If the only thing we have to fear is…
…fear itself, why does Obama keep playing on it?
In the financial crisis, he’s been sounding a relentlessly gloomy note from the very start. I agree that things are far from rosy, but I believe that Obama is doing no one any favors by being so consistently pessimistic. Perceptions and emotions affect the economic climate, and pronouncements of the President (or President-Elect) help to shape them.
You are so correct Neo. Dr. Helen has written on this even before the elections.
With human perception/emotions/feelings:
1) Values of homes plummet.
2) People spend less and brace themselves
3) People divest and sell as much as they can
4) People make decisions differently
You can track the values of homes and how much MORE homes plummeted after the major news story day after day started in September by looking at graphs on http://www.zillow.com and entering your home address or somebody elses.
In Elk Grove, CA you see homes that were above $540K now reflecting prices near $240K That’s a 60% drop.
I do the opposite!
It’s a buying opportunity for me now. I was never going to purchase at the top of the market.
My current home that I had a fixed 6% 30 year loan for I just refi’d for a fixed 4.25% rate at a local credit union (30 years also). My payment dropped significantly.
I’ve diversified over the years, increased my certifications in my field, made myself valuable and I do not look for the government to make me valuable by giving me job training programs.
We need to re-educate people about economics 101.
Obama’s prescriptions and policy statements had people divesting also. My partner was selling before the stocks went down knowing that Obama would win and raise capital gains tax rates. Is that evidence enough?
Obviously President Elect Obama is more interested in advancing his spending agenda than advancing confidence in our economy. As Rahm Emanuel pointed out several months ago, the strategy is to not let the opportunity of any crisis pass without using it to best advantage. The selling of remedies for the economy is his biggest opportunity for social engineering legislation without opposition on the merits of the individual programs.
1. Perhaps because a frightened public might be stampeded into accepting more socialist type policies that they would naturally be resistant to?
2. Perhaps because the anointed one wants to lower all of the high expectations for ‘hope & change’ that he promised during the campaign?
3. Perhaps to mask the fact that they (Obama the democrats) really don’t have a clue about what to do, or the political courage to do it if they did and so are resolved to spend our way out of this mess?
The list goes on….
I haven’t been listening to the Mighty O’s remarks. It’s ok to tell people times are tough and problems are hard to solve – as long as you assure them that we are up to the struggle and will not accept failure.
Baklava,
Zillow is a great website. I know someone in Elk Grove who bought a home for around $211K over seven years ago. That home increased to a high of around $440K in 2005. It is now back down to around $230K.
Where I live, in Sunnyvale, prices have dropped a tad, but there are many homes in my neighborhood (nothing too lavish) that are listed in the $800K-$1.1M range.
Ryan,
Due to the refi, I had my house appraised and it was appraised $20K less than zillow. Just be aware.
‘tsok ’cause I bought in 1997 for 162K and the appraisal came in at $320 still… zillow had it at 340K.
It has a cool feature that tells you when it was last updated and the change since the last update. The graph feature is really nice.
I don’t own a house in Sunnyvale (not sure how anyone can afford it LOL), but it’s just fun to peruse the site and look at the numbers and charts showing trends.
The credit markets have begun to turn towards recovery, all without any intervention from O and pelosi.The risk barometer found in the 2yr swap spreads shows that fear and risk and are being slowly, but surely, normalized.This is very good news,but not to socialists in a hurry to remake things in their image.We have to hope that the GOP can find ways to slow down and stall the big overreach a comin’ just like they did in 1994 with HillaryCare.
neo, Obama is probably engaging in expectations management. If so, he gets credit (sorry) from me for astuteness. By talking the situation down first, he vaccinates himself against the downturn, and gains credibility later when he talks it up.
Smart move, if that’s what he’s doing.
Occam,
That’s Machiavellian. (Hope I spelled that right). That’s not smart.
Spreading pain among a lot of people hurts America and his language does so. He does it repeatedly and extensively and Bill Clinton did the same thing before his elections.
It is the Democrat playbook to hurt people – not help them.
It is better to teach a man to fish than give him fish.
It is better to have policies of independence rather than one’s that promote dependence.
I know you mean well Occam as I’ve read your stuff many times. Just saying.
It aint smart. It’s mean.
The president-elect cast blame on “an era of profound irresponsibility that stretched from corporate boardrooms to the halls of power in Washington.
