heavy price.  But I wonder.   In the next few years the younger folk are going to figure out how badly they are being served by our particular version of the welfare state which is very biased toward the old folks who are immediate spenders and biased against the young and investment. (Its advocates are not biased against the word “investment”.  They love the word.  They will call a hip replacement on an 80 year old man an investment.)

When the young figure this out, it is possible that they will become interested in a more fiscally responsible government.  At that point they may remember who was on which side of the fiscal responsibility ledger.

Default 2

The word default got a lot of interesting usage in the discussion.  If we do not raise the debt limit then we will be in default - we would not be able to meet all of our obligations.  That would be bad.  But there is bad, worse, and worst.   In this case, the worst would be not paying the interest on the national debt.  That would roil the international markets and put the “full faith and credit” of the USA in question.  With a quick flip of the tongue Democratic speakers (including Obama) would switch and act as if not paying the interest on the debt would be the FIRST default on the list and that it would ruin the “full faith and credit”.  This fear mongering caused the short term treasuries interest rate to go up to – are you ready – almost one half of 1 percent.  There followed a “panic” and a flight to safety!!!  Where did they go to feel safe about the location of their money?  They bought US Treasuries.  Perhaps the more astute of them, or their advisers, had read the 14^th amendment to the US Constitution which says in part: “The validity of the public debt of the United States, authorized by law, …, shall not be questioned.”  That overrides any regular law about debt limits or otherwise.  It would also put debt payment at the head of the line.  

comment on Bruce's comment of October 7, 2013 at 5:57 PM

Bruce's comments are in black my remarks are in red.

If the Rs trying to force a person (the President) by force, intimidation or undue power It is not undue power.  I know from your previous posts that you do not like the fact that the Congress has the power of the purse – in fact the HR has the power of the purse - but there it is, in Article one of that pesky Constitution.  (not only shutting down almost the entire government, not anywhere near the entire federal government much less the states but blaming it on Obama because he won't capitulate...oh, I mean "negotiate") I have seen Obama on TV saying repeatedly that he will not negotiate on this or the debt limit. doesn't meet the definition of extortion as posted above, then I don't know what to say. What would they have to do to meet the definition in your eyes? Is there anything legal that they could do that you would call extortion? I would love to read what that would be. 

Since extortion is a crime it will be hard to arrange .  I gave Wikipedia’s definition before:       Extortion (also called shakedown, outwresting, and exaction) is a criminal offense of obtaining money, property, or services from a person, entity, or institution, through coercion.

 Also see merriam-webster.com/dictionary/extortion:  ex·tor·tion noun \ik-ˈstȯr-shən\ :            the crime of getting money from someone by the use of force or threats

 If they are committing a crime, then Obama should have Holder arrest Boehner. There's a headline for you.  That is where you end up if you follow the logic of this kind of rhetoric. The real question is: does this kind of rhetoric improve your argument?  I would think only with those who are already in your choir.

But I feel that we are drifting off into semantics now. Precisely. What the Rs have done in shutting down the government, and soon holding the debt limit and the country's credit rating hostage (yeah, I said it...hostage), is wrong no matter what you call it. The monthly income of the Feds is about 10 times the interest on the national debt.  The Full faith and credit business is a straw man, issued by people who believe that there should be no limit to how much debt that we run up.  I don't care if its a political tactic practiced by everyone including all of my friends and my entire family, it's still not right. Shutting down the government is just too much, too painful for too many. It's way off balance. It's bringing a bazooka to a knife fight. Its having your Dad beat up the elementary school bully. It's putting a yacht in a stock pond. Its fishing with dynamite. All over one law.  Will they try to change the law to make it better? Nooooo. It's got to go or nothing. I've heard some of their ideas about changing it, but that's just gutting it and taking the teeth out of it. If Obama drops the employer mandate – no problem.  If the Rs insist on dropping the individual mandate – then all the above slurs apply.  I understand about the Peter and Paul stuff. But frankly, that's the way that insurance works too.  If you think that “that Peter and Paul stuff” is the way insurance works, then I’m not sure that you have got a handle on the one very large difference between "the stuff" and insurance.  In our society the government uniquely has the right to the initiation of the use of force.  A regular insurance company cannot force you to buy their product.  The government can, eg SS, ACA, Medicare.  That is the real and substantial difference: force.  The insurance companies want Peter to pay for Paul   that is if they have to have a Paul. They would really rather keep Paul out of the system so that Peter is actually paying for nothing at all. Does Peter like that better?  That is why this Peter supports the ACA and the eventual implementation of national health insurance.  But I believe in looking the downside straight in the face and not pretend that it doesn’t exists.  This is another example of the Government forcing us to do something “for our own good”. 

