[Parallax]

No argument there, jeff.

[GeneV]

Gene, that has been the primary campaign strategy for both parties for the last 30 years (at least). Remember Ronald Reagan in the 1980 campaign; "are you better off than you were 4 years ago"?" Clinton revived it in '92. Unfortunately for everyone, it does work. Unfortunately for the Republicans it's all they have right now. You can't sell your ideals, plans, and principals if, as a Party, you no longer have any.

Perhaps there has been some of that, but not nearly as bad as now. The make up of congress was about the same during the Carter years as today, but I don't recall the Republicans blocking every initiative with a filibuster. For the Reagan years, a congress of the opposing party gave him most of what he wanted, because it believed a lot of what he wanted was also needed. The congress under Clinton was trying to put him in jail, so perhaps that counts, but by Bush II, the congress was again pretty compliant.

The deficit may be a long term concern, but to elevate it to a concern over all others right now is playing with fire, and I think many Republicans know that. The fragile economy has been living on the life support of big and increasing deficits, and the president and congress that try to pull that plug will cause intense pain. Done right now, it may even trigger a depression. After an 8 year deficit party in which GOP leaders made statements like "Reagan proved that deficits don't matter," it is hard to take as genuine the sudden concern as a justification for blocking as often as these leaders have done.

In a similar vein, I think Labor in the UK may be quite excited about the prospect that the conservative coalition may try to do the same thing.

[Parallax]

Perhaps there has been some of that, but not nearly as bad as now. The make up of congress was about the same during the Carter years as today, but I don't recall the Republicans blocking every initiative with a filibuster. For the Reagan years, a congress of the opposing party gave him most of what he wanted, because it believed a lot of what he wanted was also needed. The congress under Clinton was trying to put him in jail, so perhaps that counts, but by Bush II, the congress was again pretty compliant.

........

What I was referring to was the basic, politics 101 strategy of convincing people that the current party is responsible for every bit of discomfort or hardship they have in their lives, but "Vote for us and we'll fix it!"

[Nesster]

Well, we're still heading for the big drop, and I'm finding those who argue for government spending cuts starting to make sense. I just hope the politicians we elect will have the guts to do something meaningful - and I hope they will start to limit their pork trading - and while at it, I'd like the toothfairy to leave me a $1000 bill...

[GeneV]

What I was referring to was the basic, politics 101 strategy of convincing people that the current party is responsible for every bit of discomfort or hardship they have in their lives, but "Vote for us and we'll fix it!"

On that, you are 100% right.

The aspect that is different and disturbing is the distinct possibility that these current leaders have blocked unemployment, a jobs bill and other assistance at this time in part because they actually want more people suffering at the time of the election who may blame the party in power.

[jeffkrol]

So you all happy....... Obama's a Republican.......

President Barack Obama’s budget office will release its revised forecast for the U.S. economy on July 23, spokesman Kenneth Baer said on July 9. The Office of Management and Budget’s mid-session review will provide an update on the expected growth in the economy, unemployment and the deficit for fiscal 2010, which ends on Sept. 30. The Obama administration’s budget proposal was sent to Congress in February.

The president today named Jack Lew, currently a top aide to Secretary of State Hillary Clinton, as head of the OMB.

Lew would have to develop an austere budget that charts a path toward fulfilling Obama’s commitment to cutting the 2009 deficit of $1.4 trillion in half in five years. That would be accomplished partly through a freeze on spending outside of defense and national security programs, as outlined by Obama in February.

---------- Post added 07-13-10 at 12:03 PM ----------

On that, you are 100% right.

The aspect that is different and disturbing is the distinct possibility that these current leaders have blocked unemployment, a jobs bill and other assistance at this time in part because they actually want more people suffering at the time of the election who may blame the party in power.

I'm sorry did you say "possibility"?...... more like definitely so, and the general population is sucking it up..

[GeneV]

Well, we're still heading for the big drop, and I'm finding those who argue for government spending cuts starting to make sense. I just hope the politicians we elect will have the guts to do something meaningful - and I hope they will start to limit their pork trading - and while at it, I'd like the toothfairy to leave me a $1000 bill...

I suppose you'll have to define "pork." Take a look at how little of the budget really involves these projects. It's less than $20 billion according to the "pig book" of the Council on Government waste that crusades about these things. I tend to call demagoguery when I hear politicians say we'll cut the deficit that way.

If you want to do something meaningful about the deficit, you have to include a big cut in military and foreign expenditures and raise taxes. Yes, that's the Clinton formula, but it is the only thing that has worked in recent years.

[jeffkrol]

Hey.. lookie here....

