To Clinton’s credit though, at least he cared about the deficits. Same reason McCain opposed the Bush tax cuts and voted against them. What has changed for McCain that he now thinks the tax cuts need to be made permanent even though we now have record deficits, just like he predicted we would?
Obviously my solution is not tax increases, but massive slashing of the federal budget, starting with bringing the troops home from all over the world. There’s a $1 trillion savings right there, which would actually balance the budget. Probably make us a whole lot safer as well.
I don’t think McCain’s position has changed…I think the times have.
In a recession you create deficits, in a time of growth, you pay off deficits. Were currently headed towards, if not already in, a recession…hence his support for - not lowering taxes even further, which would be the economically better thing to do - keeping taxes the way they are.
One more thing: though I agree with the general comment that Clinton worried more about deficits than Bush does, I don’t think you can go as far as to paint Clinton a fiscal conservative in any real sense of the term.
Liberal commentator Mathew Yglesias explains it best here:
If the health care bill that the Clinton administration authored, pushed for, and staked its presidency on had passed you would say that FDR, LBJ, and Bill Clinton were the three main architects of the modern welfare state. Because the bill didn’t pass, the institutional legacy of the Clinton years is considerably more moderate than that and the Clinton administration is instead remembered for its responsible stewardship of national affairs. But that’s because congress blocked the bill not because of Clinton’s moderation.
In other words, had Bill Clinton had the congress Bush had during his presidency and we would be seeing record deficits, certainly higher than we have now with the wars. And more importantly, unlike war deficits, Clinton’s deficits would have been permanent…growing and growing exponentially with each generation.
Not unlike the situation Obama will enter office in.
The times have changed in the sense that today there is an even greater need to balance budgets, because our deficits are at new records. And it’s worse today than ever before because today we don’t get the money from Americans. We borrow from the Chinese and the Japanese. By putting our future in their hands we completely undermine our own economy. The more we borrow from them, the easier it is for them to manipulate our economy. They could bring us to your knees. The bible was right about one thing. The borrower is servant to the lender. To use a recession as an excuse to drive us further into the hands of the Chinese is foolish. We have got to reign in government spending or force Americans to fund the excessive government spending that they seem to want.
I say we need to live within our means regardless of whether we are in a recession or not. And I don’t regard a recession as the worst thing in the world. It’s a necessary market correction. Borrowing money and spending what we don’t have is driving the price manipulation and mal-investment that has created the problems we have. Prices need to return to market levels as opposed to the artificial levels that result from our excessive consumption, which is fueled by borrowing.
You sound like such a protectionist lately. On the contrary, I tend to believe that deficits matter less today than they did yesterday. Why? For two reasons.
1. Money is alot easier to come by today than it was yesterday. Because of China’s growing economy and the USA overall safe investment (relative to the rest of the world), the Chinese store trillions of dollars into our economy despite the fact that we have record low interest rates.
It’s like credit card offers I get of 0% for a year and half…you know what I do with those credit card offers? I cash them! I either pay off existing other debt or use it - by putting it in the bank to make more than zero interest…thereby overall making me money.
In other words, given that real interest rates are so very very low and expected to stay that way for some time, I do not see why the government should aggressively pay down debt.
Do you aggressively pay down your 0% credit cards? I know I certainly don’t.
2. You are worried about the fact that China is holding our debt…I wonder Jon, are you also worried that China is giving us cheap TV’s? Or that Canada is supplying most of our oil? Or that Mexico provides alot of our labor? Or that some of our food comes from different countries?
In other words, what makes China holding our debt fundamentally different than free trade in general?
If, for example, the Chinese government dumps its holdings of dollar assets, the worldwide prices of these assets — especially of U.S. Treasury securities and of the dollar itself — will likely noticeably fall. And while Americans would suffer, the Chinese government would suffer even more.
Imagine if Bill Gates suddenly dumps most of his holdings of Microsoft stock. Sure, other holders of that stock would suffer as its price falls, but none would suffer as badly as Mr. Gates. Only a holder of a significant portion of a particular kind of asset can push down the price of that asset by dumping it — but such a holder also, in order to dump its stash of the asset, must sell it at fire-sale prices.
In other words, who cares what race, color, creed, or religion the people holding our debt are? What guides them would be generally what guides anybody else who holds our debt: market fundamentals.
Btw, as a side note, it looks like Milton Friedman agreed with me as well, he states:
NPQ | The US Treasury debt is held mainly by China, Japan and South Korea. Is the huge foreign balance of payments deficit a problem for the US and world economy?
