Democrats & Liberals: Archives

Its a form of Russian Roulette. The country that sells off first gets to be targeted by BushCo. So they are all watching each other wondering whose nerve will break first. Once one does, the others will stampede. Its beautiful. Who wants to bet the Bush Family has already converted to Euros?

Two bits of news, first another Bush lines up at the trough of US slopping———Bush the Great and Glorious has an uncle here in St. Louis who recently sold off his stock in a little unknown (until the Iraq profit center opened) defense product manufacturer ESSI————just a paultry half million. They make body armour.
Next as was reported from many “underground” sources weeks ago our Glorious Leaders prime puppet in Iraq didn’t win the election but instead someone with close ties to Iran is the winner and soon to be leader of Iraq——-almost seems a waste —-Oh! except for those nice profits———-how silly of me.

AP,

Nice article. I don’t think there will be a “stampede” to sell the dollar off. If that were to happen it would affect the world economy and hurt everyone. That being said, I think most countries will be slowly selling of their U.S. investments over time. Especially as other investments begin to show promise. What this will do to we good ol’ Americans is raise interest rates. Afer all, to make us look like an attractive investment once countries begin selling off US holding most countries will require a better return on their T-Bill - a higher interest rate.

It ain’t rocket science. We are spending too much money. We are outspending any possible economic growth while fighting a war. No other president has fought a war and cut taxes. In fact, during a time of war most have asked us, as a country, to expect to make sacrifices here at home. Not this administration! “We can fight a war, give you your tax cuts, no sacrifices necessary”….and they are correct…no sacrifices for the here and now. No sacrifices from this administration or this generation. It’ll be the next administration’s problem, the next generation’s problem. “war on the credit card” … what a motto.

The notion that a devalued dollar will via higher interest rates make treasuries attractive is true only for a solvent nation. A nation carrying 7.6 Trillion in national debt and with legislation on the books and pending which will move that debt level to between 12 and 14 trillion in a decade or so, will not be able to raise interest rates high enough to float more debt. At that point, not even a fool would loan money to a beggar offering exorbident interest rate returns on the loan.

The real problem here is the Bush administrations inablilty to focus on the right problem. More spending is to come due to Bush’s plan to revamp Social Security. This complete overhaul is to be made on the basis of avoiding future spending: According to the Social Security Administration, by 2047, the amount that Social Security needs to pay out will be equal to about 0.7% of the GDP. Yet the Bush tax plan has cost the government up to 2.0% of the GDP. Wouldn’t it be easier to admit your current mistake than to try to solve an unrelated problem? Other governments will surely see these frantic bouts of spending as signs of panic, and begin to lose faith in the dollar.

The Bush administration needs to borrow about 2 billion dollars every day to keep the government afloat. What happens when foreign investors stop loaning us that kind of cash?

Several foreign central banks have already lost 10’s (and a few of them 100’s) of billions on their weakened dollar holdings. Of course they’re going to get rid of them. What are the consequences of central banks - even slowly - selling off US investments? Who’s buying? At what price?

And it doesn’t even have to have anything to do with economics. What if China wanted to send a message to Bush about Taiwan? They could take a loss on selling off half a trillion in US debt without blinking and not much care about the consequences.

But Tom, you’re probably right that the rest of the world wants the dollar to come down slowly. I’m sure Wall Street investors wanted the stock market to come down slowly in 1929, too. The point of the article is that the mere rumor of a central bank selling off dollars was enough to start a mini-panic that sank the dollar’s value by a couple percent and - as an unanticipated consequence - raised oil prices. What other unanticipated linkages are there?

And this report, along with the GAO’s condemnation I linked to in the article, doesn’t give me any confidence in the GOP Congress’ ability to pull Bush’s butt out of the fire,

The U.S. government’s financial record-keeping is so inadequate that congressional auditors said last week that they could not determine whether the federal books meet generally accepted accounting principles.

It was the eighth fiscal year in a row [hmm…] that the Government Accountability Office, the investigative arm of Congress, was unable to provide a definitive opinion on the quality of the federal government’s consolidated financial statements.

It seems to me that the consequences of the pathetic dollar go right along with Bush’s usual priorities. Who would benefit from a massive interest rate hike? Those people who make their money from holding bonds, the rich. Who loses? Those people who are buying houses, cars, etc, those who have credit card debt, in other words, the middle class. Those who have spent us out of the recession on money they don’t have are going to take a big hit. With skyrocketing interest rates, say goodbye to the fiction of an “ownership society” as housing values fall because people can’t afford to pay high interest on big mortgages.

The Euro is to the US Dollar as the US Dollar is to the Canadian Dollar.