It wasn’t people like my ex-wife’s brothers and sisters who cashed out equity in their home to purchase autos (more like King Cab Ford F150’s).
That rhetoric shows that Obama isn’t smart. It shows that he doesn’t understand the root of the problem. People financing homes and cars for 30 years with teaser rate loans was what Obama, Dodd and Rangel pushed for. When Bush tried to reform that the media ignored it and the Democrats said ‘no’.
The president-elect cast blame on “an era of profound irresponsibility that stretched from corporate boardrooms to the halls of power in Washington.
It wasn’t people like my ex-wife’s brothers and sisters who cashed out equity in their home to purchase autos (more like King Cab Ford F150’s).
That rhetoric shows that Obama isn’t smart. It shows that he doesn’t understand the root of the problem. People financing homes and cars for 30 years with teaser rate loans was what Obama, Dodd and Rangel pushed for. When Bush tried to reform that the media ignored it and the Democrats said ‘no’.
I’m in the investment business. Been doing it since 1992, and before that, when I was an undergrad (1978-82) I studied economics at a time when the U.S. was about to enter a long and deep recession – the 1980-82 recession, when unemployment did in fact shoot into double digits. Prior to that one, we had a long and deep recession in 1973-75. Started right after I graduated from high school and I was then in the Army. So, I sat out that recession in Uncle Sam’s glorious service. I graduated from college in December 1982, right at the depth of that recession. I graduated from B.C.’s MBA program in 1991, during a recession that was far more felt in New England than the rest of the country. I have a perspective on the business cycle.
Recessions happen. Booms happen. Both come and go. The thing I’ve noticed about people who have no real background in economics and finance is that they tend to take what is happening in the present and extrapolate it out as a trend that will go on and on without end. Thus, when we are in booms these people think IT SHOULD GO ON INDEFINITELY. Ditto for when we are in down cycles. They think worse is coming and that it will go on indefinitely. Needless to say, I would hope that the better informed/educated readers here would understand that the present recession is going to end, and that there are signs that we are just about bottoming out now or shortly.
Every recession sows the seeds of recovery. Just as every boom sows the seeds of a bust.
For Obama and his people to be casting gloomy aspersions is not helpful, and betrays a profound misunderstanding of how the modern capitalist economy works. Of course, there are other hints or even more spelled-out statements and policy prescriptions that indicated clearly that he and his people do not understand economics and finance.
If the stock markets right now are not moving in a positive direction, it is a reflection of investor fears of what Obama and his people may do in the future. Right now what is most worrying investors is the coming carbon tax regime. Junk science is about to be the tail wagging the dog (the economy). That tax WILL dampen economic growth – constrain it significantly. And it is so needless, since the science that the carbon tax is tailored for is highly questionable.
So, there will be a recovery, but it will be a sub par one. Instead of the typical three to five percent growth in GDP coming out of the recession, we are likely to see only one to three percent. At that rate, in four years we might only see a recovery of jobs closer to two million rather than the three million he is optimistically projecting.
I’d venture to say that the business world psychology took a dive some months back just on the possibility of Obama being elected. Actually being elected and insisting we spend our way out of a spending problem is frankly horrifying.
In the financial crisis, he’s been sounding a relentlessly gloomy note from the very start.
Long before the financial crisis Obama and his wife were talking about the United States as though average Americans were barely one step ahead of the Joad family in The Grapes of Wrath.
In fact Obama has been the biggest beneficiary of the meltdown. It sealed the election in his favor and has given him this huge FDR mandate to remake the country.
Stark is right. PE Obama is merely setting the mood so his $700 billion stimulus package will pass Congress like a dose of epsom salts. As soon as the money is flowing they will then begin sowing the seeds of hope and then……recovery! To get the stimulus plan passed there can’t be any glimmer of hope out there. Too bad. But that is the way the game is played.
He’s more interested in insulating his political futures than in being a leader. Not that I’m sure he’d know how to lead even if he wanted to, having never seen a demonstration of any leadership skills.
I still think this is going to be a sub par recovery. The “stimulus” is not going to make much of a difference. Job creation mainly occurs because small business and entrepreneurs succeed. Also, the carbon tax is gong to be a read drag on the economy. Eventually, oil prices are going to surge ahead – and there will be strong headwinds coming from Washington to discourage increasing the supply of energy.
