Good News on the Inside Pages

“WASHINGTON - Faced with a shrinking deficit, the Treasury Department will stop issuing three-year notes after next week’s refunding auction, the government announced Wednesday.” This is buried on the internal pages of the WSJ and I don’t suppose you heard it anywhere else. Note the phrase, “shrinking deficit.”

The Federal government has been enjoying record breaking revenues. If we just can keep from increasing spending, we will be in surplus in a couple of years. Of course, our problem is entitlements. We have seen this entitlement crisis coming since the 1960s, but we not had the political will to do much about it. George Bush had the courage to touch this third rail of American politics, but the Democrats very effectively shut down his proposals to address the problem. We will pay more later.

I am screaming into the wilderness, but I want to set down a marker on another piece of good news. There is more. The jobless rate is dropping. The Dow is reaching new records. Home ownership and household net worth are near all time highs. Life is good for most Americans. You would not know this if you read the headlines in most papers. If you are like most Americans, you have a decent job, live in your own home and enjoy a fairly comfortable life, but you would have to look at the inside pages to find out that most people are doing as well as you are. The major media will convince you that we are experiencing a depression.

If a Democrat wins the White House in 2008, we will begin reading the good news on the front pages again. Pundits will praise the shrinking deficit as though the trend started in January 2009 and they will think that an unemployment rate of around 4.5% is just great. If a Democrat was in the White House, we would all know about the great economy. For now we just have to live with it.

Is there anybody reading this who is REALLY looking for a job and cannot find one?

Posted by Jack at May 2, 2007 10:27 PM
Comments
Comment #219154

Jack, could not agree more. It is so hard to explain to those on the fence that no news is good news. If the media is not reporting on how bad the economy is … then it is doing well. If the media neglects discussing unemployment … then most are working.

I like today’s summary on visability from Pew Research. I think it demonstrates your point very clearly.

I would ask anyone to explain why their visability (Clinton/Obama) is so much higher?

It is like the visability of the the rare things the current administration succeeds in. They’re never visable.

http://people-press.org/reports/display.php3?ReportID=324

Posted by: Honest at May 2, 2007 10:46 PM
Comment #219157

Jack, too bad you could not fess up to the shrinking GDP growth in the same breath, which of course, will also shrink revenues countering the current reduction in deficits.

You continue to try to rely on snapshots for good news, without looking at how such news fits into the big economic picture. In that context, the shrinking deficit is but a blip on a trend toward 14 Trillion dollar national debt levels. Not to mention the ever increasing 3/4 of a trillion trade deficit.

China is funding our war in Iraq. Think about that, long, and deeply. It is pregnant with unintended consequences.

Posted by: David R. Remer at May 2, 2007 10:54 PM
Comment #219158

Oh yes, an tout the record levels in the Dow Industrials at your own credibility’s peril. The same observation was made at the end of Clinton’s presidency. It took six years to recover those levels in the stock market after the following recession.

Such record highs are always followed by drops. And it is very telling that the Dow rose on the back of international earnings, not domestic, as Haliburton moves to Dubai. Investors are in for a troubled time as our economy slows, because the Dow will reflect international performance while domestic earnings pale.

The Dow Industrials won’t do much good for 401K investors with investments spread amongst bonds, small caps, mid-caps, and the S&P which won’t be able to compete with the DOW, full of domestic companies whose earnings will drop with domestic consumption and contraction of the our GDP growth.

Posted by: David R. Remer at May 2, 2007 11:01 PM
Comment #219159

Jack, Honest….might want to consider that it’s because the majority of people are SICK of the Rights/Reps ! It’s time for something good this way coming… ;)

Posted by: Sandra Davidson at May 2, 2007 11:03 PM
Comment #219160

David

Revenues are at all time highs. The GDP growth is slowed, but still is increasing. If you look at the snapshot, it is not as good. If you look at the longer trend, it is not bad. Revenues have been surging for a couple of years now.

Entitlements are the problem and that is what we will not address.

The Treasury is refunding with long term debt. If the Chinese are willing to lend money at today’s rates for the long term, they must have fair confidence in our future.

You know that what we have now would be called good news if a Dem was in the White House. I figure that the deficit will be dropping still in 2009 and I do not want the Dems to take the credit.

Posted by: Jack at May 2, 2007 11:04 PM
Comment #219163

Jack, Congress controls the spending and taxation. Interesting that 3 months after Democrats are take the majority of Congress, lo and behold, the deficit begins to shrink, after 6 years of spiraling national debt at the hands of Republicans.

And you can’t give Bush credit. He never met a spending bill he didn’t like, until it meddled in his war in Iraq.

Posted by: David R. Remer at May 2, 2007 11:16 PM
Comment #219166

Oh, yes, and let us not forget the biggest entitlement spending program in decades was designed and launched by Republicans - the Medicare Rx plan. Donut holes and no competitive pricing all rolled into one.

Thank god Sen. Snowe (R) and others have crossed over with Democrats to legislate importing drugs for consumers from 30 other nations with equal or HIGHER standards than our own, to put some competition back into Big Pharma’s monopolistic pricing and gouging of American consumers.

Took a Democratic Congress to give sensible and moderate Republicans an opportunity to be sensible. So much for free market Republicans. Democrats are more free market than this batch of Republicans have ever been regarding Rx pricing and costs.

Posted by: David R. Remer at May 2, 2007 11:23 PM
Comment #219167

David

Re stocks - they go up and down. I just got this month’s 401K report. If you invested entirely in S&P 500 last year, you made 15.23%. Not too bad.

You know that S&P began to drop in March 2000 (about a year before Bush took office, BTW) and you would have lost money for the next two years if you bought in March 2000. But nobody does. YOu buy stocks over time. You might have bought some stocks in March 2000, but you bought many more when the market was lower and you bought some in 2001 & 2002.