Thankfully, “4 more years” is now only 3 years, 11 months. Will we make it?

Brian-

Skyrocketing interest rates?

15 year fixed is less than 5%, and the 30 fixed is only 5.25%.

Rates are actually down over the past year even with the continual 1/4 increases to the short terms.

I’m not saying that deficit spending is good, but the interest rate argument doesn’t really work.

George, Greenspan just tipped his hand in the last 48 hours indicating more concern now over inflation than in recent times past. That could easily translate into rising interest rates, if the fed moves from 1/4 point hikes to 1/2 point hikes in the latter part of this year.

CEO’s conference just indicated exuberance over profitability projections through this year and into the next, based in no small part on expanding markets in China, India and elsewhere. Increased global demand for credit will also have an effect on our own interest rates in an upward direction.

George-
Not to sound dumb or anything, this is an honest question, but isn’t deficit spending good, hypothetically speaking? I mean, Keynes’s whole idea of Capitalism was based on such a policy. Sorry for taking it off topic…

RCG-

Deficit spending causes the least political pain as compared to the alternatives (raising taxes, reducing spending, de-valuing currency). But in my mind cutting the scope of federal government, and thereby the spending, is the most advantagous to the economy.

David-

The problem is that history is against you and Mr. Greenspan (sorry for using an NRO over here in the blue, but it was the first chart that Googled):

Interest Rates v Spending

I was surprised this morning to see of all people, Thomas Friedman of the New York Times address this subject.

http://www.nytimes.com/2005/02/24/opinion/24friedman.html?hp

And, if I’m interpreting it right from his column, it seems Bush’s Wall Street backers have built in another 20 percent decline in the Dollar, before they expect it to stabilize, or…

China’s economic boom seems to have afforded them enough capitol to buy in and shore up the Dollar, patient enough also to still believe it will payoff. But, what patience is there in European investors with similar stakes? How good is the word of OPEC ministers? Are the neo-Cons actually contemplating an invasion of Iran under these dicey circumstances?

Knowing Wall Street to be as calm and unruffled as Scott McClellan at a gay bar (allegedly), why are they still casting their lot with the proven economic incompetence of George Bush?

George,

Don’t expect housing interest rates to sky-rocket immediately. Firstly, the housing industry seems to be what has been and continues to keep this soft economy afloat. a sudden skyrocket in home interest rates would send this country into a certain recession.

Even Greenspan expressed surprise that housing ineterest rates remain low. Regarding housing: it seems to me folks are willing to pay more for homes now than they would have earlier (before interest rates plummeted…on an inflation adjusted rate). What does this mean? Lower interest rates mean most folks can now afford to pay more for a home (on a monthly payment basis…cash flow, if you will). I, personally, think most folks…although they can definately afford the payment….are overpaying for their homes. Does “bubble” ring a bell?

A housing bubble whould send us into a recession. A long and hard one, at that. I hope I’m wrong here, but I foresee a different kind of bubble; Or maybe a rapidly decreasing rate of growth in housing cost. Either way; the economy (at present)depends heavily on the housing market. If home interest rates rise quickly the growth will stop. If home values decline instead of increase, people will find themselved “upside down” with their homes…much like driving a new car off the dealer lot.

Japan ran into a similar “real-estate” problem about 15 years ago…their economy still hasn’t recovered.

Excellent article and topic once again, American Pundit.

I, for one, am not a sunshine Patriot……

Free trade theories? Fallacious and pushed by overeducated idiots, media elitist idiots, and whoring politicos for too long. (all of whom never wanted “to work” like their grandparents or parents did who built and passed on the legacy of this wonderful country)

Get it yet, as to who was buying up all your mortgages so they could be at such a low percentage rate?!! What you are seeing is the result of all the NY-based paper professionals and funny money crowd, and political whores who have been selling you out (along with intellectuals out of touch phony false theories) They have been gutting this country, selling off our companies and assets, and moving their huge piles of funny moneys across the seas, selling your American govt. treasuries to Asian central banks(even funding your own demise with so-called American corps. in China, IT jobs to India, all those foreign student visas with ties on them etc.) Get it as to the costs of war by delusional empire builders in contrast to using aternative military optionsand alternative energy resources/technologies? And, they face no penalties for what they have been doing. Realized yet what the elitists and funny money boys were doing to you all along…
and what it is termed?

Strongly think that Americans had best start slicing, slicing, slicing salaries and govt. costs including govt. employee benefs and salaries.
(am not for putting people out of work).
Must demand means-testing for Medicare and Soc. Sec. Must demand 20 year citizens on down for govt. benefits usage. etc.

