St Louis Fed: Why America’s Going Broke

  • Posted by a hidden member.
    Log in to view his profile

    Jan 24, 2013 10:45 PM GMT
    Despite the claims by some liberals, and as the data repeatedly shows, it's not because of defense spending... of course many of these same people argue that there's nothing wrong with entitlement spending

    http://blogs.the-american-interest.com/wrm/2013/01/23/why-americas-going-broke/

    A new paper by Daniel Thornton, an economist at the Federal Reserve Bank of St. Louis, contains some useful graphs on the causes of our debt crisis. The first graph below illustrates the rise of spending relative to government revenue; the second shows that the lion’s share of increased spending has been on social services, Medicare and Medicaid in particular:


    Thornton2_jan_13.gif

    Thornton3_jan_13.gif
  • Posted by a hidden member.
    Log in to view his profile

    Jan 25, 2013 2:24 AM GMT
    Of course healthcare is a problem long term, but defense spending increases aren't helping the problem.

    Are you saying that 2% buildup between 2000 and 2010 in defense is not equivalent in dollar amounts to the 2% buildup between 2000 and 2010 in SS/healthcare spending?

    And note that without that 2% buildup in defense, and without the Bush tax cuts (which made revenues much lower), we would still have a potential small surplus till 2008.
  • Posted by a hidden member.
    Log in to view his profile

    Jan 31, 2013 12:04 PM GMT
    q1w2e3 saidOf course healthcare is a problem long term, but defense spending increases aren't helping the problem.

    Are you saying that 2% buildup between 2000 and 2010 in defense is not equivalent in dollar amounts to the 2% buildup between 2000 and 2010 in SS/healthcare spending?

    And note that without that 2% buildup in defense, and without the Bush tax cuts (which made revenues much lower), we would still have a potential small surplus till 2008.


    Look at historical averages for defense spending - even after you account for the extraordinary spending for the wars - it's lower than historical under Bush. And if you look at the Bush tax cuts - things were improving even with the tax cuts:

    http://cdn.pjmedia.com/instapundit/wp-content/uploads/2012/12/bushchart.jpg

    And then consider the fact that 98% of the tax cuts were reinstated and pushed for by the Obama Administration... which sort of undercuts the idea that you can "blame" Bush for something the Obama Administration agrees with anyway. So sorry, no it's really not the same.
  • Posted by a hidden member.
    Log in to view his profile

    Jan 31, 2013 2:05 PM GMT
    You're comparing Cold War spending to military spending by Bush? What happened to the peace dividend since 1990-2000? Oh yeah, we had another 2.5 self-inflicted wars.

    Without the Bush tax cuts, that blue line could have been above the red line much of the time in your chart till 2008.

    And do I think the 98% Bush tax cuts extended by Obama need to be maintained for now? Yes (see my steroid analogy). Do I think they should permanently stay? No.

    Can you acknowledge that the 2% increase in spending in defense is equivalent to the 2% increase in SS/healthcare?
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 4:45 PM GMT
    q1w2e3 saidYou're comparing Cold War spending to military spending by Bush? What happened to the peace dividend since 1990-2000? Oh yeah, we had another 2.5 self-inflicted wars.

    Without the Bush tax cuts, that blue line could have been above the red line much of the time in your chart till 2008.

    And do I think the 98% Bush tax cuts extended by Obama need to be maintained for now? Yes (see my steroid analogy). Do I think they should permanently stay? No.

    Can you acknowledge that the 2% increase in spending in defense is equivalent to the 2% increase in SS/healthcare?


    It's kind of like Google or Apple who are leaders in R&D. Do you think they overspend?

    And no, they're not the same - those increases in defense versus healthcare. Here's the fundamental issue with spending you still won't acknowledge - and that is that government spending has had nowhere near the effect those like you had thought:

    obama-unemployment.jpg
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 4:52 PM GMT
    And the fundamental issue you fail to acknowledge is that the proponents of the stimulus have asked for way more stimulus than was passed by Congress, and austerity has been applied too soon.
    E.g. 600000 jobs were lost from government since 2009.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 4:53 PM GMT
    q1w2e3 saidAnd the fundamental issue you fail to acknowledge is that the proponents of the stimulus have asked for way more stimulus than was passed by Congress.


    Oh I acknowledge that - just as I acknowledge that proponents of the stimulus would always like the government to do and spend more - and despite this, after accepting a lower level for stimulus, the Obama Administration still stuck to its projections that the bill would result in the unemployment rate projections as shown above.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 4:54 PM GMT
    riddler78 said
    q1w2e3 saidAnd the fundamental issue you fail to acknowledge is that the proponents of the stimulus have asked for way more stimulus than was passed by Congress.


    Oh I acknowledge that - and despite this, after accepting a lower level for stimulus, the Obama Administration still stuck to its projections that the bill would result in the unemployment rate projections as shown above.