Over any reasonble amount of time if you compare a stock portfolio to a to a government bond portfolio (which never loses money). The stocks beat the crap out of a safe portfolio for anyone except the most unlucky people in the world.

If you were buying stocks regularly during the last ten years, you made 8.37% a year. That includes the Clinton crash. It is not bad.

Sandra

People might be sick of the Republicans, but it should not be because of the economy. It does not get very much better.

Posted by: Jack at May 2, 2007 11:25 PM
Comment #219169

David

Revenues have been surging for three years. I promised not to blame the Dems for the economy for at least a year, but you certainly cannot credit them with anything yet.

It is exactly that kind of thinking that made me want to write this. I am certain that if a Dem wins the White House, they will get expost-facto credit for this good economy - just like Bush got ex post facto blame for an economy that began to decline a year before he took office.

Posted by: Jack at May 2, 2007 11:30 PM
Comment #219172

Jack, you presume this ‘good economy’ will survive until the Nov ‘08 elections. Only for those invested overseas, Jack. Not for the rest of Americans. There are some damned good reasons Bernanke is sitting on the fence between tightening to fight inflation and loosening to expand the slowing economic growth.

He and the Fed are facing a potential staglation scenario, and they want clear evidence and incentive to tip that scale. There will be negative consequences whichever way they tip it, but, they would like to know they are tipping it in the direction of lesser negative consequences, not greater. Hence the fence sitting for the time being.

For public consumption the Fed removes annoying things like energy costs from their inflationary numbers. But, in reality, behind closed doors, energy prices cannot be ignored in terms of their economic impact, especially in this time when their rise is going to be endured for decades to come.

Like I said, this deficit reduction is a blip, not a trend. You admit this yourself when you mention entitlement spending and the lack of political consensus to address the problem. Republicans halted new spending bills immediately after the November elections. That partially accounts for the reduction. Revenues from the upper half of the median income group have been another contributing factor. And lastly, the negative savings rate phenomenon also contributed to deficit reduction by virtue of increased economic activity from excess consumption (hence the negative savings rate), but it is not sustainable as long as a negative savings rate is intact.

The negative savings rate means American consumers are spending more than they are earning. Hence, not a sustainable trend.

The reason you had dig deep into the WSJ to find this tidbit of good news is precisely for the reasons I have stated. It is not Headline News given the big picture, Jack. Your article appears to try to give it headline status which the WSJ already decided it wasn’t.

Posted by: David R. Remer at May 2, 2007 11:49 PM
Comment #219176

David

If it doesn’t, maybe we can blame the Dems

Entitlements is a different problem. It is not a general economic problem. It is more demographic and much more political.

Re surging revenue - isn’t it a good thing if the rich and upper income earners pay more in taxes? You know the the lower end of the income distribution pays almost nothing in Federal taxes anyway, so that is where the money comes from.

The negative savings rate is a problem, but some of it is an artifact of the measurment. I make decent money and I do not consume very much, but I have a negative savings rate because I spend a lot of my money on my forestry ventures. Each year those trees are adding around 12% to their value and they will add to the GDP. But investments do not count as savings. If I put the money in the bank and earned 3% interest, they would call it savings.

Beyond that, if you have the stocks we were talking about above and they sell at a profit and then spend the money, they have a negative savings rate.

Posted by: Jack at May 3, 2007 12:01 AM
Comment #219179

Jack-
I will congratulate Bush and the Republicans on their reductions when our deficits no longer take twelve digits to write out. then I will congratulate them when they finally manage to balance a budget. Then I will congratulate them if they manage a surplus.

Tell me, what’s the likelihood of seeing an eleven digit deficit before the end of the Bush administration?

Posted by: Stephen Daugherty at May 3, 2007 12:10 AM
Comment #219180

Jack said: “Entitlements is a different problem. It is not a general economic problem.”

That’s a bit of a stretch, considering the devastating economic consequences of both trying to meet those obligations or not meeting them.

If we meet them, the national debt potentially skyrockets making devaluing the U.S. Dollar, raising interest rates horrendously, and the opportunity costs for things like R&D investments and incentives are huge.

If we fail to meet them, as many as 2 out of 10 consumers in the height of the boomers retirement period cease to be consumers. The economic consequence of that is a deep recession at the very least.

Yes, Jack, it is a good thing if the wealthier pay more taxes which reduces our deficits. But, you know, we can reduce our deficits by half for infinity and still grow our national debt infinitely.

Posted by: David R. Remer at May 3, 2007 12:10 AM
Comment #219182

Negative savings rate means increasing personal debt. That has direct implications on the consumer’s capacity to bail the economy out of the next recession, and there will be one; it’s built into the cyclical nature of social economics, lack of financial discipline, over exuberant expectation trends, and compensating gloomy sentiment trends.

Posted by: David R. Remer at May 3, 2007 12:16 AM
Comment #219197

David

The debt as % of GDP is what counts. The current one is manageable. We DO need to cut spending. I am not saying there are not troubles, but rather that life is generally good at this time.

The same goes for debt at % of personal wealth. I have not figured out the latest figures, but household net worth is hovering around record high levels.

The entitlement crisis is a different animal. It is certainly not a Bush creation. The seeds of this problem were sown in 1935 and fertilized in the 1960 and - as you correctly point out - by the prescription benefit. Do you advocate doing away with that?

The problem is demographic. We used to have lots of payers and not many recipients. We have fewer workers and more collectors. The math is simple. The politics is hard. Bush tried to address the problem. The Democrats would not let him do it. I do not think we will address this problem until it gets a lot worse. As the Bush experience shows, the politics is just too hot to handle to address a problem that is about a decade out.