Why we must reduce military spending (Reps. Barney Frank and Ron Paul)
By Reps. Barney Frank (D-Mass.) and Ron Paul (R-Texas) - 07/06/10 10:16 AM ET

As members of opposing political parties, we disagree on a number of important issues. But we must not allow honest disagreement over some issues interfere with our ability to work together when we do agree.

By far the single most important of these is our current initiative to include substantial reductions in the projected level of American military spending as part of future deficit reduction efforts. For decades, the subject of military expenditures has been glaringly absent from public debate. Yet the Pentagon budget for 2010 is $693 billion — more than all other discretionary spending programs combined. Even subtracting the cost of the wars in Iraq and Afghanistan, military spending still amounts to over 42% of total spending.

It is irrefutably clear to us that if we do not make substantial cuts in the projected levels of Pentagon spending, we will do substantial damage to our economy and dramatically reduce our quality of life...............We may not agree on what to do with the estimated $1 trillion in savings, but we do agree that nothing either of us cares deeply about will be possible if we do not begin to face this issue now.

http://thehill.com/blogs/congress-blog/economy-a-budget/107229-why-we-must-r...k-and-ron-paul

June Budget Deficit in U.S. Narrowed to $68.4 Billion - BusinessWeek
The light bulbs are beginning to go on......
Of course some would prefer to be poor w/ BIG sticks.. then prosperous w/ little ones.....

[GeneV]

Hey.. lookie here....


Why we must reduce military spending (Reps. Barney Frank and Ron Paul) - The Hill's Congress Blog

June Budget Deficit in U.S. Narrowed to $68.4 Billion - BusinessWeek
The light bulbs are beginning to go on......
Of course some would prefer to be poor w/ BIG sticks.. then prosperous w/ little ones.....

Cuts in military spending, especially for foreign incursions, also cause less reduction in economic stimulus than other cuts. However, the Clinton formula worked because it was done into a boom. Contracting during a bust cycle is risky business.

The Iraq/Afghanistan war was/is costing more each day than a bridge to nowhere.

Cuts in military spending, especially for foreign incursions, also cause less reduction in economic stimulus than other cuts. However, the Clinton formula worked because it was done into a boom. Contracting during a bust cycle is risky business.

The Iraq/Afghanistan war was/is costing more each day than a bridge to nowhere.

Clinton had the "peace benefit". We have 2 wars with a third on the way.

[jeffkrol]

. Contracting during a bust cycle is risky business.

The Iraq/Afghanistan war was/is costing more each day than a bridge to nowhere.

Actually they weren't talking about contracting.. at least one side probably..........

We may not agree on what to do with the estimated $1 trillion in savings, but we do agree that nothing either of us cares deeply about will be possible if we do not begin to face this issue now.

CRAZY IDEA of the day...... since apparently the general population is on the road to suffering I think the only fair thing to do is to ELIMINATE all pay to Congress salaries and the top exec branch for at least 1 term.......... Seems they probably do not live "paycheck to paycheck" and if they do do we REALLY WANT them governing us???
Granted it wouldn't dent anything but think of the massive psychological boost both internal and external to the US.......
And no.. no "unemployment" either.......
Some precident.. for the wrong reasons though

State Controller Thomas DiNapoli last week ordered the biweekly paychecks of all 62 senators held until the Senate wraps up its fight.

Wednesday is the first payday since the order. Payroll for 62 senators amounts to some $190,000 - or $3,049 per senator, every two weeks.

Read more: No paychecks for do-nothing Albany senators; DiNapoli order to hold paychecks takes effect

[Nesster]

There's an article that argues that stimulus actually destroys jobs - because:

It makes sense that stimulus (government borrowing and spending) would destroy jobs. Government bonds are bought with investment dollars. If there is no change in incentives to call forth more output, then if the government sells more bonds, other forms of capital must be liquidated in order to buy them. Without tools (capital), workers can produce nothing and their jobs disappear.

RealClearMarkets - What If Stimulus Advocates Were (Half) Right?


This does make sense up to a point... But let's look at the private sector causes of the current global recession. These of course came as the inevitable financial bubbles burst, and overnight financial markets seized up. The TARP was an absolutely correct action from this point of view.

So now, corporate capital is being stuffed into mattresses, rather than into new products etc. The theory is that stimulus creates new orders, stimulates demand, and causes hiring, which furhter stimulates demand... Only it seems not to be happening this time. Why? The article proposes it's because governments are providing bigger mattresses (govt bonds) to stash money in. However, I'm not convinced corporations are yet ready to invest in business regardless, as their balance sheets are still ravaged, there's still a lot of financial uncertanity in the markets, and they still have over capacity. Even those companies that didn't dabble in derivatives and swaps are suffering because their banks and insurers did.

