He gets easily confused when it comes to sense of humor. Maybe thats because he has none.
Lets see if other people see it as biased as you do.
The U.S. is Not Greece
More selling of newsletters and books than accurate analysis by Mr. Schiff. Surprise, surprise.
The United States Is Not Greece
By Stephen J. Rose and William T. Dickens
Peter Schiff in The Real Crash and others see the U.S. as having the same problems as Greece and that what we see now in Greece is just a prelude to much larger problems in the United States. This is a false analogy that misrepresents the effects of large deficits as well as the specific problems that Greece faces.
While large government deficits can lead to economic distress, the relationship is weak and complicated. Before the financial crisis began in 2008, most of the countries that now need bailouts in Europe had relatively small levels of government debt (e.g., Italy, Spain, and Ireland). In fact, it was the collapse of housing and other asset bubbles and the economic problems caused by the crisis that led to the debt problems in these countries today. So for the U.S. and others, it was the economic problems that caused rising debt and not the other way around.
Further, history shows many examples of high levels of debt not causing problems when circumstances are different (for example, in Japan today or the U.S. after World War II). A sign that debt problems are becoming economic problems occurs when the interest rates on a country’s debt rise. This indicates that investors are nervous about default and demand a premium to hold this debt. Of course, rising interest costs make the problems worse and put more pressure on the affected country.
Most countries that face rising interest costs on their debt will see the value of their currency decline. But, as a member of the European Monetary Union (EMU), Greece does not control its own currency (whose value of the euro by Germany and France). The United States has its own currency and its own monetary policy.
Not only does the U.S. have its own currency, its debt is denominated in dollars. Over the past three decades, many people have predicted that foreigners would stop buying our debt, or at least demand higher interest rates for the extra risk of currency devaluation. But this has not happened. Instead, when the world financial crisis exploded, investors flocked to US debt, driving rates down to very low levels. Repeatedly the market has disagreed with prognosticators of doom for the US.
Part of the reason for the strength of U.S. government debt is that our competitors are in worse shape than we are. If not the dollar, then what? The euro? The pound? The Chinese renminbi? (That would be difficult, because the Chinese restrict foreign investment.) Economic factors matter, and the size, stability, openness, and productivity of the US economy still make it the obvious currency of choice. The U.S. Gross Domestic Product (GDP) is 50 times as big as that of Greece, seven times the size of Great Britain’s, five times the size of Germany’s, and almost four times the size of Japan’s GDP.
The future of the U.S. economy must be assessed on its own merits, and the experience of Greece has little relevance to our situation. Greece is less like the U.S. than one of its 50 U.S. states. But U.S. states have more protection by being part of a long standing political union than Greece, which is loosely connected to the rest of Europe. When times are tough here, federal aid is very responsive to local business conditions, due to shared federal funding of unemployment compensation, Temporary Assistance to Needy Families, and Medicaid. In total, the federal government provides 20 percent of state and local budgets. In some states, total federal payments are 40 percent greater than the total federal taxes paid by the state’s residents. For Greece, aid is more modest and given grudgingly. Some Greeks are living, but it is much harder to start over in another country with another language than it is to move from one state to another.
While high deficits during economic downturns aren’t a major problem now, continuing high deficits are unsustainable in the long run. If Congress does not agree on some combination of spending cuts and revenue increases, deficits after the economy recovers will only fall to five to six percent of GDP rather than the two to three percent that is sustainable. This will have negative consequences on growth and will probably lead to a rising debt to GDP ratio and then larger deficits as interest payments on the debt grow. Ultimately, no country can continue to increase its debt faster than its ability to pay that debt and at some point credit markets will demand larger and larger premiums to lend that country money.
We are not Greece, but we could face unnecessary short and long term economic problems if our political leaders don’t come to sensible compromises.
Dr. Rose is a Research Professor at the Georgetown Center on Education and the Economy and an EconoSTATS Contributor. Dr. Dickens is University Distinguished Professor, Northeastern University .
Hint: It isnt as simple as saying a country "spent too much".
Im sure he was one of the people that argued Clinton was going to drive the economy into
the ground. Turned out to be dead wrong.
Last edited by Havakasha; 06-06-2012 at 08:30 PM.
It is time for governments to borrow more money
By Lawrence H. Summers, Published: June 4
Lawrence Summers, a former economic adviser to President Obama, was Treasury secretary in the Clinton administration. He writes a monthly column for The Post.
With the past week’s dismal jobs data in the United States, signs of increasing financial strain in Europe and discouraging news from China, the proposition that the global economy is returning to a path of healthy growth looks highly implausible.
It is more likely that negative feedback loops are again taking over as falling incomes lead to falling confidence, which leads to reduced spending and yet further declines in income. Financial strains hurt the real economy, especially in Europe, and reinforce existing strains. And export-dependent emerging markets suffer as the economies of the industrialized world weaken.
s on the budget battle: Collection of cartoons on the federal budget and economy.
The presumptive Republican nominee promises to reverse the growing national debt.
The question is not whether the current policy path is acceptable. The question is, what should be done? To come up with a viable solution, consider the remarkable level of interest rates in much of the industrialized world. The U.S. government can borrow in nominal terms at about 0.5 percent for five years, 1.5 percent for 10 years and 2.5 percent for 30 years. Rates are considerably lower in Germany and still lower in Japan.