Those things are very dangerous for two reasons. 

1.  It is hard to honestly finance them (see medicare). 

2.  If I may borrow from Thomas Jefferson Gerald Ford (corrected - 10-09-13):

“A government that is big enough to give you everything you want,

 is big enough to take from you everything that you have.” 

So I say again that in view of the fact that it is our side of this debate that is supporting a program that involves force, it seems passing strange that some on our side should accuse the other side of extortion.  Perhaps we hope that if we assert loudly enough the claim that they are doing it, then no one will notice that we really are doing it.  I prefer straight forward argument and I think we have a good case.  I think name calling makes us look like we have a bad case. 

Defunding Obamacare

I think this is a quite silly idea.

Consider the general situation.  If every law that involved spending money was eligible to be "defunded", then nothing would ever be complete.  All spending bills would be open for reconsideration right up until the money was spent.

We are in serious danger of looking like fools.

Stockman speaks

For an "alarmist" view of the Feds money printing read Stockman's article.

The Emperor Federal Reserve has no clothes - updated

The following was posted on May 31.

This interview with David Stockman was pointed out to YA by emptyset.

The below was added June 6:

Some of Krugman's responses to Stockman:

http://www.pbs.org/newshour/businessdesk/2013/06/why-david-stockman-yearns-for.html

http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html


0.  Stockman believes that the government is "printing"  too much money and carrying too much debt,

I believe that
1.  the government must incur some debt and print some money,
2.  there must be a limit to how much of that the government can do without ruinous inflation,
3.  Krugman says he would be a deficit hawk at some level of debt,
4.  but he never tells us how much debt and what interest rates would move him to it, and
5.  he never tells us how much debt is reasonable.

So is Stockman playing chicken little or is Krugman burning our candle at both ends?

Cyprus 2

A few days ago in Cyprus Tom discussed Bernanke's quantitive easing.

To find reinforcement for his view check out this article in the NY Post.

Has there been inflation recently?

But the other question raised by Tom (on the March 21 post)  is also a very good one.  Has there really been low inflation?  You can check prices and see.  I will look at only one commodity.

In the flight to safety of the last 10 years the items chosen have been dollars and gold.

Eight years ago gold sold for $400 an ounce.  For the last two years it has ranged from $1600-1800 an ounce.  It has doubled twice in 8 years.  That is a doubling time of 4 years.  By the rule of 72 (which works for interest rates as well as inflation rates) - "Doubling time" X "inflation rate" = 72.  You get 4 X "inflation rate" =72.  By that measure the rate of inflation for dollars has been about 18% per year.

Why is there not more inflation?

The title is very similar to a  question asked in the comments on the March 21 post.  I think that there are 3 reasons:

In 1983 I traveled by train from Greece to Austria which meant I went through Yugoslavia, a communist dictatorship.  It was a night trip and I was not allowed to get off of the train.  It was scary. I met a man who immediately recognized me as an American (I had gotten used to that by then.).  He waited until no one else  was near and opened his billfold and showed me in the hidden pocket several $20 bills.  He was clearly very proud to have that "real money" in a currency that had not been destroyed by politicians.

The first reason that the value of the dollar is still holding up is nervousness.  Since 2008 people have been nervous and when people get nervous there is a "flight to safety".  Even if it is pressed hard by deficit spending and "digitizing money" (what used to be called printing money) the dollar has a long history of stability and modest inflation which leads to confidence in it.

The second reason is that the dollar is the world's reserve currency.  That means that the world needs a lot more dollars than it does euros.  It uses dollars like gold.  That means we could digitize money for a lot longer than say Britain could.  But that also means that if the worm turns and people do lose confidence, then there are an awful lot dollars out there that people might lose confidence in.  That suggests the consequences (the crash) would be much more dramatic for an inflated reserve currency than a  inflated regular currency.

