There is a peculiar aspect of the present Economic Policy dance. It isn’t talked about much. It just sort of happens and everyone ignores it. ( Or maybe they don’t recognize it…) It is the Dance Of The Schizoid Advisers…
On the one hand, we have the bulk of present day economists as Keynesians. We see this in The Bernank along with the European Central Bank. We see it in both the Democrats and the Republicans. We see it in the leaders of Italy and Greece. We see it on the floor of the various exchanges where stock and commodity brokers wish for more “stimulus” to “get things moving”. When in doubt, spend more!
Baby Bush was all for it (starting the first Stimulus Bolus moving). Obama and the Dims are all for it ( $16 Trillion in debt and rising at $1.4 Trillion / year! Now that’s stimulus!!)
On the other hand we have the IMF and the bond traders. Sourpusses one and all. Asking for uncomfortable “concessions” from folks like the Greeks. Why? Well, they want their money back, even if they do have to wait for “someday” to come… The Bond traders don’t want to buy junk headed for the scrap heap. (Though they don’t mind buying junk just about to rise back to ‘investment grade’ under ‘austerity’). These folks look at the amount of government spending (both in total and as a percent of GDP) and say: “Less Spending! Be frugal. Cut taxes and government size.” But they only want taxes cut after the budget is balanced…
Yet noone seems to ask: “How can they BOTH be right?” One asking for more concessions, austerity, and spending cuts. The other saying “more spending is the right way!”… Both are various collections of financial and economic experts. Yet the advice is ‘exactly backwards’ between the two groups, and nobody says anything.
For example, this story about Greece:
Greece’s lenders object to parts of its austerity plan
Reuters – 23 hours ago
Reuters – Sun, Sep 9, 2012 4:24 PM EDT
By Lefteris Papadimas
ATHENS (Reuters) – Greece’s foreign lenders have rejected parts of a nearly 12-billion-euro austerity package prepared by the government, Greek officials said on Sunday as the two sides resumed talks after a month-long hiatus.
The so-called “troika” of inspectors from the European Commission, the European Central Bank and the International Monetary Fund returned to Athens on Friday to conclude a report on Greece’s progress in meeting the terms of its latest bailout.
OK, got that? Greece is deep in the doo from having done the Keynsian Dance just way too long. It is a poster child for excess government spending, loads of debt, just Fiscal Stimulus by the TON! You would think it would have the most spectacularly explosive economy on the planet… But no, it is moribund. Italy is in a similar boat, as is Spain and several others.
So their economy is in the dumper, high unemployment, stagnation in the business sector. The normal prescription for that circumstance is a mix of “Monetary Stimulus” and “Fiscal Stimulus”. Those are code words for “easy money from the central bank” and “deficit spending by the government”. Yet a load of ‘easy money’ has been shoved at the PIIGS (all those bond sales, bank recapitalizations, direct loans ) and Greece is a poster child for deficit spending by government.
Clearly something is wrong with the idea that those actions cure this problem… Which makes the ECB / IMF / EC position look a lot more reasonable. They want a fiscally sound debtor who will pay back the loans. For that, they want a functioning economy with money being sent back to THEM, not put in the pockets of retirees and folks “working” a 30 hour work week producing nothing that generates revenue…
Yet, oddly, the ECB and The Fed and the various others all are Keynesian. At least when it isn’t their money on the line…
The inspectors, who held talks with Greece’s finance minister on Sunday, must approve the plan to trim roughly 11.7 billion euros from the state budget over the next two years if Athens is to get a green light for the bailout money it needs to avoid bankruptcy.
“The troika has not accepted all the measures, but we have alternative proposals,” said Socialist leader Evangelos Venizelos, a junior partner in the ruling coalition who was briefed by the finance minister at a party leaders’ meeting.
Greek Finance Minister Yannis Stournaras played down the inspectors’ objections, saying they had rejected only a “few” measures. A senior Greek government official had said earlier that the troika had sought more details on the proposals to understand them better.
Could it be that old line about Socialism failing when it runs out of “other people’s money to spend”? And perhaps even the other Euro-Socialists recognize the “end stage decline” and suddenly become a bit more capitalist when it is their money on the line?
Officials declined to specify what the objections related to but a source familiar with the matter said they were over measures to save roughly 2 billion euros by cutting expenses in the public sector.
Oh Dear! The dreaded “cutting expenses” in government… i.e. patronage and favors handed out as ‘jobs’ sucking up largess at the expense of the producers in the economy.