Friedman | I don’t think so. It may well be a statistical mirage. If you look at the balance sheet, the US is heavily in debt. If you look at the income account—the amount of interest the US pays abroad—it is almost exactly equal to the amount of interest that it receives from abroad. American assets held abroad are earning a higher rate of return than foreign assets held here.
That is understandable because what is most attractive about the US to people and countries with wealth is that it can provide security, insurance really, against political instability. Nobody is afraid that the money they place in the US is at risk of expropriation or of in some other way being taken away. For this safety, the wealth holders of the world are willing to accept a lower rate of return. US assets abroad, in contrast, are riskier and thus yield a higher rate of return.
This explains why there is a rough balance in real terms. It is not clear there really is a debt. It looks like the imbalance concerns are misleading. It doesn’t worry me a bit that China and Japan hold so much US debt. In a way, it seems foolish for them to do it because they get lower returns than they might elsewhere. But that is their business.
…
NPQ | Does the large US fiscal deficit worry you?
Friedman | Not at all. It is the spending that got us there that worries me. If the US government spends 40 percent of the nation’s income, as it does through either borrowing or taxes, that income is not available for people to spend. The deficit is an indirect method of taxation. Of course, politicians prefer to borrow instead of tax because then someone down the road has to deal with the consequences.
If anything, at the moment, the large deficit has a positive effect of holding down further spending. In that sense, it is a good thing. But it is not a good thing if produced by more spending.
Those last three sentences are worth re-emphasizing. In fact, given that Obama is likely to win the presidency with a congress sharing the same political party…I consider the huge deficit a good thing.
Obama keeps changing who’s he going to give a tax break to in the last several months. First it was 300,000 then 250,000 then Biden mentions 150,000 (Biden gaffe?) and now we have $200,000. Why should anyone trust him on keeping his word?
“starting with bringing the troops home from all over the world. There’s a $1 trillion savings right there, which would actually balance the budget. Probably make us a whole lot safer as well.”
Jon- I doubt we can have that kind of savings. We would need to built new facilities to house the troops, families and equipment. Additionally, we would need more bases and training facilities that we currently have abroad. More importantly, if we are attack, we need forward operating bases to conduct offensive operations against our enemies. I also want to point out that there are lots of low level diplomatic relationships we have developed becuase of our presence. (Yes, I know, we have embassies for that but why add more government employees when we currently have our military already).
I do agree with you though that we should slash the federal budget. Let’s start with programs that the constitution does not authorize. The military should be one of the last programs to be cut unlike what Barney Frank tell us.
HP, there’s nothing protectionist about saying we shouldn’t spend what we don’t have.
No, I don’t pay off my 0% cards. It’s good for me. But it’s bad for the overall economy. When you take a loan at 0% interest you actually increase the total money supply by 10x your loan amount due to fractional reserve banking. Where is the money that you are borrowing actually coming from? It’s actually coming from those that save money, or those that hold money, like the Chinese. When you expand the money supply you decrease the value of the currency they hold.
As banks issue less loans the money supply actually shrinks due to the same fractional reserve principle. The decrease in loans of late is part of the reason the dollar is gaining value.
I don’t have a problem with the Chinese giving me cheap clothes. But what the trade deficit means is of course we buy less than we produce. We give them currency. They give us real goods and services in reply, and they hold our currency. As they continue to hold our currency, and gain interest on it, as with our bonds, our interest payments increase. How do we make these interest payments if we don’t start turning things around? We could reach a point where we can’t tax people enough to make the interest payments, in which case we’d do what we’ve been doing for a long time. We monetize the payment (i.e. just grow the money supply to make the payment). The risk is radical inflation that could capsize us. This is the danger of the constant borrowing, deficit spending. According to such people as Ron Paul, who has proven himself accurate in many of his economic predictions, this is what has happened every time it has been tried. Unpopular wars are fought and paid for with inflation (as happened with Vietnam). The result is pressure on the currency which could cause radical problems.
We’ve been privileged to own the world reserve currency. Everyone needs dollars to engage in worldwide transactions, such as oil sales. So we’ve had the benefit of printing the dollars and sitting on our asses while everyone else does the work. But at some point we’ll saturate the world with these dollars, foreigners will start to question whether or not we can really make good on all the promissary notes, and they will shift away from dollars. Like a bad stock, this could prompt others to do the same and the rug could come out from under us.
But telling the Chinese not to rid themselves of dollars, otherwise they will hurt themselves, is like telling a person not to sell Enron or the value of Enron stock will drop. If the stock doesn’t really have the value that is perceived to exist, then the market is going to drive it down regardless. You can try and get out front of it or be stuck holding the bag. But it’s going to drop.
