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Amid all your debt hysteria, it’s worth taking a look at the actual arithmetic, because what this arithmetic says is that the size of the deficit in the next year or two hardly matters for the US fiscal position-- and in fact the size over the next decade is barely significant.
Start with interest rates. What matters for debt sustainability is the real interest rate, since what matters is keeping real debt, not nominal debt, from growing. (World War II debt never got paid off, GDP grew to the point where it was trivial). As of recent, the US government could lock in 30-year bonds at a real interest rate of 1.5%. That means that a trillion dollars in extra debt would mean $15 billion a year in additional real interest payments. In fact, although the amount of debt has doubled since 2006, the amount of interest paid is the same as 2006.
The benefit of this borrowing is that this additional debt is helping raising GDP to potential GDP, which will bring in more tax revenue to pay the debt.
America after WWII had a higher debt, compared to the economy, than we do now and somehow the nation made it. But America does have a long-run fiscal problem, driven by the combination of rising health costs, an aging population, and the unwillingness to raise taxes to pay for the programs we already have. If we don’t come to grips with that problem, bad things will happen. But what happens to the deficit in the medium term is almost irrelevant to the question of whether our long-run finances will get under control.
O.K.
Can you explain why America is in such a horrible financial mess without blaming the Republican Party?
Can you explain why America is in such a horrible financial mess without blaming the Republican Party?
It's less Republican's fault than extremist conservatism. The Republican Party was once a responsible party, before it got co-oped by radicals. They were the party that conceived the individual mandate as a solution to health care; they were the party whose president used wage and price controls; they were a party that believed in military constraint and raising taxes to close deficits.
Now, the core GOP is controlled by the far-right, who pledge never to raise taxes under any circumstances.
Democrats aren’t fiscal saints. But we have one party that has been generally responsible, and tries to pay for what it wants, and another party that consistently, deliberately, takes actions to increase deficits in the long term. Saying this may be shrill; but not saying it is being deceptive.
Look, until 1980 or so the United States generally paid its way; the ratio of debt to GDP generally fell over time. Then starve-the-beast Reagan came to power, and fiscal realism went away. Reagan tripled the debt and Bush, in relatively good economic times, intentionally added $8 trillion to the debt (see starve the beast.) That’s the story; anyone who glosses over that, who makes it a plague-on-both-houses issue or, worse, makes it seem as if Obama is the villain, is misleading.
The signature initiatives of Republican presidents -- the Reagan tax cut, the Bush tax cut, the Medicare drug benefit -- have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents -- the Clinton tax hike, the ACA -- have all been deficit-reducing. (Yes, the stimulus -- but that was intended to be temporary, and has in fact proved too temporary; and Bush I’s tax increase was an exception, but the GOP has made it clear that nothing like that will ever happen again.)
It's less Republican's fault than extremist conservatism. The Republican Party was once a responsible party, before it got co-oped by radicals. They were the party that conceived the individual mandate as a solution to health care; they were the party whose president used wage and price controls; they were a party that believed in military constraint and raising taxes to close deficits.
Now, the core GOP is controlled by the far-right, who pledge never to raise taxes under any circumstances.
Democrats aren’t fiscal saints. But we have one party that has been generally responsible, and tries to pay for what it wants, and another party that consistently, deliberately, takes actions to increase deficits in the long term. Saying this may be shrill; but not saying it is being deceptive.
Look, until 1980 or so the United States generally paid its way; the ratio of debt to GDP generally fell over time. Then starve-the-beast Reagan came to power, and fiscal realism went away. Reagan tripled the debt and Bush, in relatively good economic times, intentionally added $8 trillion to the debt (see starve the beast.) That’s the story; anyone who glosses over that, who makes it a plague-on-both-houses issue or, worse, makes it seem as if Obama is the villain, is misleading.
The signature initiatives of Republican presidents -- the Reagan tax cut, the Bush tax cut, the Medicare drug benefit -- have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents -- the Clinton tax hike, the ACA -- have all been deficit-reducing. (Yes, the stimulus -- but that was intended to be temporary, and has in fact proved too temporary; and Bush I’s tax increase was an exception, but the GOP has made it clear that nothing like that will ever happen again.)
Get a clue...then try to put people in their place.
It would be necessary if clues weren't written all over. All one really needs is take posts of these folks and ask for elaboration. They start to scream in pain. Yes, it is THAT simple!
Quote:
Originally Posted by Memphis1979
I'd prefer deflation, but our current political structure and economic system is built around sustainable inflation.
Any good times from the past with somewhat sustained deflation to idolize?
It would be necessary if clues weren't written all over. All one really needs is take posts of these folks and ask for elaboration. They start to scream in pain. Yes, it is THAT simple!
Any good times from the past with somewhat sustained deflation to idolize?
"While central bankers usually worry more about keeping inflation in check than trying to stoke it, Japan’s economy has labored for more than two decades against the stagnating effects of falling prices, or deflation.
:
Excessive inflation was a cause for concern for Japan during its rapid growth in the 1970s and 1980s, and emerging economies are still careful to prevent prices from rising too quickly. But as the Japanese economy stalled over the last two decades, prices have instead fallen in the reverse phenomenon, called deflation — the damaging downward spiral in prices that saps corporate profits and wages."
Any good times from the past with somewhat sustained deflation to idolize?
Not necessarily, but its the storm before the calm, if you will.
Deflation revalues money, makes it worth more, not less. So after the economic storm has cleared, it paves the way for larger growth and increased wealth for those that managed their finances responsibly, instead of looking for constant wealth growth.
What we have begun to assume is that the free market will always grow. But under a true capitalistic system, there should be periods of contraction and growth, and people should manage their finances accordingly.
If you own land, if you have money, if you have paid your bills, deflation isn't a bad thing, its a good thing.
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