NO politician of any political bent can long survive the squeals and squalls that blow up in their face when folks comfortably sucking on the public teat are told it is weaning time… Neither democracies (where those are votes and bribe payers and ‘lobbyists’) nor good socialists (where those are party members and commissars and party faithful) nor even Keynesians where those are “fiscal stimulus” that would turn into “economic downturn”. Can’t have unemployment numbers going UP during a recession, after all…
And yet, these Troika Bankers are demanding just that.
The austerity package, which Prime Minister Antonis Samaras has yet to persuade his allies to sign off on, contains a new round of unpopular wage and pension cuts for the next two years that his coalition partners are loathe to be associated with.
The latest round of talks on Sunday between Samaras and his allies, Venizelos and Democratic Left chief Fotis Kouvelis, failed to get an agreement on the austerity package and the three sides said they would resume discussions on Wednesday.
The premier’s allies have objected to across-the-board cuts on wages and pensions saying they want to shield poorer Greeks from further misery.
They also want a greater emphasis on measures to revive an economy languishing in its fifth year of recession. They deny that the fragile three-party coalition is at risk over the savings plan.
Thousands of Greeks demonstrated against the proposed cuts at a prominent annual trade fair on Saturday in the northern city of Thessaloniki, and more protests are expected in the coming days.
Athens argues it needs two more years to push through the austerity cuts because of a deepening recession, but the country’s lenders – exasperated by broken promises of reform – have demanded the country first deliver on its pledges before seeking any concessions.
And there you have it in a nutshell. On the one side, the lenders expecting to have the money repaid. On the other, those dependent on government handouts ( call it “social justice” or call it “safety net” or call it “retirement package” or call it “medical plan”… or even just call it ‘government paycheck’…) saying “no way” to cuts.
Greece faces bankruptcy and a potential euro zone exit without the next tranche of aid, an issue that European leaders are expected to decide on next month.
(Writing by Deepa Babington; Editing by Greg Mahlich and Andrew Osborn)
So there we have it, in a nutshell. On the one hand, the end game of too much Keynesian Stimulus such that it has been mutated from the original form / intent: a very short term excess spending to be offset by reduced spending during ‘good times’ to have an overall balanced budget; mutating it into Socialism and Government Palimony. On the other hand, even the “Social Democracies” of the EU not willing to put their money at risk handing out too many goodies to others outside their political sphere of benefits.
The very same scenario is oh so slowly unwinding in the USA. States and cities that have handed out way too many ‘goodies’ and promisses. A Federal Government that has promised even more ( about $120 Trillion last I looked) and has no way in hell of ever paying it. Various forms of “government largess” from “Social Programs” to excessive wages and benefits packages to way over the top Porkulus Stimulus to ‘Friends Of The Government’ and way too much Crony Capitalism.
And now the Bill is coming Due.
So the same problems will also show up here.
In Chicago this week, the teachers have gone on strike. Unhappy with a 16% pay rise package over 4 years. Never mind that revenues to the city will not be rising to match. Never mind that the economy is in the dumper. Never mind that we’ve seen Detroit shrink dramatically (and property tax revenues with it…) as an existence proof of what happens when too many costs are layered on top of a productive process. (Making cars is still economically a gain and wealth producing; just much more so in Korea or Mexico…) Do I think Chicago will be the next Detroit? No, they have a much more diverse economy and many more options. But I do think they are on their way (as is the whole country) to a financial crisis and that 16% pay hikes are just going to accelerate the process.
If you look at the way the “Stimulus” was handed out, a lot of it went to schools. We’re already in the end game where ever more Government Largess from ever more sources is handed out to ever more folks with a good story. Solar power is in the same bucket. It only sells due to ‘subsidy’. That means government sinking money into non-economic activities.
California is crowing over the fact that they are ‘on their way’ to their goal of 20% ‘renewable’ sources for electricity, even as the State is bankrupted and electricity costs spike up to the point where even Apple, a die hard local company with buckets of money, built their new Cloud data center out of State. I was at Apple in prior times when they bought a giant data center in N. California with more capacity than they could need. Backup power from jet turbines on site, just to give an idea of scale. They had at least 3 major data centers already in California. Clearly there was a decision made to leave…
For the life of me, I don’t understand how the same people who can be all in favor of more “Stimulus” and ever more Keynesian Government Budgets and ever more Subsidy et. al. can be the same folks who demand Austerity and budget cuts when the money goes outside their country, yet they are. The IMF is a creation of the same nations that run large Keynesian operations inside their own countries. The ECB could not even remotely be accused of being an Austrian School operation. At best “conservative Keynesian” IMHO.