Russia tried to monetize their debts to sustain their empire, and the result was collapse. We need to reign in our borrowing or face the same fate. That’s my concern.
1. You failed to address Milton Friedman’s view of the whole thing: he is basically arguing that we could be borrowing from the Chinese cheap and lending to around the world at a higher price…resulting in a net gain. This is good for the economy. For tomorrow’s children. This actually helps pay off that scary interest payments you are so worried about.
I am not saying he is right…but it is a possibility.
2. The savers you are so worried about..lets be honest…are not primarily your average joe’s. Its the very Chinese that are sending us cheap money (they represent the bulk of where we get the funding for our debt). You can worry about them if you like, but if they are more than willing to lend us cheap, I see it as irresponsible for us not to take them up on it. Especially since it helps their economy as well - our consumerism is funding a large percentage of their economic growth.
3. Regarding the interest payments - you seem to have missed my point. I am arguing that those interest payments are really really cheap right now(and likely to stay cheap for a while)…so naturally, we (should) have a larger debt than yesteryear.
4. You write, “at some point we’ll saturate the world with these dollars, foreigners will start to question whether or not we can really make good on all the promissary notes, and they will shift away from dollars” Where would they go?
Even among our current financial crisis, the world seems to believe that the USA is the safest place to store your money.
Remember Jon, the United States doesn’t have to outrun the bear…it just has to run faster than the rest of the countries, the bear will get the slowest country. The European Union, Japan, and other industrialized countries have far bigger problems than we do…and crisis’s lately only seem to reinforce that.
In the end, I don’t worry as much about our debt as you do and in some ways encourage it.
I don’t see any reason to believe Obama will not re-evaluate most of his positions if he becomes President, and I suspect some of his tax plans will go by the wayside. All new Presidents do this. The fact that Obama is a pragmatist, not an ideologue (contrary to what the hysterical right-wingers will have you believe) makes it even more likely that he will “break his word” as HP puts it.
OK, so HP what do you think the effect of a $10K check for every man woman and child in the U.S. We could borrow it from China ($3 trillion) or monetize it, and away we go. Free money. Any down side? If not, why not go with $20K or $30K. I have two kids so that would be $120K for my family of 4. I could really use that kind of money. It’s basically a lottery check for everyone. Does that sound good to you?
What are you talking about with “paid back.” We don’t pay back. We borrow, blow it on consumption (big screen TV’s, vacations), then borrow more, then borrow money to pay the interest on the money we already borrowed. This is a good thing in your world? And how about $30K instead of $10K. Seems by your logic this is a no brainer. Instant prosperity for all Americans. What are we waiting for?
Well first lets talk smart and there has been very little of that going on as clearly tax breaks to big business is not the answer to address a economy on the downturn as those interest rates pile up, up, up. And its what happens when countries let business rule the day with talks of well you can’t possibly be helping out your fellow man when business is the way to go as not uncommon to hear of White Man Running with the Cash. And how does the Republican Party add up for the local yokel well its called a bottomless hole of debt as American’s are stuck on stupid as clearly if your country is in the State its in with major debt to China and the like as those interest rates rack up would give me the indication that American is clueless when it comes to the fine art of finance Republican style where the economy is left in the black. And lets get it right the struggling middle class is on a downward spiral of the little class as many regret they did it the Republican way.
To Clinton’s credit though, at least he cared about the deficits. Same reason McCain opposed the Bush tax cuts and voted against them. What has changed for McCain that he now thinks the tax cuts need to be made permanent even though we now have record deficits, just like he predicted we would?
Obviously my solution is not tax increases, but massive slashing of the federal budget, starting with bringing the troops home from all over the world. There’s a $1 trillion savings right there, which would actually balance the budget. Probably make us a whole lot safer as well.
I don’t think McCain’s position has changed…I think the times have.
In a recession you create deficits, in a time of growth, you pay off deficits. Were currently headed towards, if not already in, a recession…hence his support for - not lowering taxes even further, which would be the economically better thing to do - keeping taxes the way they are.
One more thing: though I agree with the general comment that Clinton worried more about deficits than Bush does, I don’t think you can go as far as to paint Clinton a fiscal conservative in any real sense of the term.
Liberal commentator Mathew Yglesias explains it best here:
In other words, had Bill Clinton had the congress Bush had during his presidency and we would be seeing record deficits, certainly higher than we have now with the wars. And more importantly, unlike war deficits, Clinton’s deficits would have been permanent…growing and growing exponentially with each generation.
