Fiscal Cliff

[TimG]

The countries that cut ended up in more debt then if they didn't cut anything. That sounds like bad economics to me maybe you think you should cut during a depression, end up putting people out of work and not help your deficits one bit but that sounds lose lose to me.

Simple questions:

1) Who buys the government bonds?

2) What happens if they stop buying government bonds?

Your problem is you seem to think that government money comes from nothing. It does not. When people stop buying government bonds it makes no difference what your hokey economic theories says - the economy will crash and crash hard. If you want to avoid that crash then governments must cut now. If GDP falls then so be it - it is a price that is better payed now than later,

Edited January 7, 2013 by TimG

[punked]

Simple questions:

1) Who buys the government bonds?

2) What happens if they stop buying government bonds?

Your problem is you seem to think that government money comes from nothing. It does not. When people stop buying government bonds it makes no difference what your hokey economic theories says - the economy will crash and crash hard. If you want to avoid that crash then we must cut now.

Nope here is a simple answer though. Who is in bond trouble? Japan has a debt to GDP of 220% they pay less interest then Canada. Your simple argument makes no sense because there is no evidence to support it. I agree if the market loses confidence in you and your bond you are going to have a bad time. Know what makes the market lose confidence more then a high debt to GDP? A shrinking GDP. Ask the UK who are paying more now they cut and killed their growth then before. Thanks for playing know your Macro Economics. Next time please don't listen to the people who have been wrong in every case for the last three years.

[TimG]

Who is in bond trouble? Japan has a debt to GDP of 220% they pay less interest then Canada.

Japan had a current account surplus until recently - this allowed the government to run up debt. No other country could have possibly let their debt get so high without repercussions. And even the Japanese are getting nervous about their debt levels because they now have a trade deficit because of all the fossil fuels they need to import because they shut down their nukes. That is why they are doubling their VAT to 10% from 5% even though the economy is in the doldrums.

Your simple argument makes no sense because there is no evidence to support it.

There is plenty of evidence. Look what is happening in Greece. No one wants their government bonds - they have to cut drastically now and their economy is going into a death spiral. The same is happening to Spain. If these countries had sacrificed growth 10 years ago by reducing spending then, they would be in a completely different situation today.

Deficit spending is burning the furniture to heat the house. Slow growth is not an excuse to run deficits.

Edited January 7, 2013 by TimG

[dre]

There is plenty of evidence. Look what is happening in Greece. No one wants their government bonds - they have to cut drastically and their economy is going into a death spiral.

The greek economy went into a death spiral primarily because they were hit 10 times as hard by the financial crisis than most other nations due to their reliance on shipping and tourism, and because of austerity measured forced on them by the ECB.

[punked]

Japan had a current account surplus until recently - this allowed the government to run up debt. No other country could have possibly let their debt get so high without repercussions. And even the Japanese are getting nervous about their debt levels because they now have a trade deficit because of all the fossil fuels they need to import because of the shut down their nukes. That is why they are doubling their VAT to 10% from 5% even though the economy is in the doldrums.

So you are saying I am right? Or Japan a special case and an exception to your rule......JUST BECAUSE IT IS. Great now i know who I am arguing with.

There is plenty of evidence. Look what is happening in Greece. No one wants their government bonds - they have to cut drastically and their economy is going into a death spiral.

Deficit spending is burning the furniture to heat the house.

Yep look at what happened to Greece. I'll just check that IMF report ABOUT GREECE! OH it says the cuts in Greece did nothing to help their deficit. Ok case closed then I looked at Greece and you are wrong again.

BTW Greece didn't have a spending problem they had a taxing problem in that no one paid any taxes. It is just the place for you.

Edited January 7, 2013 by punked

[TimG]

So you are saying I am right? Or Japan a special case and an exception to your rule

Japan is not an exception to rule - they were just able to run up bigger debts before the crash because unlike most countries they had more cash going in than going out. If they don't get their spending under control they WILL face a nasty crash too. Chronic deficit spending at rates greater than GDP growth always leads to a crash. It is as inevitable as the sun rising in the east.