My take on it all?
What Keynes really said was that you could do the stimulus thing for a little while when the economy was in a downturn; but during the following bubble economy you needed to have the government run a surplus. Both to repay that prior deficit spending and to dampen the bubble.
Instead, all that the politicians (and many of the Central Bankers and ALL of the Socialists) seem to remember is that “spend to stimulate” part. Completely missing that if you spend every day wired on speed, you become habituated to it. It loses it’s ‘punch’ and you eventually need the dope just to stay awake. It’s “no joy” and you end up spending ever more just to be ‘normal’. Eventually you hit the wall and collapse as too much of any drug eventually causes a decline.
Then, when that “sick man” with a drug habit shows up at the beggars window asking for spare change; only then is it clear to the folks with the money that too much of the drug is a bad thing. The “cure” is demanded. Dry out, going cold turkey.
Once again we’re back at the old question: “Malice or Stupidity?”
Is this a ‘grand fleecing’ by the IMF and World Bankers? Or just that most folks, even bankers and especially politicians, and certainly the voting public; simply don’t ‘get it’ how the system really works. They are stupid enough to think they were doing the right thing with “stimulus on stimulus” and just don’t know how to do the other half of Keynes: run a surplus in times of plenty to take the punch bowl away from the bubble process. Were the Dimocrats stupid to demand the CRA force lending to folks who could not pay and had no income? Were the Bankers evil to produce “Liar Loans” to avoid the legal penalties in the CRA for NOT lending to ‘redline’ areas and high risk borrowers? Were the Republicrims stupid to demand a freer hand for those Bankers (repeal of Glass-Steagall) in exchange for letting Clinton and friends expand the CRA? Clearly yes to all… But that does not clarify “stupid” vs “malice”…
IMHO the correct metric is “greed”. The Bankers were greedy for a merger of investment banking, retail banking, and insurance. The result was the firestorm of the contagion aspect of the financial crisis. (that was what Glass-Steagall was designed to prevent – exactly the implosion contagion risk of Lehman to Citibank to AIG Insurance). They were also sly enough to package the “crap” they were mandated to sell by the CRA into the SIVs and other “mortgage packages” and get it off their books.
The Congress Critters were also clearly greedy. Democrats greedy for more votes and donations from folks wanting a “chicken in every pot” to be cooked inside a new home owned by folks with little ability to pay for it. Expecting to ‘stick it to the banks’ with them forced to make bad loans. Not realizing how clever they would be at moving the crap off their books. Republicans greedy for more donations from Financial Industry members to get Glass-Steagall off their necks and get a freer hand to do those financially creative things that would let them “securitize” mortgages and make mortgage sausage.
Employees of Government were greedy for ever more in pay and benefits, enabled by a legal change that let them make unions. Democrats very happy to buy those votes with ever more legal changes and ever more “cash and benefits” handed over in ‘labor negotiations’. Republicans too, perhaps. ( I’ve seen no evidence they tried to stop it, and some that they participated too, trying to buy votes from employees – just less effective at it…)
Voters were greedy for ever more handouts from “Government” (and the various politicians oh soooo happy to take money out of our pocket to put 1/2 of it in our hand and tell us how much they want our vote… we, too stupid to notice the pocket was emptied and the hand 1/2 full; or perhaps those of us who noticed not in a position to stop it and those with larger piles in hand not wanting to stop it… “redistributive justice”…)
In the end, I think the reason we have “Selective Listening Skills” when it comes to Keynes and only hear 1/2 of what he said; and the reason we have “Selective Planning Skills” willing to hand out promises today that result in ruin tomorrow; that all of it comes down to greed. We are, collectively, too weak in morals to NOT eat all our seed corn; to NOT stay away from the whore house; to NOT get sloppy drunk on the process and sleep with the neighbor when the spouse is away. We want pleasures today, power today, money today; tomorrow be damned. So it is.
Eventually things get so bad there’s nothing left in our house that we can eat, burn, sell, whatever; for the next fix. Then we go to our neighbor and ask for a handout. Then, and only then, the neighbor looks up from their debauchery and says, in essence, “You want ME to give up MY immediate gratification? For YOU? Only if you pay me a LOT and show me that I’m going to get more Fun Time and more Money in the future. So clean yourself up and then we’ll talk.”