The third reason is that the government is lending itself money.  The Fed is not just digitizing money, they are also buying treasury bonds from the Treasury.  That is the Fed (one arm of the government) is lending money to(buying bonds from) the Treasury (a second arm of the government).  Why?  That keeps demand for treasuries high and therefore interest rates low.  Therefore, inflation low. ( If a bond is desirable you will take it at a lower rate and pay a higher price for the bond.  If it is not desirable then you will want it less and require a higher rate of interest and pay less for the bond.  If US bonds are scarce, then the price goes up and the interest rate goes down.  If the Fed is buying them, then that will make them more scarce.)  This is a bit more sophisticated than just digitizing money because by buying bonds the Fed is digitizing money and keeping track of how much it has digitized.


Those are the things that I think are keeping "inflation" low for the time being.

How will we know when the shell game is up?  When the interest rates on treasuries start to go up.

The Senate Budget - David Brooks

A thoughtful view of the Senate budget.

IF

If, as Dick Cheney said, Reagan proved that deficits don't matter, then why not borrow the money from the Federal Reserve (i.e. print it) and send ever person in the country $10,000 per  month?

If, as liberals say, there are no negative consequences to minimum wages, then why not make it $40/hour?

Sequester: cuts in spending versus projections

You have at hand an opportunity to compare 
a)  real cuts in government spending and 
b) phony cuts in "projections" of government spending.

The Democrats and their friends in the media say that Obama has cut 2,200 billion (AKA 2.2 trillion) from the budget.   They are quite proud and calm about this huge amount that they say they have cut. The Republicans are unimpressed. Even if Obama has "cut 2.2 trillion" what he has cut is a projection of how much will be spent.  He offers up a projection of the total that will be spent in the next 10 years (40-50 trillion).  Then they write another projection which has 2.2 trillion less in "spending" than the original one.  They then announce that they have cut 2.2 trillion in spending, but in reality they have cut nothing but a projection.  In addition to all of that, any part of the cut can be added back in at anytime during the 10 year period.

However, the sequester is about actual cuts in spending.  Those cuts are much smaller - 85 billion in the next year - but they are real money and begin the next day.  You can watch the news to see the difference in how the Democrats react to real cuts as opposed to fantasy cuts in projections - for one example try Chris Matthews on the $85 billion: 

"It's a down and dirty world when you decide chopping down the government and hurting the economy is the smart move. But bring it all down is now the hard right battle cry. Slash spending, short the pentagon, screw up traffic control, whatever raises the noise level, bashes Democrats and lowers hope. Is this the tea party dream? Is this John Boehner's version of feeding time at the zoo, giving the crazies what they want so they will sit in their seats and behave? Is this final payment to insanity the last vestige of what calm Republicanism is ready to cough up? But how else can you explain the readiness of the GOP leadership to let this Frankenstein's monster, this doomsday machine, this sequestration go all out berserk?  How else can we understand the party of Lincoln doing such economic damage to the Republic, such damage and moral(e) to the people?"  

I don't think that Chris has complained about the 2.2 trillion that Obama has “cut”.  I put it to you that Chris knows the difference between cuts in spending and cuts in projections.For another try Eugene Robinson here.

Taxes on the other hand begin immediately and are for real as all of you who are either "Obama-rich" or pay SS know.   That is one reason why those Republican candidates did not want to accept $10 in cuts in “spending” for $1 in tax increases.  But why those Republicans and their friends in the media continue to acquiesce in referring to these things as cuts in spending rather than cuts in projections is beyond me.

Spending is not the problem

Harkin says “wealth allocation” the problem with budget deficit, not spending.

Senator Tom Harkin D IA says we don't have any financial problems and we are rich.  

on the other hand:

"The deficit is not an invention of ideology, but a fact of arithmetic."  Paul Martin, Canadian Federal Finance minister in the 1990s.

Friedman nails it

I have not offered an opinion of the SOTU address because it seemed like just a bunch of wishes together with a promise that they wouldn't cost anything.

I believe that the President should seek the grand bargain.  If it fails he will still have time to beat up on the Rs before the next election.

In this piece in the NYT Tom Friedman offers the president some much better advice, the center piece of which is below.
...