Strongly think the ultra greedy corp types & whoring politicos need to be mocked and scorned. At least the types who are causing should have to face some penalties. We cannot just sit by and watch all that is occurring to ruin this country. Think squads of citizens must start acting to turn the ship around. Creatively mocking and scorning.(Boston Tea Party comes to mind—across the country and as needed)

Go retro if we must. Must quit buying foreign made goods, esp. from China. Will also benefit the kids to get them off all the junk.

______________________
Added notation:
To my thinking: just half of that several hundred million piggos campaign spending by Republocrats would have maintained factories and many jobs here.
$100M spent in OH alone on the campaign given to too numberous media and consultants piggos at the troughs. Ohio is losing jobs, closing schools, and people are standing in food lines… to this date.

George, interest rates haven’t gone up because China and Japan are still willing to loan the US govt the two billion dollars it needs every single day to stay afloat.

Bert, that’s a really good Friedman article. I like how he points out the connection between our growing demand for foreign oil, the fragile US economy, and our retirement savings.

Friedman notes, “When a country lives on borrowed time, borrowed money and borrowed energy, it is just begging the markets to discipline it in their own way at their own time.”

Another good editorial put it this way, “If Mr. Bush were half the capitalist he claims he is, he would listen to what the markets are telling him.”

The budget deficit is bad, but it is not the root cause of the dollar’s decline. You will recall that during the middle Reagan years, when the deficit was a higher percentage of GNP, the dollar was unnaturally strong, and the problem then was how to bring it down.

The root problem is that Americans consume more than they produce. Some of this is not as bad as it sounds. The U.S. economy grows faster than those of most developed countries. The differential growth rates tend to pull in imports and investments. But the long-term trend is not good. Even the U.S. cannot consistently consume more than it makes. What to do about it?

Some people in this blog imply that you could just tax the rich. They forget that the rich already pay most of the taxes and that they are rich. Being rich means you are not living near the ends of your means. If you double the taxes Bill Gates pays, you are unlikely to make him tighten his belt. His consumption will not change. This goes for most of the rich guys you are after. Raising taxes mighteven have the perverse affect of increasing U.S. consumption, since the better-funded government will be tempted to expand programs.

We can solve this problem only by consuming less or producing more and it is something that all Americans will feel. We are all in the same boat.

What can the president do? He has to restructure the Federal government. Just raising or lowering taxes is like rearranging the deck chairs on the Titanic. Most Federal outlays are currently beyond the president’s control. Less than 40% of the budget is discretionary. A generation ago it was almost 70%. The rest are entitlements and this part is growing. The only way to make progress is to address entitlements, and that is what President Bush is proposing.

One additional note: I don’t share the dire prediction for the U.S., but the U.S. has done amazingly well in recent years. It would be natural for others to begin to catch up and prudence dictates that everyone should own some international investments for balance. Somebody asked how to do this. It is really simple. Just by foreign stocks (through ADRs). The U.S. market is a little expensive these days and diversification is always a good thing. In the last couple of years, international stocks have done about 25% better than the S&P. They should probably make up about a third of your portfolio. There are plenty of familiar names, but you should probably look to commodities producers. The demand from China and India has be enormous.

AP-

Your comment again makes the classic macro economic miscalculation that the government borrows to spend. It’s more like the government spends then borrows (by issuing T-Bills). That’s why it is still one of the most secured investments out there.

Again, I’m not a proponent of deficit spending, although I do recognize that it has short-term benefits when there is a lack of demand in the economy. That certainly was the case in 2002-2004, but now the deficit should be curbed. And the best way to curb it is to cut the scope and spending of the government.

But my main point is that the use of fear from skyrocketing interest rates as a political tool does not work. Here’s a campaign note from last year from a California Democrat (he didn’t win FYI):

The only way the federal government can cover growing expenses with shrinking federal revenues is by printing more money and that directly causes inflation. And, fasten your safety belt folks, because inflation is set to explode after the November election. Higher inflation rates are cruelest kind of hidden tax, the kind Mr. Cox likes. He gets to claim legislative victories. However, what his tax cuts give, tax bracket creep caused by inflation takes away. He’s really given you nothing at all.

Moreover, the only tool the government has against inflation is higher interest rates, and those are growing now. But, wait until November. Higher interest rates are already killing the housing market, will drive up your credit card payments, mortgage payments, tuition payments, and they will substantially slow economic expansion.

It’s almost like the Democrats are becoming the balanced budget Republicans of the early 90’s, purely as a part of their “opposition party” strategy.