A sub par recovery, in addition to foreign policy crises, will be the elixir that brings about “buyers’ remorse” among the kiddies and ladies who voted for Obonga The Golden Mouth Shape Shifter from Chicago.
There is going to be a huge wake-up call for the young ones who voted 2:1 for Obama as boomers retire and demand more benefits.
The “spread it around” mentality isn’t going to work for those kids when they hit their thirties and are having careers and raising families.
I agree with huxley 4:16pm.
I posted on this site last year that Obama=Chavez. Totalitarians welcome broad economic crises. They become licensed to centralize power and vigorously exercise it to “fight for the people”. We are witness to the probable permanent undoing of the American Republic, which was permanently morphed for the worse by FDR in the last major economic crisis.
It behooves us all, FredHjr, to plan for the worst. I’m betting my money that your hope for a subpar recovery will be an exaggerated one. When a major commodity source, Alcoa, plans to reduce aluminum production by 18%, its workforce by 15%, and cut capex by 50% in 2009, that gets my attention.
One thing which feeds the negative hyperbole is the ignorance of the media. The last really bad recession was almost thirty years ago. I remember the double digit inflation, interest rates, and unemployment. Few people under fifty-five have any awareness of any of that, and few TV presenters are that old. Throw in a desire to make the Republicans and Bush look bad, and you have a real end of the world template for all the news. A little historical perspective would be helpful. We saw the same problem with the coverage of Iraq which featured talk of grim casualty milestones. Once things turned around, the coverage stopped.
It is at this point in the conversation that I interject this article for all interested parties to read and ponder.
http://www.americanthinker.com/2008/09/barack_obama_and_the_strategy.html
I greatly fear the circumstances that loom like a towering tsunami; it seems as though Adam Smith has been erased from the collective conscience and a total submission to a socialist state is at hand.
Very, very sad…
turfmann,
I remember reading that article at americanthinker.com last Fall. The thing I cannot fathom: Don’t these people understand the lessons of the failures of other socialist countries? It fails because there is no incentive to take risks and benefit from one’s labor. Our way of life depends on some people being successful and rich.
POOR PEOPLE DON’T HIRE PEOPLE!
I keep trying to impress this upon some of my former Leftist friends – and they just don’t get it. Makes me want to pull my hair out, their obtuseness is that maddening.
Every socialist country has been a failure, economically and financially. Yuri Andropov knew in the 1960’s that the Soviet Union was failing, and by the Seventies he saw that the West was impossibly ahead of the Soviet Union.
Even the “Third Way” socialism of Europe is a failure, if one takes account of the economic stagnation and high structural unemployment in Europe.
The economic stagnation of the Sixties and Seventies in our country is attributable to the socialism of the Thirties and Forties that FDR set in place.
I’m 53 years old. I remember what the Seventies were like. Trying to find a job was very hard. Even when I was in college after I got out of the Army finding a part time job was not easy. Why is it that so many Americans have forgotten the lessons of that time?????
On the morning of October 24, 1929 (“Black Thursday”), billions of dollars in stock value were wiped out before lunch. Prices recovered somewhat that afternoon, but the Great Crash was underway. The next day President Herbert Hoover counseled reassurance, but as stock prices continued to plummet Hoover’s reassurances rang increasingly hollow. The president’s efforts to reassure the public did not stop, in part as he tried to convince voters that his policies were bringing recovery. In 1932, Edward Angly published a short book filled with optimistic forecasts about the economy offered by Hoover and his associates. The sarcastic title, Oh Yeah?, reflected his contempt for political leaders who did not seem to know what was happening to the country.
http://historymatters.gmu.edu/d/5063/
Identity politics confuses and distracts.
It is the actions, policies and incorrect solutions that exacerbated the recession and helped create the Great Depression.
Whoever it was (Hoover or FDR) who was implementing tax rate increases and restrictive trade policies were bringing about more misery and more poverty.
There is a reason that the Great Depression lasted a long time and whoever implemented the policies is irrelevant.
If Obama implements tax rate increases he will have made grave errors, extended misery and poverty.
The right solutions matter. Leftists are confused about this. Bush, Dodd, Obama, Reid… it doesn’t matter who it matters what they have done over the years. It is their BIG GOVERNMENT POLICIES that have caused misery and poverty.