In more formal terms: We recognize that Keynes has been violated in the duration and that there is no alternative but to rabidly inflate away the debt or to abrogate the contracts up front; and only one of those will repay the lender…
So that’s my take on things. We’re reaching an ‘end game’ on going “A Keynes too far” driven by our collective and individual greed and lack of restraint / discipline. We had a ‘shot at it’ under Clinton when we had the ‘boom’. That was the time to keep taxes where they were, pay the debt down to zero, and prepare for the inevitable end of the bubble later.
Instead, we did the CRA expansion (fueling the bubble more), Greenspan told Congress to spend like a drunken sailor and they started spending like crazy (more fiscal stimulus during the bubble), passed the ROTH IRA law (moving more future tax revenues into those years at the expense of now) and then cut taxes (under Baby Bush) to produce even more bubble juice, just in time for the bubble (by then way over inflated) to burst.
But now that bursting was made ever more extreme (pushed to the edge of global financial collapse) and the recovery interval was compromised in that the ability of Keynesian stimulus to work, or to be available, was strongly reduced. Instead of the Government having “money in the bank” from the good time to work as stimulus and high tax rates ready to cut while living off that money in the bank; all it has is more debt, extreme debt, and tax rates already in a position where they can not be cut more. At this point, a Keynesian Fix is not going to work. It will ether be seen as “need to beg more from the neighbor to buy more dope” or it will show up as rampant inflation (depending on Central Bank decisions on money printing…)
In short: 1/2 a Keynesian Strategy with “spend it if you have it” during good times leads to overgrowth of government and economic collapse into failure of Keynesian Stimulus in the aftermath. The Social Programs and other layers of Socialism layered into law can not be removed, the spending can not be adjusted short of collapse, and the only way out is to inflate away the obligations.
That’s how I see it.
So it is “malice” or “stupidity”? Frankly, I think it’s both, heavily leavened with greed…
I very much appreciate your summary here. I am glad someone reads Keynes as I did long, long ago. Yes, when the business cycle tanks, people and businesses need government help, but when the worst is over, with the renewed affluence, everyone must work to pay back/off the debt. Guess it hasn’t exactly worked that way! I like the analysis of greed with everyone in on it, and that means even myself in some way. Can we all give something up for “America” to come up for air? E.g., resurrecting Glass-Steagal, eliminating CRA, transparency in all transactions, working for welfare/food stamps/whatever, restructuring entitlements; all pensions become 401Ks with employers putting in 5-10%of salary per payday and the employee 5-10%, all untouchable by government.
One other aspect that I think is important is the choice by individuals who have no hope for quality of life (they get to define it for themselves) and those with terminal illnesses to be able to choose a gentle and timely death. Oregon has the second, terminal illness, part. I want the first part for myself. Helped mother-in-law through 5-1/2 years of needing 24/7 care in nursing home. She did not want it and said so as long as she could talk (don’t know if she would have chosen to end her life, though). But I will not endure what she (and finally only her body) did if I can have a choice. This pitiful ending decimated her savings which were substantial and then put a huge burden on the taxpayer through medicare and medicade. What a huge waste of life and the “time and assets” of the living.
“For the life of me, I don’t understand how the same people who can be all in favor of more “Stimulus” and ever more Keynesian Government Budgets and ever more Subsidy et. al. can be the same folks who demand Austerity and budget cuts when the money goes outside their country, yet they are.”
For one thing – PIIGS can only vote for their PIIGS – not for the lenders. Greek citizens don’t have much influence with Merkel but German citizens DO.
A related article:
Keynesian stimulus appeared to work previously because the baby boomers were still in the nest building stage. Marriage, apartment to house, better car, kids, bigger house, more stuff, HELOC, even better car and more stuff … until just recently. Now their kids are going to college and the BBs are having to pay down all that debt and now realize they have to save more for retirement. The only reason it appeared KS worked before was due to all their spending. There aren’t enough rich for the government to tax to make up for the lack of BB spending. The party’s over – now the government is accomplishing nothing by deficit spending other than to run up a mountain of debt – wasted.