Jack, the pitiful savings rate in this country is one part of the problem. The other two pieces are the budget deficit and the current account deficit.

High oil prices are the cause of a big chunk of our trade deficit. You’ll recall that deficit actually shrunk a little until oil prices shot up.

And the budget deficit can be solved by getting serious about balancing the budget. Roll back tax cuts for the top 2%. Forget about partial privatization which will add trillions to the deficit and do nothing to strengthen Social Security - and Greenspan confirmed that it won’t even add to national savings. Change the overpriced prescription drug benefit to allow the government to negotiate prices. Reinstate the pay-go rule. Democrats introduced a really good plan for reducing the deficit, you should tell your Congresspersons to support Senate bill S.19.

As a bonus, reducing the deficit also solves your pet concern. It boosts savings rates.

There are lots of things the ruling Republican Party could do to address our economic weaknesses. Unfortunately,

“You cannot manufacture a consensus for statutory controls when the consensus for budget discipline is not strong enough,” said Representative Jim Nussle, Republican of Iowa and chairman of the House Budget Committee. “I do not believe, unfortunately, there is a broad enough consensus necessary to enact budget controls into law.”

You can’t make excuses, Jack. Congress and the President have it within their power to balance the budget, shrink the account deficit, and build up national savings. They’re not doing it.

And it was me looking to cash in on the fact that Bush & Co. are intent on running the dollar into the ground. Thanks for the tip. ;)

It’s more like the government spends then borrows

George, how is that better?

But my main point is that the use of fear from skyrocketing interest rates as a political tool does not work.

Maybe, but that doesn’t make the imminent risk of skyrocketing intrest rates go away.

It’s almost like the Democrats are becoming the balanced budget Republicans of the early 90’s, purely as a part of their “opposition party” strategy.

It’s not your imagination. The Democrats have been the balanced budget party since the 90’s when Clinton proved the linkage between a balanced budget and a healthy economy.

AP-

It’s like unsecured debt verses secured debt; the T-Bill is secured against the economic impact of the spending in the economy.

Look at it this way: What if the government gave you $100 (spending), then issued a T-Bill (deficit financing), and you took your $100 and bought a T-Bill? What is the impact of the deficit spending? None, as long as you have no reasonable expectation of calling your T-Bill. And if they did pay you it would only be wealth re-distribution which you Democrats love anyway….

George - Except that, using your analogy, some salaryman in Japan bought the T-bill, and he wants his investment back - with interest. And he wants it right now, because its value is steadily declining.

We only like redistributing wealth among Americans. Selfish and perhaps xenophobic, I know, but what can I say…

AP-

Your doomsday scenario relies on there being no buyers for T-Bills if the Asians decide to dump them; the U.S. could not roll the debt over into new treasuries. But there are always many new buyers available for T-Bills as it is one of the safest investments on the planet. And everyone needs a good safe investment (I know I do).

So does the fact that the Asians own about 40% of our debt today really mean anything?

George,

Foreign investment has fueled growth in the US for many years (yes, even during the Clinton years). There was a time…not so long ago that most (if not nearly all) of our publicly held debt stayed in house (in the U.S.). That wasn’t necessarily good or bad. However, as the economy expanded and for us to continue our consumption rate and growth rates we needed new buyers for our debt….in come foreign companies, countries, and individuals.

I’m not saying it is bad or good. It has been a necessary evil to continue our economic growth, governments spending, and consumption over the last twenty plus years.

Times are different now, though. We have terrorism and an extreme hate for us by these terrorist…most of whom are well financed. How many of them are holding some of our T-bills? How much of the privately held part of our public debt is foreign? It’s estimated that nearly 50%. Say what you will about terrorist…I Know we all hate their methods…but they can be very clever if not downright ingenious in their destruction. If they can find a way to use our own hunger for foreign investment to sink our economy….they will. Are we close to that? I’m not sure any of us know for sure.

AP

Just for you (and the hundreds of others who read this) Companhia Vale do Rio Dolce (RIO). Unfortunatly, it was better to buy it six months ago.

The President and Congress have less power over the twin deficits than we like to think. Without addressing entitlements, no amount of tax raising will balance the budget in the long term. We should credit George Bush with raising the issue.

Drug benefits are literally a bottomless pit, as people will demand more and more expensive types of drugs to cure maladies previously tolerated or fatal. You can try to control the prices, but the system is dynamic. Prices are cheaper in Canada and other countries because they are essentially free riders in the U.S. market. Firms recover their R&D in the American market and can offer drugs overseas at cheaper rates. It is the same thing that happens with television series and movies. We probably should be more aggressive in equalizing prices, which would mean price rises in Canada and slight drops (more likely less price growth) in the U.S., but as long as we produce sick people, or people who think they are sick, or people who want to have it all, we will not solve this problem.