Yep look at what happened to Greece. I'll just check that IMF report ABOUT GREECE! OH it says the cuts in Greece did nothing to help their deficit.

Except if no one lends you money you have no choice but to cut. You keep assuming that governments always have choice to run a deficit or not. In Greece's case not cutting was not a choice they could make - they had to make cuts because that was the only way to get people to buy their bonds. If the economy crashed - well its their fault for not fixing the problem sooner. Edited January 7, 2013 by TimG

[punked]

Except if no one lends you money you have no choice but to cut. You keep assuming that governments always have choice to run a deficit or not. In Greece's case not cutting was not a choice they could make - they had to make cuts because that was the only way to get people to buy their bonds. If the economy crashed - well its their fault for not fixing the problem sooner.

Still wrong, you always have the choice to inflate. You really have no idea what you are talking about that is clear. You sand a bigger chance during a recession such right now of having interest rates go up because of the hit to your GDP then because of spending. Seriously you have no clue. There are times that cuts should happen, and you can't run on borrowed money forever. Your thought of applying this rule to all situation is crazy.

Edited January 7, 2013 by punked

[TimG]

Still wrong, you always have the choice to inflate.

Yeah right. Hyperinflation is better than a recession. A recession is not the end of the world. Cutting spending today ensures stronger growth tomorrow. Not cutting spending today will ensure slow growth or a crash tomorrow. It is a trade off but the smart course is to get government spending under control today. Edited January 7, 2013 by TimG

[Bonam]

Yeah right. Hyperinflation is better than a recession. A recession is not the end of the world.

Indeed. The desperate grasping by politicians to avoid "recession" regardless of any conceivable costs, including mortgaging their countries futures, is terribly destructive. If today a few dudes have to spend a few extra months looking for a job than they otherwise would, that price is well worth not having future generations be buried under mountains of debt.

[bush_cheney2004]

Indeed. The desperate grasping by politicians to avoid "recession" regardless of any conceivable costs, including mortgaging their countries futures, is terribly destructive....

Yes....recessions are necessary to reboot economies, re-allocate scarce resources, and force weak hands out of the game.

[Bonam]

Yes....recessions are necessary to reboot economies, re-allocate scarce resources, and force weak hands out of the game.

And even if they weren't necessary, still it would not to be worth trying to avoid them at the terrible costs we are incurring to do so.

[bush_cheney2004]

And even if they weren't necessary, still it would not to be worth trying to avoid them at the terrible costs we are incurring to do so.

Hence a potential "lost decade", just as Japan experienced. The current ZIRP conditions impose paralysis and lost opportunity.

[Bonam]

Hence a potential "lost decade", just as Japan experienced. The current ZIRP conditions impose paralysis and lost opportunity.

And yet I'm sure punked and others will soon once again post about how we must nonetheless flood the economy with borrowed money to "stimulate growth" at any cost. Sad that so many people can't seem to think more than a few months ahead anymore.

[punked]

Yeah right. Hyperinflation is better than a recession. A recession is not the end of the world. Cutting spending today ensures stronger growth tomorrow. Not cutting spending today will ensure slow growth or a crash tomorrow. It is a trade off but the smart course is to get government spending under control today.

No need for Hyper anything. Plenty of countries have choose instead of having half their country unemployed and starving to hurt their currency instead.

[punked]

And yet I'm sure punked and others will soon once again post about how we must nonetheless flood the economy with borrowed money to "stimulate growth" at any cost. Sad that so many people can't seem to think more than a few months ahead anymore.

You or I didn't live through the great depression but there was a reason they called it great.

Again the point isn't that deficit shouldn't be brought down. The point is instead of cutting taxes during good times (CONSERVATIVES OF THIS BROAD) you should be paying down deficits because bad times are coming.

Edited January 7, 2013 by punked

[Bonam]

Again the point isn't that deficit shouldn't be brought down. The point is instead of cutting taxes during good times (CONSERVATIVES OF THIS BROAD) you should be paying down deficits because bad times are coming.