    Well, projections are always way more optimistic than they should be. E.g. the CBO estimated we would have a surplus in 2000.
    600k jobs lost from government surely would have shifted that unemployment curve down, no?
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 4:56 PM GMT
    riddler78 said
    And no, they're not the same - those increases in defense versus healthcare.


    Is it the paper the money was printed on different? icon_lol.gif
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 4:57 PM GMT
    q1w2e3 said
    riddler78 said
    q1w2e3 saidAnd the fundamental issue you fail to acknowledge is that the proponents of the stimulus have asked for way more stimulus than was passed by Congress.


    Oh I acknowledge that - and despite this, after accepting a lower level for stimulus, the Obama Administration still stuck to its projections that the bill would result in the unemployment rate projections as shown above.


    Well, projections are always way more optimistic than they should be. E.g. the CBO estimated we would have a surplus in 2000.
    600k jobs lost from government surely would have shifted that unemployment curve down, no?


    Way more optimistic than they should be? Then why bother having stimulus at all? The basic idea was not that stimulus was sustainable - but rather that it would reduce the valley in the dip. What it's done instead is prolonged the economic trough. Even leftwing economists are beginning to recognize and worry over this fact.

    http://www.thedailybeast.com/articles/2013/01/31/what-if-stimulus-works-but-only-in-theory.html
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 5:15 PM GMT
    Lol, Megan McArdle isn't an economist. And she acknowledges that it was short of what was needed, and short of total war, the stimulus would not have been spent "quick enough." She didn't say it was useless.

    And a war on Iraqaliens would have done the trick.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 5:18 PM GMT
    q1w2e3 saidLol, Megan McArdle isn't an economist. And she acknowledges that it was short of what was needed, and short of total war, the stimulus would not have been spent "quick enough." She didn't say it was useless.

    And a war on Iraqaliens would have done the trick.


    Maybe you should bother to read through - she was quoting from Brad DeLong. Megan McArdle may not be an economist specifically but she's also covered economics for quite some time - and in fact worked as a writer for the Economist.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 5:26 PM GMT
    Google "Brad Delong and Megan McArdle" and see what he and others thinks of her economics skills.icon_lol.gif

    And here's the relevant part she didn't quote:

    http://delong.typepad.com/sdj/2013/01/grand-mal-economic-seizures.htmlThere are many subtleties in how governments and central banks should attempt to accomplish these steps. And, indeed, the North Atlantic region’s governments and central banks have tried to some degree. But it is clear that they have not tried enough: the “stop” signal of unanchored inflation expectations, accelerating price growth, and spiking long-term interest rates – all of which tell us that we have reached the structural and expectational limits of expansionary policy – has not yet been flashed.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 5:33 PM GMT
    q1w2e3 saidGoogle "Brad Delong and Megan McArdle" and see what he and others thinks of her economics skills.icon_lol.gif

    And here's the relevant part she didn't quote:

    http://delong.typepad.com/sdj/2013/01/grand-mal-economic-seizures.htmlThere are many subtleties in how governments and central banks should attempt to accomplish these steps. And, indeed, the North Atlantic region’s governments and central banks have tried to some degree. But it is clear that they have not tried enough: the “stop” signal of unanchored inflation expectations, accelerating price growth, and spiking long-term interest rates – all of which tell us that we have reached the structural and expectational limits of expansionary policy – has not yet been flashed.


    And there are many who don't think much of Brad Delong's so little wonder icon_wink.gif . I was was just pointing out that even left wing economists like Brad Delong are concerned how far beneath potential the US economy is running at despite the stimulus.

    And what kind of idiot believes we should try to find out where the limit of "expansionary policy" should be considering the level of debt there is now and the level of debt off the books? The markets I suspect are already making the assumption there will be significant reductions to entitlements - because there will need to be.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 5:40 PM GMT
    riddler78 said
    q1w2e3 saidGoogle "Brad Delong and Megan McArdle" and see what he and others thinks of her economics skills.icon_lol.gif

    And here's the relevant part she didn't quote:

    http://delong.typepad.com/sdj/2013/01/grand-mal-economic-seizures.htmlThere are many subtleties in how governments and central banks should attempt to accomplish these steps. And, indeed, the North Atlantic region’s governments and central banks have tried to some degree. But it is clear that they have not tried enough: the “stop” signal of unanchored inflation expectations, accelerating price growth, and spiking long-term interest rates – all of which tell us that we have reached the structural and expectational limits of expansionary policy – has not yet been flashed.


    And there are many who don't think much of Brad Delong's so little wonder icon_wink.gif . I was was just pointing out that even left wing economists like Brad Delong are concerned how far beneath potential the US economy is running at despite the stimulus.


    No, because of the lack of adequate stimulus.