Think of Viagra and related drugs. Old guys (probably to their old lady?s approval) were unable to do some things younger guys do effortlessly. That used to be just the way it was. Now we have a whole new spectrum of drugs to keep gramps in the saddle longer, when he would be better off fishing and not frightening the grandchildren.

The trade deficit will be self-adjusting and it will hurt, but I don?t see that we will do anything about it until it hits us. We are like the old guy with his Viagra. We don?t know when to stop.

Tom-

Thanks for the reply. Your necessary evil comment goes to what I was trying to convey to AP by stating that we spend first and borrow last. When we issue the T-Bills we issue them without regard to who will buy them. Therefore, the necessary evil isn’t so much the foreign ownership as it is the use of a debt instrument.

And I think total foreign investment in T-Bill is about 37-40% right now (could be wrong…) If the Asians dump them then, as long as our stock market is doing reasonably well, I would think the new buyers would also come from foreign sources.

But I still keep a few on hand….

Your doomsday scenario relies on there being no buyers for T-Bills…

Exactly.

George, I admire your optimism, but your assurance that there will always be buyers seems a little too optimistic.

Therefore, the necessary evil isn’t so much the foreign ownership as it is the use of a debt instrument.

You’re absolutely right. The big problem is that the federal government needs to borrow about two billion dollars every single day to stay afloat. The fact that 42% of it (I saw that figure the other day) comes from countries that have some problem or another with our foreign policy is just the doomsday flavored icing on the cake.

Seriously, if Clinton had passed a 3/4 trillion dollar Medicare bill and was proposing a 2 trillion dollar change to Social Security that doesn’t address the program’s solvency issues and doesn’t even increase national savings AND OH BY THE WAY that’s on top of a half trillion dollar addition to the national debt every single year with no end in sight, you guys would be going ballistic. How is it that Bush gets a pass? Why do you guys - especially you, Jack - keep making excuses for it?

Jack, you say the rising cost of entitlements is a problem. I’ll even agree to a certain extent. But to say we should give Bush credit for raising the issue is ridiculous. Bush passed a 3/4 trillion increase in Medicare entitlements, and the only proposal he’s made for addressing Social Security is a two trillion dollar scam that doesn’t address the program’s solvency and doesn’t even increase national savings.

I’m sure you believe seriously addressing entitlements is the thing to do, but the Republican leadership obviously does not.

…Unless you subscribe to the crazy liberal theory that Bush’s Medicare and Social Security plans are really a sneaky way to undermine and eventually completely eliminate those programs.

AP

President Bush zagged left with the prescription drug bill. I guess he thought he would make some liberals happy and maybe he thought it would really be a good thing. I don’t know. He was wrong on that it would satisfy liberals and wrong to do it in general.

I am not if favor of a deficit. The question is how to close it. I don’t think higher taxes are the answer. I read that the Bush tax cuts are responsible for about a third of the increased deficit. Some of the rest of the shortfall came from lower revenue caused by the economic downturn that started in March 2000 and didn’t end until 2003. This will be self-correcting. But structurally, we have serious problems.

We need to cut the budget. Right now about 60% of the budget is off limit entitlements and this percentage is growing rabidly (yes that is the word I want). The Federal government is fast becoming a big clearinghouse for transfer payments from the young or vigorous to the old or infirm. Unless we get at that problem, nothing else will matter. What are some of the budget busters?

The leisure class – old people. I am a member of the baby boom generation. When I retire I can probably live off the fat of the land and shuffle off this mortal coil before the system collapses. But it certainly is not right to do so. If I am healthy in my old age, why should my children support me in ten or twenty years of leisure?

Modern medicine can do wonderful things. It can also keep people alive whose time has come. We spend more on people in their last years of life than we do for all the years leading up to them. This is silly.

Why hang around like a fart in a phone booth? Liberals tout the benefits of Euro medicine and national health care. One of the reason they work (and a good thing in some cases) is that they ration treatment.

It is not like if you avoid dying this year, you will live forever. Our attitudes toward life, death and health were developed in an earlier age, before we had the power to do much else. We have taken many things out of the hands of God (or nature if you like) but we still haven’t come to terms with our new found power. In a very real sense, our budget problem is merely a symptom of an ethical dilemma we are hoping to avoid, but cannot.

Jack, that’s all I’m saying. The Bush administration and the current GOP leadership don’t share your concern over reining in entitlements and cutting the deficit: “Reagan proved that deficits don’t matter,” as Cheney put it.