Re devaluing the dollar, this has been the solution government debt problems in the past. The U.S. is lucky because its international debt is denominated in its own currency.

The situation we currently have is a good economy now (and since 2003) with significant risk in the medium term future because of the entitlements time bomb. It does not good to pretend it is either better or worse. The implication that the economy is bad today helps Dems avoid focusing on the entitlement crisis to come. They did that in 2005. It will cost us.

Posted by: Jack at May 3, 2007 6:37 AM
Comment #219199

Jack said: “The debt as % of GDP is what counts.”

No, Jack, you are listening to Republican spin artists and not the economicians in the know, like Greenspan and Bernanke. The debt, as in ability to honor it and its interest payments, is what counts down the road we are traveling on. % of GDP does not even factor in.

You are saying debt as a percentage of assets is what counts. What if your assets cannot be converted from collateral into cash or bullion for repayment. In a depression or deep recession, assets of a nation cannot be converted to pay off foreign creditors. They don’t want our streets, bridges, and building infrastructure, they want their interest payments and to be able to sell their notes.

Bernanke and Greenspan know what they are talking about. % of GDP is a an OK measure of current debt level relative to past debt levels. But, it does not take into account whatsoever, the cash flow needed to cover the principal and interest on that debt, nor the premium in the form of escalating interest rates if debt holders have trouble finding buyers of their U.S. held notes. Especially foreign debt holders, of which 45% of our current debt is now owed to.

The entitlement crisis threatens our cash flow position to meet the then, 11 to 14 trillion dollar, national debt when boomers are retiring en masse. The boomers either receive benefits and the U.S. gov’t. becomes so cash strapped it has to pull a Brazil and print inflating money to try to cover the debt payments in a declining vicious cycle, or, retirees don’t receive their benefits and they stop supporting the economy and tax revenues as consumers, which also cash straps the government to meet its obligations.

And don’t look to immigration for a bail out. That dog don’t hunt. It just breeds and extends the problem further in time in a perpetual race to overpopulate the nation destroying quality of life for most, if not all.

Posted by: David R. Remer at May 3, 2007 6:57 AM
Comment #219201

Jack, the prescription drug entitlement is Bush’s and the GOP’s responsibility. Biggest new entitlement spending program since The New Deal. And put into place in defiance of the known looming entitlement crisis. It was the domestic policy equivalent of the Iraq debacle and quagmire.

Anyone with a lick of economic sense should know we needed to tackle spiraling health care inflation first, then considered a Rx drug entitlement program. But Bush and the GOP got it all bass ackwards. Now that Republicans have added 3 trillion to our national debt in 6 years, a few sensible Republicans are joining Democrats to tackle the health care inflation like Sen. Snowe’s proposal. She spoke yesterday of opening Rx drug imports from 30 other nations with equal or better production standards as our own, at savings of up to 100 billion for consumers and the Medicare program.

She said the competition that would force upon our American drug companies would be a very healthy think to occur. I agree entirely, and so do Democrats.

Posted by: David R. Remer at May 3, 2007 7:08 AM
Comment #219207

Jack,

I agree with you completely about the Press ignoring great economic news.
Wgen Clinton reached 10,000 in the market, we nearly had an econmic orgasm from the Press. Bush has taken the markets to over 13,000 nearly 13,500, and it is characterized as just a “psychological milestone”. I didn’t know there was so much money in psychology! That has been accomplished with even the annihilation of the WTC and its 2001 economic setback. Do you think Bush will reach the 15,000 “psychological milestone” before he leaves office?

JD

Posted by: JD at May 3, 2007 11:31 AM
Comment #219210
You know that S&P began to drop in March 2000 (about a year before Bush took office, BTW)

That’s one way to say it. Another is that the S&P began to drop in March 2000 (about the time Bush took the lead in the polls and just before he started talking down the economy).

Posted by: Schwamp at May 3, 2007 11:48 AM
Comment #219220

The thing that gets me about the economy is that if ya ask someone how they feel about the economy they’ll tell ya that they’re doing OK. But then tell ya in the same breath that most folks aren’t doing very well and the economy is generally in bad shape.
It also depends on if the person your talking to is of the same party that has Congress and the White House or not.
Right now I’d say that the economy is fair. It could be a lot better. But it also could be a whole heap worse. And at the rate things are going it’s going to get worse.
The deficit might be shrinking right now. But how much are we borrowing to make it shrink?
And unless something is done fast about the rising national debt this will be very short lived. And unless we get entitlement spending under control deficit spending is on the very near horizon.
Then there’s the spending on the war. Does anyone really know how much has been spent so far? And does anyone know how much more is gonna to be spent before it’s over? And you can bet your last dollar (and it just might cost ya that), we’re borrowing every cent of it. It’s gotta be paid back sometime. Hello deficit spending.
The economy might be OK for now. But unless our politicians start addressing the real problems facing this country we’re headed for a depression that will make the one in the 1930s look like a major boom. And it will come regardless of who gets elected to what office.
We can’t keep borrowing forever to keep deficit spending under control. It’s gonna jump up and bite us in the ass sometime. And that time is whole heap closer than either major party wants to admit.

Posted by: Ron Brown at May 3, 2007 1:14 PM
Comment #219241

Jack said,
“This is buried on the internal pages of the WSJ and I don’t suppose you heard it anywhere else. Note the phrase, ‘shrinking deficit.’ “

Actually I heard the news on All Things Considered last night on the way home from work and it’s welcome news deficits are going down. They also noted it may be temporary as many experts see ballooning deficits right around the corner. When spreads between 30-year notes/bonds and short-term bonds lengthen again and deficits grow it will be back, probably in a few years.