It is the American people that will pull us out when and if we can and whenever that is…..
The top income tax rate was increased in 1932 from 25% to 63%. FDR raised it to 79% in 1936. Taking income from the kind of people who invest and start businesses stifled job creation.
I haven’t had time to read each comment in this thread, so I don’t know whether this has been mentioned here. But I wonder–does anyone else recall how G.W.Bush and his team were castigated by the Democrats in 2000/2001 when, it having become evident that we were in a minor recession, the Republicans actually said it was so? The Dems screamed rather loudly that Bush was feeding negative psychology by talking about a recession and thus making one more likely–those damned destructive Republicans should have been more positive! The congressional Democrats talked about the power of positive thinking as though it were an exclusively Democrat virtue. Is this no longer true? If Obama talks about how bad things are, why is it not a bit of the power of negative expectations?
Well, I think we know the answer to that, but still, it’s pretty blatant, isn’t it?
“Every collectivist revolution rides in on a Trojan horse of ’emergency’. It was the tactic of Lenin, Hitler, and Mussolini. In the collectivist sweep over a dozen minor countries of Europe, it was the cry of men striving to get on horseback. And ’emergency’ became the justification of the subsequent steps. This technique of creating emergency is the greatest achievement that demagoguery attains.” — Herbert Hoover
FredHjr, mon semblable, mon frere, and betsybounds remind us that economics is a social science…it is primarily about behavior. Perceptions matter, and the scary thing for me is how little the politicians and media making all the noise actually know about economics and how little they care as long as they can get what they want: the votes that deliver power for one; and influence, access, fame and (hopefully) riches for the other.
This is a great essay on the necessity for doublethinking in the world of the higher finance: http://www.weeklystandard.com/Content/Public/Articles/000/000/015/921taekw.asp
There are things that need to be done, but the people in position to do something are perhaps the least equipped to do so. Mr. Summers may be OK; on the other hand, I expected better from Mr. Paulson. My money is on, The government will make things worse rather than better.
If they don’t hike taxes there will be a recovery. But, as I said, the Obama team is making ready to go full tilt on the Global Warming track and enact a carbon tax regime, which will extract its pound of flesh in the economy at large. I don’t think the stimulus is a good idea, but it’s going to be done and we will see if it will counter deflationary trends. I work for a small investment management company as an analyst and our in-house economist is adamant that the carbon tax regime will shave one to three percent off GDP growth.
Anchoring economic policy and energy policy to junk science is going to be very deleterious to the economy. It won’t put us in a depression, but it will cause us to underperform. We actually looked at our economist’s assumptions in his modeling, and they are sound. We have a good proxy for what it would do: many European countries. We looked at how their carbon tax regime affected economic performance and it was ugly. It is no small thing that they are now trying to back away from it. On top of everything, they never hit their goals.
Kyoto and carbon tax is a U.N. hucksters’ dream to enact the world’s most massive wealth transfer in history. And it’s doubly troubling, because a lot of that money won’t reach its intended targets. Plus the money won’t alleviate Third World poverty at all.
The thing I’ve noticed about people who have no real background in economics and finance is that they tend to take what is happening in the present and extrapolate it out as a trend that will go on and on without end. Thus, when we are in booms these people think IT SHOULD GO ON INDEFINITELY. Ditto for when we are in down cycles. They think worse is coming and that it will go on indefinitely.
In AI that is flocking behavior (herd navigation)
the majority are acting like the birds in a flock doing those amazing twirls and swoops… when the lead turns left they stay left till the lead turns right, then they turn right…
the trick here is that there is no clear leader… so the leader is really an aggregate of the inputs the people are getting… so the person is trying to see the trend, depending on what group of information they are looking at they just follow that trend till they note it changes. for the average person who doesnt know finance, they are blind to indicators, so they are the stragglers in the herd… the ones with the best indicators are the ones that can see the ‘lead’ better…
knowing that there are ups and downs are all a part of anticipation and being able to follow the leads, and switch to better ones when conditions need it.
if you can imagine it.. the complexity of what you know goes up, and the adaptable variance gets broader… so the person that doesnt know has very simple broad averages… (how many people and complaints they hear at work, newspapers, radio, and the bar)… they have no way to switch what they follow unless they invest time, learn more, and create the variance that starts looking at ‘fundementals’…
at each stage there is a barrier of sorts, and two paths, hard or invested.. hard is you lose money and win some, and learn hard… invested is time to learn, read, test theories as your learning with no money, etc…
everyone learns hard at points, but the first learn real hard and it ends up looking like being a lucky bastard, or an unlucky one.