Not unlike the situation Obama will enter office in.
When will we finally get to know the real McCain? http://straighttalkonmccain.blogspot.com/
The times have changed in the sense that today there is an even greater need to balance budgets, because our deficits are at new records. And it’s worse today than ever before because today we don’t get the money from Americans. We borrow from the Chinese and the Japanese. By putting our future in their hands we completely undermine our own economy. The more we borrow from them, the easier it is for them to manipulate our economy. They could bring us to your knees. The bible was right about one thing. The borrower is servant to the lender. To use a recession as an excuse to drive us further into the hands of the Chinese is foolish. We have got to reign in government spending or force Americans to fund the excessive government spending that they seem to want.
I say we need to live within our means regardless of whether we are in a recession or not. And I don’t regard a recession as the worst thing in the world. It’s a necessary market correction. Borrowing money and spending what we don’t have is driving the price manipulation and mal-investment that has created the problems we have. Prices need to return to market levels as opposed to the artificial levels that result from our excessive consumption, which is fueled by borrowing.
Jon,
You sound like such a protectionist lately. On the contrary, I tend to believe that deficits matter less today than they did yesterday. Why? For two reasons.
1. Money is alot easier to come by today than it was yesterday. Because of China’s growing economy and the USA overall safe investment (relative to the rest of the world), the Chinese store trillions of dollars into our economy despite the fact that we have record low interest rates.
It’s like credit card offers I get of 0% for a year and half…you know what I do with those credit card offers? I cash them! I either pay off existing other debt or use it - by putting it in the bank to make more than zero interest…thereby overall making me money.
In other words, given that real interest rates are so very very low and expected to stay that way for some time, I do not see why the government should aggressively pay down debt.
Do you aggressively pay down your 0% credit cards? I know I certainly don’t.
2. You are worried about the fact that China is holding our debt…I wonder Jon, are you also worried that China is giving us cheap TV’s? Or that Canada is supplying most of our oil? Or that Mexico provides alot of our labor? Or that some of our food comes from different countries?
In other words, what makes China holding our debt fundamentally different than free trade in general?
Economist Don Boudreaux explains it this way:
In other words, who cares what race, color, creed, or religion the people holding our debt are? What guides them would be generally what guides anybody else who holds our debt: market fundamentals.
Btw, as a side note, it looks like Milton Friedman agreed with me as well, he states:
Those last three sentences are worth re-emphasizing. In fact, given that Obama is likely to win the presidency with a congress sharing the same political party…I consider the huge deficit a good thing.
Obama keeps changing who’s he going to give a tax break to in the last several months. First it was 300,000 then 250,000 then Biden mentions 150,000 (Biden gaffe?) and now we have $200,000. Why should anyone trust him on keeping his word?
“starting with bringing the troops home from all over the world. There’s a $1 trillion savings right there, which would actually balance the budget. Probably make us a whole lot safer as well.”
Jon- I doubt we can have that kind of savings. We would need to built new facilities to house the troops, families and equipment. Additionally, we would need more bases and training facilities that we currently have abroad. More importantly, if we are attack, we need forward operating bases to conduct offensive operations against our enemies. I also want to point out that there are lots of low level diplomatic relationships we have developed becuase of our presence. (Yes, I know, we have embassies for that but why add more government employees when we currently have our military already).
I do agree with you though that we should slash the federal budget. Let’s start with programs that the constitution does not authorize. The military should be one of the last programs to be cut unlike what Barney Frank tell us.
HP, there’s nothing protectionist about saying we shouldn’t spend what we don’t have.
No, I don’t pay off my 0% cards. It’s good for me. But it’s bad for the overall economy. When you take a loan at 0% interest you actually increase the total money supply by 10x your loan amount due to fractional reserve banking. Where is the money that you are borrowing actually coming from? It’s actually coming from those that save money, or those that hold money, like the Chinese. When you expand the money supply you decrease the value of the currency they hold.
As banks issue less loans the money supply actually shrinks due to the same fractional reserve principle. The decrease in loans of late is part of the reason the dollar is gaining value.
I don’t have a problem with the Chinese giving me cheap clothes. But what the trade deficit means is of course we buy less than we produce. We give them currency. They give us real goods and services in reply, and they hold our currency. As they continue to hold our currency, and gain interest on it, as with our bonds, our interest payments increase. How do we make these interest payments if we don’t start turning things around? We could reach a point where we can’t tax people enough to make the interest payments, in which case we’d do what we’ve been doing for a long time. We monetize the payment (i.e. just grow the money supply to make the payment). The risk is radical inflation that could capsize us. This is the danger of the constant borrowing, deficit spending. According to such people as Ron Paul, who has proven himself accurate in many of his economic predictions, this is what has happened every time it has been tried. Unpopular wars are fought and paid for with inflation (as happened with Vietnam). The result is pressure on the currency which could cause radical problems.