Posted by: chris2x at May 3, 2007 3:35 PM
Comment #219242

I heard a piece on on NPR’s Marketplace the other day that included what the spending to date on the Iraq war could have bought. 500 billion dollars could have bought a projected additional 75 years of solvency for Social Security.

Also, we should be wise enough not to give too much credit to party, legislators, or the president for the state of the economy. Let’s not fall into the trap of assigning too much credit or blame to government here. However, 500 billion dollars in four years can’t help but have an effect down the road even if it wasn’t China underwriting our house.

Posted by: chris2x at May 3, 2007 3:46 PM
Comment #219255

Yeah, Jack, but, as Paul Krugman points out again in a recent opinion piece, almost everyone (i.e., everyone not in the uppermost quintile of income) continues to lose ground in their income, even as the unprecedented profit levels are distributed to primarily the wealthy owners of large amounts of stock. These profits, partly a result of the continued lowering of real wages, are being reinvested into profit-making infrastructure at lower than historical rates. This trend cannot be sustained and it has already bred the dissatisfaction with the economy that you frustrates you in the face of these numerical indicators that someone, somewhere is making a lot of money. I know you don’t think this is a problem, but about this I believe you are wrong.

Posted by: mental wimp at May 3, 2007 5:52 PM
Comment #219258

Jack - I got three words for you: BUDGET DEFICIT. (The third one is unpublishable.) Come on, you know fine well that an unsustainable budget deficit outweighs the economic positives we’re seeing. I mean, $13 out of every $100 we pay in tax is going to pay interest on the national debt!

Expecting the stock market to solve all our problems is essentially a return to Reagan’s Voodoo Economics. Trickle down doesn’t work. As for home ownership - values are dropping, foreclosures are at record highs…

Accusing us Dems of failing to put all these ‘positives’ on the front pages is because we’re not looking at the economy with Republican-Red-Rose tinted spectacles.

Posted by: Jon Rice at May 3, 2007 6:15 PM
Comment #219275

David:

Negative savings rate means increasing personal debt.

This isn’t a true statement. The US Savings rate is an abstract calculation that means little. For instance every retired person living off investments has a negative savings rate.

Craig

Posted by: Craig Holmes at May 3, 2007 10:08 PM
Comment #219276

Mental Wimp:

I think you are absolutely correct. The economy is doing very well. Corporate America has seldom been in better shape. They invested well overseas and are reaping in profits.

Productivity growth has been amazing in this recovery. That has kept unit labor costs down. What is currently happening is that productivity gains have turned to lackluster, which should increase demand for labor increasing wages.

Usually imbalances correct themselves. Since this is a more global economy I am not quite sure how this imbalance will turn. There are just too many world wide customers and too much money to make.

Jack is correct that the budget deficit going down is a good thing. It’s amazing that this could be challenged.

craig

Posted by: Craig Holmes at May 3, 2007 10:19 PM
Comment #219288

Jack
Lets see,from a surplus to a “shrinking deficit” In only 6 years. Yes its a good thing.Sort of like if your 5 year old finally stops crapping their pants. Its good but nothing to brag to the nieghbors about.

Posted by: BillS at May 3, 2007 11:36 PM
Comment #219305

Craig said: “Corporate America has seldom been in better shape.”

What a typically conservative blinders on statement. The economy is far broader and deeper than the stock market, Craig. And the profitability pushing the Dow up at this time is primarily due to overseas earnings and profits, not dramatic domestic increased performance. Our economy is slowing, I am sure you know that, but, it was kind of hard to tell from your comment above.

Posted by: David R. Remer at May 4, 2007 9:02 AM
Comment #219306

Craig, Bernanke said negative savings rate means America is spending more than it is earning in aggregate. I will take his expertise over yours ANY DAY. BTW, Greenspan defined it the same way. What school did you get your economics degree at? Must not have been the same as theirs.

I offer the following for your education’s benefit from Bankrate Inc.

Negative Savings Rate… - U.S. Commerce Department’s Bureau of Economic Analysis dished out some discouraging news recently, saying that Americans spent more than they earned in 2005

Or perhaps we should chuck the U.S. government and begin anew with Craig definitions?

Posted by: David R. Remer at May 4, 2007 9:10 AM
Comment #219307

The best absolutely true reply to those who tout the virtues of shrinking deficits is:

“You can shrink the deficit by half for infinity and continue to grow the national debt infinitely.”

Truer words were never spoke. Hold on to your hats, the other party that wants to tout cutting the deficit in half is now in control of Congress. Let’s see if they can do better than adding more than 3 Trillion dollars to our national debt in 6 years as those deficit cutting Republicans did.

Posted by: David R. Remer at May 4, 2007 9:15 AM
Comment #219334

David:

My point is not totally at odds with yours. Increased savings rates are needed. I was stating that your statement was incorrect.

People do not necessarily borrow when they have a negative savings rate. Many times they sell off assets. Many retired americans who are debt free and finanicially independent have negative savings rates because they live off their assets.

In the current cycle the obvious reason for a negative savings rate when household balance sheets are improving is that Americans were using equity. Now that the housing market is reveting to the mean, one would expect the savings rate to improve.

Bernanke also said that the world is awash in savings which is driving down interest rates. Overseas countries are suppressing local demand to increase imports.

I read pretty much everything Bernanke says at lest in his speeches. I think he is right on.

He is not an alarmist, but a realist. He sees need for action but is not at all a doomsdayer.

Craig

Posted by: Craig Holmes at May 4, 2007 12:29 PM
Comment #219335

David:

What a typically conservative blinders on statement. The economy is far broader and deeper than the stock market, Craig. And the profitability pushing the Dow up at this time is primarily due to overseas earnings and profits, not dramatic domestic increased performance. Our economy is slowing, I am sure you know that, but, it was kind of hard to tell from your comment above.