Besides, if we encourage China to invest in corporations & factories, they'll do so in China rather than in the USA or Ireland or Spain.

The reduction in defecit spending will reduce government borrowing, in theory causing capital to find other outlets. But cutting defecit spending will also reduce demand (fewer govt contracts), and it's not clear that businesses and the consumer is ready to start buying yet.

Ending the wars and getting down to a peace time military will do a lot for us, as will other austerity measures. Gene, re. your point about pork, heck, maybe we should give every person in Congress who votes to reduce some budget or another a 'commission' in the form of earmarked dollars for their district. That should get things going.

But the economics of the whole thing are confusing, confused, and difficult to predict.


++++++++++++

Here's another way to look at the current recessions - and there are two groups of economies, each with a different problem.

The banks and insurance companies held - and still hold - enormous amounts of toxic paper, whether on or off the balance sheets. The stress tests effect was to cause the banks to accumulate huge amounts of capital reserves in order to ensure they would survive and offset any further toxic erosion. For 'capital reserves' read money they hold onto instead of lending to business. AIG is still on life support, as are Fannie and Freddie. Again these institutions act as capital sinks, sucking in money otherwise usable for productive purposes. And of course the counterparties to all the toxic paper are also suffering and unwilling to invest capital.

So now you are a corporation, you'd like to expand to get ahead of your competition when the recovery comes. Borrowing is expensive, if you can even get enough money, due to debt markets being stingy. Equity markets are not much better - all the equity raised by banks for one sucked in a lot of money otherwise available. And in modern business, all financial moves are hedged and insured - and commercial insurance companies are in the big bind, their markets having crashed and evaporated. Would you be issuing repos and credit default insurance at a time like this?

I suspect that US and Ireland are countries that went big time for the financial engineering, and their stimulus responses are equally conditioned by financial engineering. While it is a good political move to help the unemployed and prop up the economy, any amount of govt spending will not replace the insanely huge derivative/credit swap market that died.

Spain and Greece have a different problem - their government spending turns out to be one-sided, in that not enough capital was formed, not enough investment inside the country. In US political terms, these were the tax/spend types who did not understand the need to encourage capital and business to balance the book. So now, since capital has contracted, there's even less, and the bond markets are starting to reflect the dim economic futures of these countries.

[GeneV]

Lots of interesting points, but I'm not sure it gets the big picture.

I'd like to see some real evidence that government borrowing is putting much into the mattress that would have gone to business investment. Financial investors have been spoiled to huge returns, and I'm not convinced that the market for government bonds is fungible with corporate lending, and that the institutions and countries that buy the bonds would otherwise be lending. And a good chunk of the money that the fed borrows is funneled through the banks, where it, theoretically, could be loaned.

Banks aren't lending to businesses, but I'm not convinced it has much to do with government borrowing. In fact banks haven't been really interested in traditional business loans for some time. They have been making much more off higher-interest consumer loans and investments in the financial markets. I have been hearing the complaint about small business lending from my business clients for years. If you don't get a government-backed SBA loan, your small business is going nowhere.

I'd like to see a quality economic analysis by an expert, but it seems to me things started going south in the late 80s when the government took away all tax incentives to hold stock and loosened up the market for the raiders. Stockholders were now in it for the quick buck. The raiders would swoop up any business with cash in it and liquidate it. As a result, we pulled all the cash out of our business base, pumped up the stock market, and left our business and industrial base reliant upon borrowing, short sighted and more fragile. Generous equity lending allowed consumers to burn through their own muscle and fat in a similar way.

Credit demands have therefore increased at a time when the same "quick buck" pressures on banks have made them less interested in traditional banking.

Just a thought.

[Nesster]

Gene, yes, I believe you're onto something there. I'm not sure those dismal scientists are really looking into the right places.

[GeneV]

Gene, yes, I believe you're onto something there. I'm not sure those dismal scientists are really looking into the right places.

Scientists? Jussi, it is a problem with internet boards, but its hard to know if you are being sarcastic or serious. I don't think I'd call Real Clear Markets a site devoted to scientists, but maybe you are being ironic. However, now that you mention it, the article to which you refer was written by a software engineer who represents the right wing" Club for Growth," rather than an economist.

I also noticed when I revisited the site that the first comment had the some of the same thoughts as I about how the author was confusing government spending with household borrowing by overlooking that the government puts its stimulus money into the system through a debit to the banks (who could then lend it) and not necessarily through overt borrowing.

In any case, very few real "experts" (a term which does not include me) believe that stimulus is more than a life support measure. There is a serious structural problem with our private economy which exists apart from government debt. Those who focus on either stimulus or debt are, I think, missing the big picture.