Even more remarkable are the interest rates on inflation-protected bonds. In real terms, the world is prepared to pay the United States more than 100 basis points to store its money for five years and more than 50 basis points for 10 years. Maturities would have to reach more than 20 years before the interest rates on indexed bonds becomes positive. Again, real rates are even lower in Germany and Japan. Remarkably, the United Kingdom borrowed money last week for 50 years at a real rate of 4 basis points.
These low rates on even long maturities mean that markets are offering the opportunity to lock in low long-term borrowing costs. In the United States, for example, the government could commit to borrowing five-year money in five years at a nominal cost of about 2.5 percent and at a real cost very close to zero.
What does all this say about macroeconomic policy? Many in the United States and Europe are arguing for further quantitative easing to bring down longer-term interest rates. This may be appropriate, given that there is a much greater danger from policy inaction to current economic weakness than to overreacting.
However, one has to wonder how much investment businesses are unwilling to undertake at extraordinarily low interest rates that they would be willing to undertake with rates reduced by yet another 25 or 50 basis points. It is also worth querying the quality of projects that businesses judge unprofitable at a -60 basis point real interest rate but choose to undertake at a still more negative rate. There is also the question of whether extremely low, safe, real interest rates promote bubbles of various kinds.
The renewed emphasis on quantitative easing is also an oddity. The essential aim of such policies is to shorten the debt held by the public or issued by the consolidated public sector, comprising both the government and central bank. Any rational chief financial officer in the private sector would see this as a moment to extend debt maturities and lock in low rates — the opposite of what central banks are doing. In the U.S. Treasury, for example, discussions of debt-management policy have had this emphasis. But the Treasury does not alone control the maturity of debt when the central bank is active in all debt markets.
Keep on reading
Condradiction has nothing to do with my sense of humor. Be humorous..................
"Hint: It isnt as simple as saying a country "spent too much"."
Yeah, "it's complicated" LMFAO. (see post #7). Liberal nonsense.
Whats funny is how easily you fall into my simple traps.
Its as simple as you being confused by any complexity that deviates from a right wing talking point.
Do you really think i cant produce examples of large spending by countries resulting in economic growth?
Dont be stupid.
Remember that all out austerity in Europe has produced the wrong results. It was right wing nonsense as Paul Krugman predicted. He also correctly weighed in on President Obama's stimulus.
Remember the movement now is toward a more balanced approachof growth and austerity. First you grow the economy then you can make strategic cuts.
Last edited by Havakasha; 06-06-2012 at 08:51 PM.
January 6, 2009, 9:26 AM
Stimulus arithmetic (wonkish but important)
Bit by bit we’re getting information on the Obama stimulus plan, enough to start making back-of-the-envelope estimates of impact. The bottom line is this: we’re probably looking at a plan that will shave less than 2 percentage points off the average unemployment rate for the next two years, and possibly quite a lot less. This raises real concerns about whether the incoming administration is lowballing its plans in an attempt to get bipartisan consensus.
In the extended entry, a look at my calculations.
The starting point for this discussion is Okun’s Law, the relationship between changes in real GDP and changes in the unemployment rate. Estimates of the Okun’s Law coefficient range from 2 to 3. I’ll use 2, which is an optimistic estimate for current purposes: it says that you have to raise real GDP by 2 percent from what it would otherwise have been to reduce the unemployment rate 1 percentage point from what it would otherwise have been. Since GDP is roughly $15 trillion, this means that you have to raise GDP by $300 billion per year to reduce unemployment by 1 percentage point.
Now, what we’re hearing about the Obama plan is that it calls for $775 billion over two years, with $300 billion in tax cuts and the rest in spending. Call that $150 billion per year in tax cuts, $240 billion each year in spending.
How much do tax cuts and spending raise GDP? The widely cited estimates of Mark Zandi of Economy.com indicate a multiplier of around 1.5 for spending, with widely varying estimates for tax cuts. Payroll tax cuts, which make up about half the Obama proposal, are pretty good, with a multiplier of 1.29; business tax cuts, which make up the rest, are much less effective.
In particular, letting businesses get refunds on past taxes based on current losses, which is reportedly a key feature of the plan, looks an awful lot like a lump-sum transfer with no incentive effects.
Let’s be generous and assume that the overall multiplier on tax cuts is 1. Then the per-year effect of the plan on GDP is 150 x 1 + 240 x 1.5 = $510 billion. Since it takes $300 billion to reduce the unemployment rate by 1 percentage point, this is shaving 1.7 points off what unemployment would otherwise have been.
Finally, compare this with the economic outlook. “Full employment” clearly means an unemployment rate near 5 — the CBO says 5.2 for the NAIRU, which seems high to me. Unemployment is currently about 7 percent, and heading much higher; Obama himself says that absent stimulus it could go into double digits. Suppose that we’re looking at an economy that, absent stimulus, would have an average unemployment rate of 9 percent over the next two years; this plan would cut that to 7.3 percent, which would be a help but could easily be spun by critics as a failure.
And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.
I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”
Let’s hope I’ve got this wrong.
That's certainly "wonkish" LMFAO.
Krugman is an life long academic. Never worked a real day in his life. He wants to "save and control the galactic universe".
Austerity shouldn't even exist. In the death spiral of ever increasing debt from borrowing to pay, bankruptcy is the real solution. The lesson? Don't get yourself into that position in the first place.