Foreign earnings are one important component to the nearly record high profits. I am not looking at the Dow, but rather corporate profits as a percentage of GDP.

Other factors are large cash positions, low debt, and one of the best runs ever in productivity growth. Balance sheets have seldom looked this good for Corporate America.

From your side of our usual arguments you should take a look, because this wasn’t always so. Corporate America used to by way to highly leveraged. If corporate america can turn their finances around, then that should give you ammo that government and individuals can deleverage as well.

Craig

Posted by: Craig Holmes at May 4, 2007 12:34 PM
Comment #219341

David:

I’m not sure if you have read this from Bernanke:

http://www.federalreserve.gov/BoardDocs/Speeches/2006/20061004/default.htm

It’s a classic to me. Their research shows that with current assumptions of economic growth demographics etc, and assuming we have a value of equal sharing of burden between generations, we need to increase our savings rate by 3%. Not bad!!

He says that the most direct way is to reduce the projected deficits. (Notice he did NOT say eliminate). Actually he goes right down the throat of what I believe. Basically there is not silver bullet, but with a multi pronged approach we can face the future with great optimism.

Craig

Posted by: Craig Holmes at May 4, 2007 12:59 PM
Comment #219420

Craig, what is the logical thing for American corporations making better returns on operations overseas in the future to do? Take those returns and invest them overseas, in new plants, equipment, distribution systems. The fact that current balance sheets and profitability is heavily weighted by overseas operations at this time, is not insignificant by any means. It points to the future direction of investment, jobs, and operations. It points toward an intractable trade deficit which is now about 3/4 of trillion dollars a year.

Haliburton moving to Dubai, is like Louis & Clark charting the way, except instead of Westward, it is now Eastward and Westward across both oceans.

That’s 3/4 of a trillion leaving our country and not coming back. At some point printing money to keep shipping it overseas takes a toll on the valuation of the dollar, and Bernanke mentions this, frequently in his Congressional reports as being a concern.

Bernanke said in Feb. “Overall inflation has fallen, in large part as a result of declines in the price of crude oil.”

Guess what, it was very short lived and no rescuing knight to save 2007 from inflationary pressures. You know, if I set up a printing press in my back room and keep paying creditors with my money with my productive back room effort, eventually they are going to discover my money isn’t worth the paper it is printed on and they are going to take me to court for restitution. For quite some time I can make it appear as though I am highly liquid in cash assets. But, the music will end at some point and there won’t be a chair to sit in.

That is what our Treasury has been engaged in for the last decade between treasury notes and trade deficits.

Also, while I like Bernanke’s increased frankness over Greenspan’s, he and the Fed are still charged with the responsibility of not panicking the markets. Therefore, it is often what he ISN’T saying that is just as relevant and significant. As the national debt rises, and given that interest rates are not going to remain at these historical lows, the opportunity cost of our nation’s interest payments combined with entitlement spending growth, and level of national debt, will seriously compromise our nation’s flexibility to meet the challenges of future economic downturns or other financial crises brought on by natural disaster or terrorism or global market bubbles which collapse. Bernanke in a rare moment of candor said as much about 5 months ago before Congress.

Posted by: David R. Remer at May 4, 2007 9:25 PM
Comment #219421

Craig, also, check out: Fed Chairman warns Congress on national debt”. That was just in January. It pretty much refutes your interpretation of Bernanke’s statements about deficits, because deficits INCREASE the national debt.

Posted by: David R. Remer at May 4, 2007 9:29 PM
Comment #219461

David:

Craig also, check out: Fed Chairman warns Congress on national debt”. That was just in January. It pretty much refutes your interpretation of Bernanke’s statements about deficits, because deficits INCREASE the national debt.

He says the same in both articles. Reduce the deficit. Never says to eliminate it and run a surplus. Deficits don’t hurt the economy, neither does debt. High deficits and run away debt do. Deficits like the present ones can be run until eternity with no serious problems. They are totally safe. Run away deficits of course are harmful. Run away anything is harmful.

Craig, what is the logical thing for American corporations making better returns on operations overseas in the future to do? Take those returns and invest them overseas, in new plants, equipment, distribution systems.

Understood. Several times I have heard arguments from you about how bad it is for foreigners to own government securities. How we are borrowing money from foreigners. Please notice the balancing argument that we are making money off of foreign investments that is flowing into corporations, increasing their profits, increasing tax receipts and lowering our deficits.

ON rising inflation you said:

That is what our Treasury has been engaged in for the last decade between treasury notes and trade deficits.

On a ten year basis inflation is declining.

Here is a fuller quote from Bernanke from late march:

Core inflation, which is a better measure of the underlying inflation trend than overall inflation, seems likely to moderate gradually over time. Despite recent increases in the price of crude oil, energy prices are below last year’s peak. If energy prices remain near current levels, greater stability in the costs of producing non-energy goods and services will reduce pressure on core inflation over time. Of course, the prices of oil and other commodities are very difficult to predict, and they remain a source of considerable uncertainty in the inflation outlook.

Bernanke is for reducing deficits which looks like a good idea. He is not for eliminating deficits.

Craig

Posted by: Craig holmes at May 4, 2007 11:38 PM
Comment #219527

Craig, more than 3 trillion dollars in 6 years is a problem, no matter how you slice it. The opportunity cost alone on the interest payments means folks will suffer who didn’t need to, and problems won’t be resolved that should have been. Most of that 3 trillion has not solved a single problem and the bulk of it actually increased our problems.

But, I am sure you will disagree because accepting that perspective would mean having to condemn Republican government, almost solely responsible for the waste of more than 2.5 trillion dollars.