POOR PEOPLE DON’T HIRE PEOPLE!
so if poor dont, then why are they doing this?
easy.. they dont want NEW companies… but they dont mind if the ones that exist grow… or at least thats the attempt. more companies, more fractured, less companies, more collective.
so they dont want to stimulate the engine that makes more companies. they believe they can bypass this (but that would only be true in a static economy, demographic, etc).
by giving to the poor, the poor cant make new companies, or start businesses. they go out and consume. so by giving to them, you are giving to all the existing businesses, not funding the growth of new ones.
this fits their goals and attempts to meet the publics so as to keep being able to move us.
if your a command economy communist/fascist and there are 100 companies already manged as known quantities and there is a down turn, what you want is your 100 companies to grow, not have 200 companies to deal with and new technology that is outstripping your ability to understand and make laws that can tap into that and drain wealth as parasitical agents do. (in general parasites dont like or are indifferent to their sources of sustenance).
The Kyoto Carbon tax regime represents the perfect storm of the worst movements of the twentieth century:
* for the Left, punishment of the capitalists
* for the Third World, punishment of the West
* for the UN, more funds to play with
* for the corporatist and politicians, more regulation
* for the envious, less wealth
* for the guilt-ridden environmentalist rich, an indulgence for sins and sacrifice to offer on the alter of environmentalism, but at the expense of someone else.
He is CLUELESS!
I heard snippets of his speech on the news today – and the part where he says he will ‘invest’ in education infuriates me.
We KNOW how he ‘invests’ in education. He has a record. It’s called the Annenberg Challenge. He pissed away a hundred and ten million with nothing to show for it. On worthless, politically motivated crap.
We know how he ‘invests’ in infrastructure – look at the reports on the slumlords, the big state grants to political supporters, Rezko… his record is clear – and was clear – and was ignored.
Now we will all pay. If we have a country left next year.
“…fear itself, why does Obama keep playing on it?”
It’s a cultural-emotional ponzi game similar to it’s economic corollary, and dependent on it’s major basis of fear, to sustain it’s continued activity. This political style and method corroborates that Obama is indeed the Manchurian Candidate 2008, a moslem communist posing as a Christian Democrat for the “New World Order” and the international (sky is falling) global warming cult; Along with the casual acceptance of the authority of the U.N., an international force heavily influenced and controlled by a various array of gangsters, despots, relic monarchs, and narrowly dogmatic totalitarian left-wing and islamist interest groups. True to form of it’s twentienth century left-wing legacy, it again fosters and acquiesces in the scapegoating of the Jews, with Israel as the focus. Ponzi schemes eventually crash with much pain for the participants and those in unavoidable proximity…
Incidentally Rose, your’e right on the mark, but I think we’ll still have a country next year (though you probably just meant a markedly “different” country, I suspect). At some point hyperinflation is likely unavoidable with these policies and absurd debt. Three million new jobs, 20% government alone, will cost the tax payers approximately two trillion a year alone. With the people who brainstormed the debacle at Fannie & Freddie (beginning with Jimmy Carter) now in full control of the ship, we can count on being poorer but wiser in another decade. Of course wiser may be wishful thinking, since apparently we learned nothing from the experience with Roosevelt. Unfortunately, Obama’s playbook is definitely from FDR and Carter’s. Watching the dems unfold during this election has been a little like watching an adult political version of Lord of the Flies…
Let’s talk about the realities here.
REALITY: The United States has imported more value than it has exported for the last thirty-plus years.
REALITY: During the Bush (43) Administration, the US federal debt went from a manageable $5 trillion or so to over $10 trillion, or over 70% of your total GDP.
REALITY: Your current net external liabilities (what you owe minus what others owe you) come close to a year and a half’s total exports. In other words, if you imported nothing and continued exports as usual, it would take you at least a year and a half to return to a break-even position.