I for one agree with that wholeheartedly... surpluses should be run whenever possible, first to eliminate any national debt, and then to build up a sovereign wealth fund on which to draw in times of economic difficulty. But borrowing tens of trillions right now is about the furthest from that that you can get...

[jbg]

What are you talking about? Do you know what the IMF is? Just because you really really want to believe something does not make it true.

And who funds the IMF? Santa Claus?

[TimG]

I for one agree with that wholeheartedly... surpluses should be run whenever possible, first to eliminate any national debt

I agree as well - but the lefts tendency to ignore deep structural problems with entitlement programs is as bad as the right's obsession with tax cuts.

[jbg]

Your problem is you seem to think that government money comes from nothing. It does not.

Some people think that money comes from Santa Claus too.

[Bonam]

I agree as well - but the lefts tendency to ignore deep structural problems with entitlement programs is as bad as the right's obsession with tax cuts.

Yes, both sides prefer the comfort of their ideologies to the realities of hard numbers and economic feasibility. But that is unsurprising, because thinking in terms of numbers is beyond the grasp and ability of so many on both sides. People deal not in facts, but in feelings.

[punked]

Yes, both sides prefer the comfort of their ideologies to the realities of hard numbers and economic feasibility. But that is unsurprising, because thinking in terms of numbers is beyond the grasp and ability of so many on both sides. People deal not in facts, but in feelings.

The math still doesn't work. At this time a dollar cut is just a dollar lost, and will be like that until the recession is over.

[Bonam]

The math still doesn't work. At this time a dollar cut is just a dollar lost, and will be like that until the recession is over.

Wrong. See here. The graph shows every dollar of GDP added/lost in the US as a result of every dollar of debt incurred. As we see now, additional spending only causes a reduction in GDP, as more and more of the economy is lost to servicing the existing debt and government spending saturates the economy displacing private sector growth.

It used to be in the 60s that for every extra dollar spent by the government you'd get almost the full amount in extra GDP. Today that is no longer the case, as shown by data from the treasury department. The effectiveness of extra debt has been declining for decades and is now in the negative, actually harming economic growth the more government spends itself into deeper and deeper deficits.

Edited January 7, 2013 by Bonam

[punked]

Wrong. See here. The graph shows every dollar of GDP added/lost in the US as a result of every dollar of debt incurred. As we see now, additional spending only causes a reduction in GDP, as more and more of the economy is lost to servicing the existing debt and government spending saturates the economy displacing private sector growth.

It used to be in the 60s that for every extra dollar spent by the government you'd get almost the full amount in extra GDP. Today that is no longer the case, as shown by data from the treasury department. The effectiveness of extra debt has been declining for decades and is now in the negative, actually harming economic growth the more government spends itself into deeper and deeper deficits.

However at this point in time cuts wont get anyone out of debt, one dollar cut is not one dollar saved right now it is no dollars saved or close to it. Freezing budgets is probably the best way to go about this situation because cuts during a liquidity trap does not lead to any savings. Look at Greece and the UK then tell me more about these cuts that don't save any money.

[bush_cheney2004]

Yep...the growth rate in government (federal, state & local) spending as a percentage of U.S. GDP is unsustainable:

[Bonam]

However at this point in time cuts wont get anyone out of debt, one dollar cut is not one dollar saved right now it is no dollars saved or close to it. Freezing budgets is probably the best way to go about this situation because cuts during a liquidity trap does not lead to any savings. Look at Greece and the UK then tell me more about these cuts that don't save any money.

In case you haven't been following the budget discussions closely, no one is talking about cuts as actual cuts. Everything is in terms of cuts to the rate of growth in spending on various programs. That's why deficit reduction plans are always talked about over 10 years in the US now.

Moreover you have not shown any data backing up your claim that "right now a dollar cut is not a dollar saved". I think right now a dollar cut is actually MORE than a dollar saved, since you're also paying interest on those dollars of debt. The US spends about $250 billion a year servicing it's existing $16 trillion dollar debt. And that is at the historically low rates of today, that interest rate is sure to rise eventually from these historic lows, and servicing the debt will eat up a bigger and bigger portion of the economy.

Edited January 7, 2013 by Bonam