And Craig, you do not have the slightest understanding of debt, for if you did, you would know that a person who is in debt beyond their life span’s ability to pay off, has far fewer options to meet emergencies and financial difficulties than a person who has no debt. The very same applies to our federal government. Except that our federal government is in debt beyond at least 2.5 lifetimes to pay back, and can’t write it off or file for chapter 13 protection. It can declare bankruptcy though and we know from the 1930’s how devastating that can be to people, times 4, given our now 300 million population.

It is just so convenient for economic optimists to turn a blind eye to the confluence of the retiring boomer generation, a protracted war on terrorism, increasing natural disasters and losing international competitive export capacity to the Eastern half of the world.

They are all coming together at the same time, and there simply isn’t any rosy scenario for meeting all those challenges without bankrupting the country or relinquishing the wealthiest nation status. We have already relinquished the best educated, the safest, and the fastest growing status to other nations. And this list will grow longer and longer, and my daughter and hers will suffer for so many have turned a blind eye today.

Posted by: David R. Remer at May 5, 2007 6:37 PM
Comment #219529

And NO, Craig, they don’t say the same thing. In my link, from January note the following of Bernanke’s words:

WASHINGTON — Federal Reserve Chairman Benjamin S. Bernanke delivered a stern warning to members of Congress this morning to address the national debt, which has spiraled due to spending on federal programs, especially Social Security and Medicare, and threatens to harm the national economy.

“The longer we wait, the more severe, the more draconian, the more difficult the objectives are going to be,” Bernanke said. “The right time to start was about 10 years ago.”

His reference to 10 years ago clearly implies we way behind in our ability and efforts to correct and meet this challenge responsibly, and adding 3 trillion to the national debt in 6 years for everything but the entitlement crisis looming just made the whole situation many times worse; and the solutions far more painful for Americans and far more costly.

Republicans really screwed this country and Bernanke, a Republican himself, is saying as much in his quote above.

Posted by: David R. Remer at May 5, 2007 6:46 PM
Comment #219534

DAvid:

Craig, more than 3 trillion dollars in 6 years is a problem, no matter how you slice it. The opportunity cost alone on the interest payments means folks will suffer who didn’t need to, and problems won’t be resolved that should have been. Most of that 3 trillion has not solved a single problem and the bulk of it actually increased our problems.


Sigh. Your argument as usual is misleading. You cannot discus debt without discusing assets.

GDP has risen Income has risen by $3 Trillion in the same amount of time.

Also just last year household networth increased by $3 Trillion.

Your arguement when put in context is like this for a family:

We are in tough shape because we owe $3000 more now than we did six years go. Of course we make $3,000 more a year than we did six years ago and last year our net worth increased by $3000 in that year alone. Actually our net worth is increasing each year by about the same amount as our debt as increased over the last six years, So as you can see, we are in desperate straights.

You cannot sit on a one legged stool You MUST include national income AND national assets to provide a proper context.

And Craig, you do not have the slightest understanding of debt, for if you did, you would know that a person who is in debt beyond their life span’s ability to pay off, has far fewer options to meet emergencies and financial difficulties than a person who has no debt. The very same applies to our federal government.

No it absolutely does not apply. As a matter of fact this is a very important point. Countries or nations have extremely long lifespans. Some over a thousand years or more.

And NO, Craig, they don’t say the same thing. In my link, from January note the following of Bernanke’s words:

Sorry I don’t see the word deficit in your quote of Bernanke.

What I agree with you on is the need for reform.

Where we have a fundamental disagreement on is economics. As long as the federal debt grows roughly at the same rate at the economy we can run deficits forever with no ill effect. Reform is needed because the deficit is projected to move from a sustainable growth rate to a dangerous one.

You stand for reducing/eliminating federal debt which I believe would be distructive. It could likely send our country into steep recession/depression. What I stand for is legislation that will continue the status quo. Deficits currently are fine.

Specifically, I believe that if deficits average less than 3% of GDP forever, no harm will come. Currenly we need to average a bit less than that because we incurred higher deficits earlier in the decade.

Craig

Posted by: Craig Holmes at May 5, 2007 8:03 PM
Comment #219535

David:

It is just so convenient for economic optimists to turn a blind eye to the confluence of the retiring boomer generation, a protracted war on terrorism, increasing natural disasters and losing international competitive export capacity to the Eastern half of the world.

They are all coming together at the same time, and there simply isn’t any rosy scenario for meeting all those challenges without bankrupting the country or relinquishing the wealthiest nation status. We have already relinquished the best educated, the safest, and the fastest growing status to other nations. And this list will grow longer and longer, and my daughter and hers will suffer for so many have turned a blind eye today.

You sound like “A nation at Risk” from 1984:


Our Nation is at risk. Our once unchallenged preeminence in commerce, industry, science, and technological innovation is being overtaken by competitors throughout the world. This report is concerned with only one of the many causes and dimensions of the problem, but it is the one that undergirds American prosperity, security, and civility. We report to the American people that while we can take justifiable pride in what our schools and colleges have historically accomplished and contributed to the United States and the well-being of its people, the educational foundations of our society are presently being eroded by a rising tide of mediocrity that threatens our very future as a Nation and a people. What was unimaginable a generation ago has begun to occur—others are matching and surpassing our educational attainments.

The risk is not only that the Japanese make automobiles more efficiently than Americans and have government subsidies for development and export. It is not just that the South Koreans recently built the world’s most efficient steel mill, or that American machine tools, once the pride of the world, are being displaced by German products. It is also that these developments signify a redistribution of trained capability throughout the globe. Knowledge, learning, information, and skilled intelligence are the new raw materials of international commerce and are today spreading throughout the world as vigorously as miracle drugs, synthetic fertilizers, and blue jeans did earlier. If only to keep and improve on the slim competitive edge we still retain in world markets, we must dedicate ourselves to the reform of our educational system for the benefit of all—old and young alike, affluent and poor, majority and minority. Learning is the indispensable investment required for success in the “information age” we are entering.