All of these hard facts add up to a very difficult situation, one that goes well beyond simple business cycles. You can’t continue to run multiple deficits forever; sooner or later, you have to get your balance of trade in order, your government deficit eliminated, and start paying down your debts. It would have made sense for you to do that at a high point in the business cycle, with confidence in American banks and other financial institutions high; unfortunately, the current administration forfeited that opportunity, and now President Obama will have to clean up the mess with Fannie Mae and Freddie Mac in a conservatorship, most of the big Wall Street investment banks on history’s celebrated ash heap, and the world financial system still reeling from a meltdown.
Some things will have to change. Some people will have to consume less and contribute more; the logic of your situation offers no other way out. No magic will pay your debts or eliminate your (multiple) deficits. Criticizing those who tell you the hard truth just gets in the way of your dealing with the problem.
Q: “My partner was selling before the stocks went down knowing that Obama would win and raise capital gains tax rates. Is that evidence enough?”
A. No.
Criticizing those who tell you the hard truth just gets in the way of your dealing with the problem.
Spragge, Communism doesn’t work.
I’ve observed the same thing as the subject of this post – PE Obama does make lots of dismal pronouncemnts about the economy, which could be seen to contribute to consumer lack of confidence (among other contributing factors), and perhaps even business investment. I have assumed that his message will change when he actually resides in the White House. We’ll see.
Is that post a few above this the usual caterwauling from our resident socialist from Canuckistan? He apparently does believe in collectivist programs to manage the lifestyles of citizens.
he also, like everyone in the society of creative anacronism believes he would be a lord, not cannon fodder.
Baklava, perhaps I didn’t make my meaning very clear. Let me amplify on my previous post.
I think we’re going to go through a wrenching period economically in any case. All that Obama & Co. can do right now is change perception. Recovery will begin when people start thinking, “You know, things aren’t so bad, really.” Then they begin spending as consumer confidence picks up, companies start hiring to meet demand, etc.
Talking things down initially, when they’re going down in any case, hastens the arrival of that tipping point by causing people to start discounting bad news.
So I don’t think it’s mean at all, just a way to control perception, which apparently counts for so much in economics.
Spragge seems to imply that “debt” and “deficit” are synonomous. While I concur that a balanced budget is necessary, the trade deficit is not necessarily so terrible a thing as people imply.
For example, I’m sure everyone reading this has a trade deficit with their grocery store (meaning you spend more money at the store than the store buys products or services from you). Does this mean the store will one day own you? Does your cable or satellite service buy anything from you to offset any trade deficit you have with them? Furniture stores, other retail outlets, Starbucks, any of these buy products or services from you? No. But, you are willing to spend money with them and generally get something of value in return. It’s not like you’re just giving money away for nothing.
My employer, on the other hand, buys my work and services, and rarely if ever do I return anything he pays me to him. Will he go out of business because his employees rarely need drain cleaning or plumbing services from him? K-Mart buys from Levi’s, who buys from Monsanto, who buys from GE, who buys from Krupp, who buys from Newmont, and on and on……
Lee, I once had a trade deficit with the grocery store but the nice policeman quickly corrected me as to the error of my ways. (not really, but I had to concoct a realistic example of my point…) In other words, when I leave the store both parties are satisfied as to the balance of the credits & debits of the sale.
I have a foreign debt with my mortgage holder and he is no longer interested in deepening his relationship and is hoping that I continue to make my periodic P&I payments. In other words, I still owe “the man” and had best not forget it, lest I like living in a tent.
A debt only becomes problematic when the (a) collateral for the debt no longer satisfies the desire of the creditor, or (b) the debtor no longer can satisfy the debt. Something as fleeting and nebulous as the “full faith and credit of the United States Government” ain’t what it used to be, and will be far less with an additional trillion on the ol’ MasterCard.
John wrote, “During the Bush (43) Administration, the US federal debt went from a manageable $5 trillion or so to over $10 trillion, or over 70% of your total GDP.”
And then you elect a guy who wants to SPEND MORE??????? Big government leftism is the problem. Bush spent more against conservatives wishes and Obama is WISHING to spend MORE than Bush. sheesh.
BTW, Turfman is right. I have a trade deficit with 24 hour fitness, Safeway, Home Depot, etc.
My employer has a trade deficit with me.
Our country imports more goods because we are prosperous. We pay.
Walter Williams (a great economist in my mind) explains this all for those who need more explanation. Look him up.