"TO have any effect, though, the president can’t just say he is ready for “tough” decisions. He has to lead with his chin and put a concrete, comprehensive package on the table, encompassing three areas. First, new investments that would combine immediate jobs in infrastructure with some long-term growth-enablers like a massive build-out in the nation’s high-speed broadband capabilities. That would have to be married with a long-term fiscal restructuring, written into law, that slows the growth of both Social Security and Medicare entitlements, along with individual and corporate tax reform. Obama has hinted at his willingness to do all of these. They should be agreed upon in 2013 and phased in gradually, starting in 2014. There are a lot of good bipartisan packages out there to choose from; we just need one that puts us on a trajectory to shrink our ratio of debt to gross domestic product over time. Otherwise, we will have little in reserve to fight the next economic crisis or 9/11 or Hurricane Sandy.

Our choice today is not “austerity” versus “no austerity.” That is a straw man argument offered by both extremes. It’s about whether we phase in — in the least painful way possible — a long-term plan that balances our need to protect the most vulnerable in this generation while funding the most opportunities for the next generation, and still creating growth. We can’t protect both generations in full anymore, but we must not sacrifice one for the other — favoring nursing homes over nursery schools — and that’s what we’re on track to do."
...

Robert Reich on the Federal Budget Deficit

Why We Should Stop Obsessing About the Federal Budget Deficit

For the view of one of those who (apparently) believes that there is no limit to how much debt we can carry.

Why do we have a deficit?

I watched the Sunday talk shows this afternoon and listened to folks from all over the country talk about how dysfunctional the U S government is.

Not a single one of them talked about how the people want all of those programs and at the same time do not want to pay for them.  The Rs are unwilling to admit that the people want them.  The Ds are unwilling to admit that the people do not want to pay for them.  That, quite simply, is why we have a deficit.

We want the National govt to spend at least 24% of GDP on us and we want it to collect at most 18% of GDP in taxes from us.

The Fiscal Cliff 2

The Senate has a fiscal cliff proposal.  It calls for 15 billion in spending cuts and 620 billion in tax hikes.
(Recall that the Dems want the problem solved by tax increases and Reps want it done by spending cuts.)

5 things about this deal.

1.  Oviously it is an overwhelming "win" for the Dems and their preferences by roughly 40 to 1.

2.  If the House does not go along they will be the ones labeled by the media as intransigient.

3.  This is a ten year proposal which will produce "savings" of $63.5 billion per year.  The ANNUAL deficit is well over $1,100 billion.  That means that this proposal is 5.7 % of the solution of that short term problem and does not deal at all with the long term issue of entitlement reform.

4.  Nobel prize winner Paul Krugman a supporter of Obama, taxes, borrowing, and spending tells us his view in conceder in chief.  As the title suggests that he views it as a loss by Obama.  In fact he says at one point that "it’s a bad and upsetting deal".  However, he also notes that there were "no spending cuts at all."

He also told us that the really bad thing about this deal is that Obama did so badly that:  "Republicans will go right from this negotiation into the debt ceiling in the firm belief that Obama can be rolled."

What kind of proposal would it take for Krugman to consider it a win?

5.  One wonders what happened to the Constitutional requirement that revenue bills begin in the House?

(added at 7:15 PM - Perhaps the Senate bill is not original but rather a revision of a previous House bill.)

Those spending cuts

For those of you who don't know the highest income tax rate being paid right now is 35%.  What would you think about it if the Speaker offered to count the income that is coming in from between 31% and 35% as a tax hike?

I'll bet you would agree that that little hypothetical was laughable.  The next one is not a hypothetical.

For those who do not know the interest rates that the government is paying right now are very low.  According to the PBS Newshour 12-18-12 the president is offering the interest that we don't have to pay because of those low rates as part of his spending cuts.

PBS noted it, but they didn't laugh.

A Canadian Solution

Over just a few years, between 1995 and 1998, Canada transformed a $32 billion federal deficit, equivalent to 4 percent of its gross domestic product, into a $2.5 billion surplus. This achievement was followed by a full decade of surplus budgets, with debt, tax and poverty rates all falling as growth, investment and employment rose.

"The deficit is not an invention of ideology, but a fact of arithmetic."  Paul Martin, Canadian Federal Finance minister in the 1990s.

Campaign 2012 Obama Domestically

A continuing description of the candidates in several aspects of the job.  I am putting this up, not for your benefit, but for mine. I am soliciting your comments in the hopes of improving my own perspective.

See also Campaign 2012 Obama Foreign Policy for thoughts on that.