Then of course we dominated the information age.

I could go back another generation to the Spunik panic where there was widespead prediction of doom. The Soviet Union was certainly going to overtake us.

Just like the problems if the 1950’s and 1984 seemed insurmountable ours of today will be overcome.

Craig

Look at the late 1950s. Then it was the Soviet Union that was going to overtake all of us. There was wide spread panic when Spunik went into orbit.

Posted by: Craig Holmes at May 5, 2007 8:58 PM
Comment #219553

Craig said: “Then of course we dominated the information age.”

And immediately upon establishing dominance we lost it to the Chinese, Japanese, Malyasians, Indians, and others.

And with the information age came the replacement of high paying skilled labor jobs with lower paying skilled information technology jobs. And the Greatest Middle Class on Earth began its inevitable march toward shrinkage.

There is one huge difference between the past and present Craig, and you really should never lose sight of it. In the past we were not burdened the kind of debt we now hold and had much productivity growth ahead of us. Today, we are about maxed out on productivity, the more so as baby boomers retire, and our debt limits how much more debt we can cheaply accrue.

Every nation that ever failed in history said the same thing you are saying now, we can’t fail because we never failed before. Yet, history demonstrates every nation has its limits and will fail if it fails to observe them.

The UK, acknowledged its limits during WWII, and facing destruction and defeat, recognized and accepted its limits and relinquished much in order to come back within her limitations and survive intact.

It is a lesson Americans would do well to regard with respect.

Posted by: David R. Remer at May 6, 2007 1:14 AM
Comment #219554

Craig said: “GDP has risen Income has risen by $3 Trillion in the same amount of time.”

Man Craig, go back to your economics 101 course. Personal income is no collateral on federal national debt. Neither are our roads, bridges, monuments, and other infrastructure, unless Republicans believe they can sell them to the highest foreign bidder. Come to think of it, with 45% of our national debt now held by foreigners, your argument is indeed a most Republican one. No wonder Republicans respect and revere wealth so much. When you are selling out your country, personal wealth is the best insurance policy there is - it opens exit doors to nearly any other nation one chooses to reside in.

I mean we KNOW income is not an asset for national debt, because to collateralize that asset for payment one would have to tax the wealthy. And we know where Republicans stand on that issue.

Posted by: David R. Remer at May 6, 2007 1:19 AM
Comment #219624

David:

There is one huge difference between the past and present Craig, and you really should never lose sight of it. In the past we were not burdened the kind of debt we now hold and had much productivity growth ahead of us. Today, we are about maxed out on productivity, the more so as baby boomers retire, and our debt limits how much more debt we can cheaply accrue.

Of course in 1984 we were “saddled” with high unemployment, high inflation, high military expenses, much higher deficits. Of course the problems then were different. Times change. One thing that doesn’t change is the fact that there are problems. Just like high inflation, high interest rates, high unemployement etc were solved so these will be solved.

Man Craig, go back to your economics 101 course. Personal income is no collateral on federal national debt. Neither are our roads, bridges, monuments, and other infrastructure, unless Republicans believe they can sell them to the highest foreign bidder.

I agree with every word of this. Income is what is used to make the princple and interest payments. Roads bridge, monuments etc are not included in “HOUSEHOLD net worth” that has risen by $3 trillion or so per year.

You can’t sit on a one legged stool in discusing debt. Debt without relation to income and assets is meaningless. HOUSEHOLD assets are imporatant because they generate future income and capital gains. This networth is a sourse of taxation which is growing nicely.

Here is a definitin for you:

Net worth — the difference between households’ total assets, such as houses and bank accounts, and their total liabilities, such as mortgages and credit card debt, totaled $55.6 trillion in the October-to-December quarter.

Leave out the monuments etc, as they are not a part of the calculation. America as a whole is on a good track for increasing wealth.

Again the current deficit issue are fine. We can continue at this pace forever without any harm coming to the economy. We need to correct the entitlement issue as it will take us out of the “fine” issue and into a harmful track. However there are multiple tools that can be applied to this issue. I am sure we will do so.

Our economy will continue to grow at historical rates of growth. This is only an optistic view when standing next to a pesimist. An optimistic view would be that economic growth would be better in the future than in the past.

Craig


Posted by: Craig Holmes at May 6, 2007 3:05 PM
Comment #219629

David:

adding 3 trillion to the national debt in 6 years

Household assets have increased by $21 Trillion since 2002.

GDP which directly relates to our ability to pay interest payments on the $3 Trillion increased debt you speak of has increased by $3 Trillion. Since the US goverment’s take is about 20% of GDP that means about $600 Billion a year. Interest expense has grown $42 billion in the last six years. The reason why this is so low is lower interest rates.

$3 Trillion increase in debt viewed with proper context of increased household assets ($21 Trillion) and increased national income ($3 Trillion) is a minor issue.

Craig


Posted by: Craig Holmes at May 6, 2007 3:32 PM
Comment #219644

Ah, Craig, so you advocate taking taxes from those with the increased wealth and earnings to manage and pay the nations deficits and debt. I am impressed! And I agree, entirely. I have been advocating just that for years.

Posted by: David R. Remer at May 6, 2007 5:23 PM
Comment #219648

Craig said: “Just like high inflation, high interest rates, high unemployement etc were solved so these will be solved.”