What really matters is that the federal budget is not balanced. And given that the top 50% of tax payers in this country pay 97.2% of the income taxes – there should be no way they should be squeezed more – especially as that would CAUSE more of an economic downturn. It’s not rocket science. The problem is the federal government and states SPEND TOO MUCH.
CA ran a deficit each year even during good economic times. Now we are in a situation that is dire budget wise.
Things could be worse.
http://pajamasmedia.com/richardfernandez/2009/01/09/preventable-diseases/#more-1802
“Three million new jobs, 20% government alone, will cost the tax payers approximately two trillion a year alone.”
Sorry for the unintended exaggeration, I miscounted zeros early in the morning (still get up at dawn to go to work); However, at about 35k a crack, the bill for those “makework” jobs alone will be well in excess of 2 billion+ per year (is my math still off?). Incidentally, are these 600,000 jobs actually the new domestic security corps which both Obama and Rahmbo have alluded to prior to the growing crisis? Interesting the coincidence in timing and rhetoric; Just exactly what are 600000 very modestly paid federal employees going to do, that the private sector couldn’t better accomplish? Events look more and more suspicious as the dems unfold their plans for us…
On the grocery vs. employer: yes, yes, not everyone runs a surplus with everyone they deal with, nor can we, nor would any sane person want to. Everyone runs a trade deficit with some people; everyone runs a net deficit, when the sum total in goods and services we receive in goods and services from others exceeds what we provide to them, at times in our lives. For example, most students spend more, on studies and living, than they can earn. The problem arises when that net deficit shows no sign of ending. When that happens, our creditors tend to get control of our lives, and also we find ourselves with less and less savoury creditors, borrowing money on worse and worse terms.
John,
Think of it as a ‘trade imbalance’.
If you persist in calling it a deficit then it shows your misunderstanding more than anything.
We are a prosperous nation. How in the world would we have a positive trade imbalance with the rest of the world ??
A deficit is what happens when the federal government spends more than it takes in. Our country has been spending about 23+% of GDP while only receiving in revenues about 20% of GDP since 1974.
THat can’t go on without end. They need to reduce spending.
Big government (liberalism) needs to pass away and not come back.
This Generational Theft Act that Obama is trying to push is just about criminal. And it will be his legacy.
Normally, you have a positive trade imbalance when you sell more to other nations than you buy from them, a situation that, in the case of the United States, lasted at least from the 1930s, through the great post-war boom of the fifties and sixties, until the 1970s. Following the oil shocks of the 1970s, the value of American imports began to outpace the value of exports. As of 2005, the value of American imports exceeded exports by over $700 billion, or about 5% of total US GDP.
When you run a long term trade deficit, you can only finance it, which means, in effect, that you promise to pay in the future at a higher price. Other countries collect these promises as bonds. They can also use the promisory notes to buy American productive assets. In the latter case, control of American production passes into foreign hands. This can have economic consequences, as firms from other countries increasingly take ownership of discoveries made in the United States, and exert control over American production.
John with condescension wrote, “Normally, you have a positive trade imbalance when you sell more to other nations than you buy from them”
You must think i’m stupid. Reread my question and answer it. Of course I know what positive imbalance would be. It would be me giving groceries to the grocery store and them paying me… We are more of a consumer nation because we are a very prosperous nation and THUS THE ROOT OF MY QUESTION.
John wrote, “lasted at least from the 1930s, through the great post-war boom of the fifties and sixties, until the 1970s.”
Japan and Germany and many other nations were VERY weak back then. As their ability to become a world player increased – our production as compared to the world’s production decreased. While we have nominally produced more, as compared to the rest of the world it is a smaller percentage. Should we solve this by bombing people back to the stone age again or just BE HAPPY for countries enjoying prosperity also. There is nothing wrong with MORE people enjoying prosperity. Democrats and leftists like to reduce the common denominator and bring everyone down in prosperity with their policies. Conservative policies allow more people to prosper.
John without understanding of what trade is wrote, “When you run a long term trade deficit, you can only finance it,”
Nope. I don’t finance anything with the grocery store. And as we are a prosperous nation we don’t finance the good from other countries except maybe cars. Our prosperity took a hit because of the leftist policies of teaser interest rate home loans targeted to help more people who couldn’t afford a home get into a home (ala Dodd, Obama, Frank) but yet people want more leftist policies??? Crazy…
John cleary showed his misunderstanding with the following, “Other countries collect these promises as bonds.”