In domestic policy the thing that I wanted from Obama was NHI (= national health insurance.)  I would have preferred that it be a single payer thing and that the financing be honest.  See YA NHI1 and YA NHI2 

Of course we did not get NHI, but we got ACA which I consider to be a giant step in that direction.  We also did not get a fiscally sound system.  The second shortcoming of ACA is part of the more general fiscal problem.

With respect to the giant step.  I believe that we have not had NHI because of our system of employer provided health insurance.  People are afraid of what they do not know and so they cling to what they have.  The ACA offers employers a very good deal if they decide to not offer health insurance to their employees: a $2,000 “fine” instead of a $5,000 to $15,000 health care plan.  Hmmm - I wonder which they will choose.  Within a few years there will be far less employer provided health insurance.  Shortly after that we will have national health insurance.

I give a lot of credibility to the argument that we were in a very deep hole when Obama came in.  We are coming back.  They tell me that when the recession comes from a failure in the financial industry, then the comeback is slower. 

I understand that Obama could not get any more stimulus than he did, but it should have been spent on infrastructure rather than tax cuts (Republicans) and bailing out state governments (Democrats).  [Just on that thought, I too am a national debt worrier.  Perhaps even a "Krugman denier".  But there are limits.  Scheduled, short term debt is different.  More and more people are pointing out the lunacy of our not taking advantage of the following:  we have high unemployment, major infrastructure needs, and money that the Fed. Govt. can borrow for 10 years at less than 2%.  When the gods make you an offer that you can’t refuse, don’t refuse it!  We could borrow and spend a trillion dollars, earmark Obama’s tax on the rich (or something else) to pay it back over ten years. You can do that for a total interest cost of 11% of the loan.]

I blame the Republicans for the profligacy of continuing the “Bush tax cuts”, the Democrats for the subprime mortgage fiasco which the government financed and which has not yet been unwound, and both of them for constructing a financial system which includes entities which were too big to fail.   They have not fixed any of these things.  (Capitalism without failure is an oxymoron.  If a company is too big to fail it is too big to exist.  Break it up.)

The GM-Chrysler thing is something that I cannot judge – whether Romney’s direct bankruptcy and then refinancing was essentially the same as Obama’s except that the unions got a special deal from Obama which was funded by the government. (We still own a lot of GM.)

Obama’s attitude toward business worries me.  Like so many liberals he gives the impression that, if he had his druthers, he would really like to have his capitalism without so damn many capitalists in it.  The context from which his little “you didn’t build it” line came is more troubling to me than the line itself. “You say you worked hard.  There are a lot of hard workers out there.”  Seriously, what exactly is the conclusion that we are going for here?  (If you are going to answer this, go a little deeper than – “there is luck involved”.  Who among us does not know that there is luck in life?)  Seriously, if you were going to talk to people about what goes into starting a business, wouldn’t you at least mention risk?  And it is not just business.  A lot of successful people had to take risks to be where they are.  For example, if you are a doctor then you have all of the costs of the ten years of schooling beyond HS and the cost to live during those ten years.  But, perhaps the biggest thing is that you go for those 10 years without earnings, without building up any savings, without building up any equity in a home.  And nobody guarantees that you will actually become a doctor.

The main negative for Obama in this area is the fiscal problem.  I believe this is a very serious problem.  Not just the “fiscal cliff” that you hear about on TV from those who don’t know the difference between the debt and the deficit.  I mean the long term short fall.   I am not convinced that he takes it seriously. 

We the people have been borrowing and spending all of this money, not just in the recession, we have been doing this for years.  Who is doing it:  the “great middle class.”  That is the POWER in this country.  Who will speak truth to POWER? The politicians have been pandering to that POWER.  Listen to how often all of them talk about how they are going to protect the great middle class.  It is a constant pandering which is hard for us to hear because they are pandering to US. 

The left wants a larger government.  An honest liberal will tell me (or at least give me a signal) that to achieve his vision (with fiscal responsibility) we will need serious tax increases on the middle class (as well as the rich).  I have not heard that from Obama.  In fact what I have been hearing from Obama is a litany of promises to maintain all of the goodies that the various groups get from the government.

The right wants a smaller government. An honest conservative will tell me (or at least give me a signal) that to achieve his vision (with fiscal responsibility) we will need to cut some programs that are dear to my middle class heart and pocketbook.  I have heard that from Romney’s first choice: Paul Ryan.

grade B (revised from a C 10-9-12)