    And here's what the market thinks about the debt. I guess we're all idiots.

    http://247wallst.com/2013/01/24/investors-still-buying-treasury-tips-at-negative-interest-rates/
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 5:42 PM GMT
    q1w2e3 said
    riddler78 said
    q1w2e3 saidGoogle "Brad Delong and Megan McArdle" and see what he and others thinks of her economics skills.icon_lol.gif

    And here's the relevant part she didn't quote:

    http://delong.typepad.com/sdj/2013/01/grand-mal-economic-seizures.htmlThere are many subtleties in how governments and central banks should attempt to accomplish these steps. And, indeed, the North Atlantic region’s governments and central banks have tried to some degree. But it is clear that they have not tried enough: the “stop” signal of unanchored inflation expectations, accelerating price growth, and spiking long-term interest rates – all of which tell us that we have reached the structural and expectational limits of expansionary policy – has not yet been flashed.


    And there are many who don't think much of Brad Delong's so little wonder icon_wink.gif . I was was just pointing out that even left wing economists like Brad Delong are concerned how far beneath potential the US economy is running at despite the stimulus.


    No, because of the lack of adequate stimulus.

    And here's what the market thinks about the debt. I guess we're all idiots.

    http://247wallst.com/2013/01/24/investors-still-buying-treasury-tips-at-negative-interest-rates/


    "And what kind of idiot believes we should try to find out where the limit of "expansionary policy" should be considering the level of debt there is now and the level of debt off the books? The markets I suspect are already making the assumption there will be significant reductions to entitlements - because there will need to be."

    Incidentally do you even know what TIPs are? They protect against inflation. Why do you suppose investors want to protect themselves so badly against inflation?
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 6:07 PM GMT
    Yeah, people are buying TIPS because of the flight to safety. They are trying to preserve their principal (TIPS being backed by the government just like Treasury notes), even at a loss. Feds are buying bonds monthly with a target inflation of 2.5%--just about the breakeven rate for TIPS.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 6:10 PM GMT
    q1w2e3 saidYeah, people are buying TIPS because of the flight to safety. They are trying to preserve their principal (TIPS being backed by the government just like Treasury notes), even at a loss. Feds are buying bonds monthly with a target inflation of 2.5%--just about the breakeven rate for TIPS.


    Apparently you don't know what TIPS are. "Treasury Inflation-Protected Securities (TIPS)"

    They are not just Treasury notes - in fact the article you noted quite explicitly states as much. They protect against inflation. So I'll ask again - "Why do you suppose investors want to protect themselves so badly against inflation?"
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 6:20 PM GMT
    Because, again, people are trying to preserve capital. Excessive inflation has NOT reared its ugly head, even with the amount of money poured by the Fed. What the TIPS market is saying right now is that they don't expect a lot of growth or a lot of inflation pressure now.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 6:29 PM GMT
    q1w2e3 saidBecause, again, people are trying to preserve capital. Excessive inflation has NOT reared its ugly head, even with the amount of money poured by the Fed. What the TIPS market is saying right now is that they don't expect a lot of growth or a lot of inflation pressure now.


    Except they are worried that it will - in fact, inflation has reared its ugly head in energy and food costs which explicitly are excluded from CPI. What the TIPS index is saying is that they are more concerned about inflation and capital preservation than they are about growth.

    It is saying that *they are* worried about inflation - otherwise they'd just buy the treasuries without the discount. That's why there's a discount.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 9:17 PM GMT
    My point isn't about inflation. My point is, if people were so afraid of the federal debt, they sure have a funny way of expressing their fear, by buying more and more of Treasuries, TIPS or not.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 9:40 PM GMT
    q1w2e3 saidMy point isn't about inflation. My point is, if people were so afraid of the federal debt, they sure have a funny way of expressing their fear, by buying more and more of Treasuries, TIPS or not.


    How is it funny to worry that the US federal government will attempt to inflate its way out of its debt? It's really basic public finance. That's the problem with inflation. The fact that the TIPS trade at a discount show that this is a real concern.

    If the goal is capital preservation in this current environment - TIPS are one of the best bets.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 9:45 PM GMT
    Rather, from the government's standpoint, now is the best time to borrow money, yields being as low as they are despite the borrowing. It's called a liquidity trap.
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 9:50 PM GMT
    q1w2e3 saidRather, from the government's standpoint, now is the best time to borrow money, yields being as low as they are despite the borrowing. It's called a liquidity trap.


    If they issue TIPS - in which case this means you can't inflate your way out of the debt crisis. And yes, you could borrow on the backs of future Americans - and that's a fantastic strategy... especially when the money you're spending won't ever have a positive return. icon_rolleyes.gif

    I mean it worked out so well for Greece...
  • Posted by a hidden member.
    Log in to view his profile

    Feb 01, 2013 10:00 PM GMT
    ...which doesn't have its own currency. We'll see how the Japanese experiment in stimulus will do in probably a year or two.

    I give up, it's useless to argue with you. You win.

    There's a forum posting vicious cycle cartoon that I just can't find right now...maybe you can post it.