No. This John is the result of FEDERAL spending and borrowing. Not the trade imbalance. Your understanding of economics is severely limited if you can’t understand what trade and purchasing power of Americans means in the world market. We PAY for the items we purchase. There is no bond created for that. It’s payment rendered.
Mixing things up and then continuing to post like this does not persuade anybody but does make us chuckle.. 🙂
Baklava
I have no way to guage your actual intelligence, but you appear to have virtually no understanding of how international trade actually works. Since on international currency exists (UNies?), you can only actually pay for what you get from other countries by doing one of two things: selling goods of the same value to them, or sending them your (paper) money. Even in your own country, paper, or fiat money has the function of a promissory note; internationally, where the domestic laws that define your currency as “legal tender for all debts, public and private” do not apply, American bills function purely as promissory notes. You can only redeem these notes, once held by foreigners, in three ways:
1) Exchange them for foreign currency, which you can only acquire by selling foreigners (not necessarily the ones you buy things from) goods of value roughly equivalent to those you import, or
2) Allowing foreigners to use the money you send them to purchase assets (buildings, land, businesses, etc.) in your own country, or
3) Declaring bankruptcy.
Americans (collectively) have done each of these three things in your history.
Mr. Spragge writes lucidly about the national accounts, excluding some unnecessarily snarky asides. It is not exactly a 1 to 1 identity, but importing more goods and services than you sell necessarily leads to an export of money. This money is reinvested in all sorts of assets, real assets as well as securities (which includes bonds).
In the old days, this money was composed of specie (gold and silver). Nowadays, the money that matters is a “Reserve Currency.” The major benchmarks are the USD, Euro, British Pound, Japanese Yen, and perhaps the Swiss France. The minor currencies include the Canadian and Aussie dollars. The bottom line is that holding one of these currencies gives you a claim on the output of the economy of the country that issued the money (it is actually a credit, though actual bills are promissory notes issued by the central bank). To simplify, holding dollars, wherever you live, makes it possible to buy stuff denominated in dollars.
All fascinating topics to be sure.
The risk of having too many dollars and too little stuff to buy is the risk of inflation, and this is a risk to anyone who holds dollars and dollar denominated fixed-income securities (i.e, most bonds). It is a threat to any holder of dollars, no matter where they live.
The simplest way to minimize the value of your obligations is through rapid money creation. This is far more likely than declaring bankruptcy, which is an extremely remote possibility, however entertaining some might find the prospect.
If I were a foreign bond-holder, say the Chinese Central Bank, I would be far more concerned about the devaluation of the dollar related rapid increases in the US money supply, which would simultaneously hammer the value of my enormous dollar reserves and damage my ability to export to the US by making Chinese goods more expensive and US consumers less able to afford them. The good news for China here is, money supply in China has grown even faster than in the US (10% above GDP growth), and the Chinese will be able to avoid appreciation against the dollar.
But I think that rather than worrying about freshman macroeconomics, we should not keep our eyes on the bigger picture:
1) The US is the world’s buyer of last resort. It has been essential to the development of the rest of the world for the US to run trade deficits so that they can collectively run surpluses.
2) The US is ultimately the guarantor of the world trading system.
3) The stability of the US Government is the foundation for the world’s financial systems, and the US government is the ultimate bank. (It shares this role with the other members of the G-7).
4) The US is the world’s guarantor of security and the balance of power. It is the ultimate safe haven. People like Thomas Barnett argue that the US is a security “exporter.”
5) The US has problems, but its total indebtedness is far more manageable than those of other advanced economics, primarily because of demographics and its inherent dynamism.
6) All things being equal, I would rather play the economic hand of the US than that of any other country. (Although there is something to say for Switzerland, the scenery is magnificent, and I strongly recommend the filet de perche.)
You see some of this in the world’s reaction to the financial crisis in the demand for US Treasuries. Not only have yields fallen, but the dollar has strengthened dramatically. For example, last August 1, the Canadian dollar was more or less equal in value to the American dollar. Since then, the price of energy has collapsed, and the loonie is down 20%.
Correction, that’s “Swiss Franc” or CHF.
No response necessary to John. He mixed up things and tried to pull himself out of a hole but kept digging.