We’ve been privileged to own the world reserve currency. Everyone needs dollars to engage in worldwide transactions, such as oil sales. So we’ve had the benefit of printing the dollars and sitting on our asses while everyone else does the work. But at some point we’ll saturate the world with these dollars, foreigners will start to question whether or not we can really make good on all the promissary notes, and they will shift away from dollars. Like a bad stock, this could prompt others to do the same and the rug could come out from under us.
But telling the Chinese not to rid themselves of dollars, otherwise they will hurt themselves, is like telling a person not to sell Enron or the value of Enron stock will drop. If the stock doesn’t really have the value that is perceived to exist, then the market is going to drive it down regardless. You can try and get out front of it or be stuck holding the bag. But it’s going to drop.
Russia tried to monetize their debts to sustain their empire, and the result was collapse. We need to reign in our borrowing or face the same fate. That’s my concern.
A couple of points:
1. You failed to address Milton Friedman’s view of the whole thing: he is basically arguing that we could be borrowing from the Chinese cheap and lending to around the world at a higher price…resulting in a net gain. This is good for the economy. For tomorrow’s children. This actually helps pay off that scary interest payments you are so worried about.
I am not saying he is right…but it is a possibility.
2. The savers you are so worried about..lets be honest…are not primarily your average joe’s. Its the very Chinese that are sending us cheap money (they represent the bulk of where we get the funding for our debt). You can worry about them if you like, but if they are more than willing to lend us cheap, I see it as irresponsible for us not to take them up on it. Especially since it helps their economy as well - our consumerism is funding a large percentage of their economic growth.
3. Regarding the interest payments - you seem to have missed my point. I am arguing that those interest payments are really really cheap right now(and likely to stay cheap for a while)…so naturally, we (should) have a larger debt than yesteryear.
4. You write, “at some point we’ll saturate the world with these dollars, foreigners will start to question whether or not we can really make good on all the promissary notes, and they will shift away from dollars” Where would they go?
Even among our current financial crisis, the world seems to believe that the USA is the safest place to store your money.
Remember Jon, the United States doesn’t have to outrun the bear…it just has to run faster than the rest of the countries, the bear will get the slowest country. The European Union, Japan, and other industrialized countries have far bigger problems than we do…and crisis’s lately only seem to reinforce that.
In the end, I don’t worry as much about our debt as you do and in some ways encourage it.
I don’t see any reason to believe Obama will not re-evaluate most of his positions if he becomes President, and I suspect some of his tax plans will go by the wayside. All new Presidents do this. The fact that Obama is a pragmatist, not an ideologue (contrary to what the hysterical right-wingers will have you believe) makes it even more likely that he will “break his word” as HP puts it.
OK, so HP what do you think the effect of a $10K check for every man woman and child in the U.S. We could borrow it from China ($3 trillion) or monetize it, and away we go. Free money. Any down side? If not, why not go with $20K or $30K. I have two kids so that would be $120K for my family of 4. I could really use that kind of money. It’s basically a lottery check for everyone. Does that sound good to you?
A $10K check from China, given at almost zero interest and paid back later at, say, $9K sounds even better.
What are you talking about with “paid back.” We don’t pay back. We borrow, blow it on consumption (big screen TV’s, vacations), then borrow more, then borrow money to pay the interest on the money we already borrowed. This is a good thing in your world? And how about $30K instead of $10K. Seems by your logic this is a no brainer. Instant prosperity for all Americans. What are we waiting for?
The national debt continues to skyrocket. Like Jon, I find this deeply unnerving. I guess I’m still a conservative, even though I vote Democrat now.
See Here
Well first lets talk smart and there has been very little of that going on as clearly tax breaks to big business is not the answer to address a economy on the downturn as those interest rates pile up, up, up. And its what happens when countries let business rule the day with talks of well you can’t possibly be helping out your fellow man when business is the way to go as not uncommon to hear of White Man Running with the Cash. And how does the Republican Party add up for the local yokel well its called a bottomless hole of debt as American’s are stuck on stupid as clearly if your country is in the State its in with major debt to China and the like as those interest rates rack up would give me the indication that American is clueless when it comes to the fine art of finance Republican style where the economy is left in the black. And lets get it right the struggling middle class is on a downward spiral of the little class as many regret they did it the Republican way.