Now you are back to making the same argument every failed nation or empire in history made just before their fall or disintegration. Saying it, history proves, does not make it so, Craig. It is an entirely fallacious argument that the past is proof the future cannot fail. So many fall for it. Which is why nations fail and continue to fail. This is the same argument Kruschev made about the USSR, the French King made before the Revolution, King George made before our Revolution. The same argument the Emperor’s counsel made before the rise of Mao Tse Tung and Shiang Ki Sheck.

It was the common knowledge of the Romans before their disintegration. It is such a fallacious argument proved again and again in history to be a false one. The past is no assurance of continuance in the future, Craig.

Posted by: David R. Remer at May 6, 2007 5:31 PM
Comment #219649

Craig, I couldn’t disagree with you more when you say all we have to do is take care of the entitlement issue. Do you not understand that precisely because of our deficits and national debt, there is no non-painful solution to the entitlement deficits coming?

Do you not see that simply ending the entitlements will cause our economy to tank into recession or worse? Do you not see that keeping them intact will also tank our economy into recession or worse. If at this very moment, we were running a surplus and had no national debt, dealing with the baby boomer’s entitlement demographic bulge would be a relative piece of cake.

It is precisely BECAUSE of our national debt and continuing deficits as far as any politician can see, that is underwriting the boomers retiring as a major economic problem.

America borrowed her way out of the Great Depression and WWII, with immense untapped productivity of women waiting to be tapped. That is not the situation we are in today, Craig.

Posted by: David R. Remer at May 6, 2007 5:37 PM
Comment #219662

David:

Ah, Craig, so you advocate taking taxes from those with the increased wealth and earnings to manage and pay the nations deficits and debt. I am impressed! And I agree, entirely. I have been advocating just that for years.

No. I am arguing that your debt argument is a one legged stool, and therefore meaningless. Debt must be looked at in relation to income and assets. Within that context our current deficit situation is fine.

Ah, Craig, so you advocate taking taxes from those with the increased wealth and earnings to manage and pay the nations deficits and debt. I am impressed! And I agree, entirely. I have been advocating just that for years.

I am not in favor of higher taxes as it usually simply leads to more waste. I have no problem with transfering taxes toward the more affluent.

Craig, I couldn’t disagree with you more when you say all we have to do is take care of the entitlement issue. Do you not understand that precisely because of our deficits and national debt, there is no non-painful solution to the entitlement deficits coming?

We are talking around each other. I am for reducing deficits, I am not for eliminating them.
Let me give you a simple example. Assume the econmy grows at 6%. (Inflation of 2.4% and real growth of 3.5%) That means according to the rule of 72 that it should double every 12 years. So lets say the deficit reduction (not debt reduction) is used as one of several tools for the entitlement issue. So now we keep the deficit at below average 40 year average for the next twelve years. That means that borrowing power becomes available later on so that our children can use deficit spending safely for our final days.

This is exactly what I would predict will happen. The strongest force in economics is reversion to the mean. Since we have just finished a period of above average deficits because of the recession and the war on terror, the next phase should be below average deficits. I would expect Dan’s chart of all debt to GDP to start to head down and to the right, even if we never have a surplus.

Where you and I have a fundamental disagreement is that you would advocate eliminating federal debt. I would see that as a disaster. It could lead to a depression. All Bernanke says we need to do is reduce our standard of living (or increase savings rate as they are both identical) by 3% to achieve parity with the next generation.

Craig


Posted by: Craig Holmes at May 6, 2007 8:20 PM
Comment #219667

David:

I can support all of these suggested entitlement reforms from the Heritage foundation:

http://www.heritage.org/Research/Budget/tst013107a.cfm?renderforprint=1

Craig

Posted by: Craig Holmes at May 6, 2007 8:47 PM
Comment #219752

Craig said: “Debt must be looked at in relation to income and assets.”

Now, your argument is simply illogical. The only way the government can access that income and assets to manage debt and deficits is through taxation, Craig. Yet, you deny agreeing with that simple economics 101 fact and me for expounding it.

This debate just hit a road block. If your arguments are going to be illogical, debate is not possible.

Posted by: David R. Remer at May 7, 2007 7:55 PM
Comment #219767

David:

Now, your argument is simply illogical. The only way the government can access that income and assets to manage debt and deficits is through taxation, Craig. Yet, you deny agreeing with that simple economics 101 fact and me for expounding it.

As I have said before, I have no problem taxing the wealthy. My concern is raising taxation as a whole. Shifting taxes from the poor to the rich is fine by me, as long as most people pay some.

I disagree with those who are for an across the board increase in taxation because experience has shown me that such ventures simply increase government waste. (Bridges to no where).

I can even be persuaded a bit on this point but only after serious spending cuts have been enacted. It would seem logical to me to end subsidies to the rich first. Especially in entitlements.

Craig

Posted by: Craig Holmes at May 7, 2007 9:57 PM
Comment #219800

Craig, we are back in full and complete agreement again. Spending controls must accompany taxation or bankruptcy results. Every person with an income who balances their checkbook knows this. Which is why the Democratic and Republican parties are so corrupt and inept at the core of their platforms, Democrats resisting spending cuts, and Republicans resisting tax cuts. It is so at odds with the common sense of working Americans, and helps explain why Independent voters are growing in number.

Posted by: David R. Remer at May 8, 2007 8:40 AM
Comment #219819

David:

Wow agreeing? I don’t know why we need to spend over 20% (or threre abouts) for federal spending. As we move forward why not just stop subsizing the rich? For instance, why not means test medicare, and reduce the subsidy for the wealthy? I understand why the wealthy should want to benefit from being a part of a large group. I’m not suggesting kicking the affluent off of medicare, but why do we subsize their premium when we have so many without any insurance?

(I know the anwer by the way),

Craig

Posted by: Craig Holmes at May 8, 2007 1:21 PM
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