I have been reading a book off and on recently called “This time is different” and the crux of it is that in every economic emergency in history everyone thought “this time is different” and the conditions of previous economic emergencies just couldn’t happen now because things are so much different and we are so much smarter, etc. Anyway, they go back through economies about 800 years or so back in history up to the current financial collapse. One thing that is important is that Greece and Portugal are “serial defaulters”. They have almost a habitual tendency to run up extraordinary levels of debt, when they are allowed to, and then default on it. Greece was locked out of international financial markets for the better part of a century (over 70 years) because of this.
Another key point shown in the book is that as of 2008, we were, as the authors say it “running right down the rails of a typical financial collapse”.
We have, in my opinion, four huge problems. Current deficits are running about 10 times the FY 2007 budget deficit (the last one produced by a Republican Congress). In other words we have run up 40 years of debt in only 4 years. Right now the service on that debt isn’t bad because we have historically low interest rates. Should rates rise to more “normal” levels, the amount required to pay the interest on that debt rises to a greater amount that the total Social Security and Medicare outlays. It will destroy us.
A second problem is capital destruction. The decline in the mortgage market destroyed the capital of millions of Americans. Over 50% of Americans under 40 have mortgages under water. The last time we saw equity wiped out on this scale was the stock market crash of 1929. Unlike the Great Depression, we have an absolutely corrupt Democratic Party currently in power who has raided the future earnings of our children and grand children to line the pockets of their political supporters with taxpayer guaranteed money and in many cases with outright tax dollars. In this respect the administration has been burning both ends of the candle. While we have the destruction of capital that has put the brakes on new investment and spending in the private economy while the public economy at the same time takes on huge levels of debt to shower cash on political supporters. So we have less tax revenue coming in while at the same time borrowing huge amounts of cash.
Third problem is we are taking the youngest generation and saddling them with huge amounts of student loan debt. The result is that the cash they would have had to pay on a first home is now tied up repaying student loan debt. This situation is also partially crony capitalism because academia was one of the major supporters of the Obama 2008 campaign. The number 1 source of campaign contributions to Obama was employees of the University of California system. They donated even more than the employees of Goldman Sachs. Obama then took over the student loan industry enabling academic institutions to greatly increase salaries and increase tuition which was then paid by easy government loans. It is just another way of funneling government money to taxpayers. In 2007 there were 6 employees of UC that made a million dollars a year. Today there are 22. All of that in a weak economy where salaries in general are in decline. But the real problem is that we have eliminated the demand for housing which is going to keep the mortgage industry depressed. We have the baby boomers retiring and moving out of the housing market and we have a new generation that can’t afford housing. They are living in their childhood bedrooms or in their parents basements or garages. They can’t afford cars, rent, medical insurance, nothing. Meanwhile they have a degree in Cultural Anthropology or Diversity Studies that qualifies them to work as a bartender, waitress, or floor staff at Macy’s.
The fourth problem is Dodd-Frank that creates ridiculous levels of capital reserve requirements on the banks so they can not lend money. It is no wonder the economy is sluggish, it has been engineered in such a way as it has no choice to be sluggish. Obama has effectively pinched the fuel line on economic growth. But wait, it gets worse.
The stock market has been up … but have you seen the volume? Volume is falling. Prices are high but shares aren’t trading. And look at what we face at the start of the year. We have budget sequestration that is going to throw thousands of military personnel and defense workers out in the street. Capital gains and dividend taxes are set to rise and retired Americans will be taxed on their dividends, rents, and royalties they rely on for income. It is probably THE MOST EFFECTIVE brake ever designed to apply to the economy. The economy WILL go back into recession after the first of the year, there is no way to avoid it.
40% of our tax revenues come from the top 1% of wage earners. Those people do not get their money from salaries, they get it from gains on investments. If you raise taxes on those investments, they just aren’t going to make as many of them. Meanwhile, the bottom 50% of wage earners that do have steady incomes only pay 2.5% of the tax revenue. We have great growth in burger flipping jobs but those don’t produce any tax revenue. 50% of American workers could go unemployed tomorrow and the treasury wouldn’t even notice the loss of tax revenue. The problem is that our tax system is TOO progressive putting too many eggs in the basket of the top earners and then we create conditions where they can’t make any money and also want to “punish” them for being rich?
We’re in for a mess, folks, and the crap really hits the fan on January 2. If Obama is elected in November, we’re in for a world of hurt.
EM – good analysis, but I can’t see the malice. I see it as purely a mixture of greed and stupidity. Bankers are not a social service; they are there to make money and feather their own nests. Given the choice, would you take working for a living or banking (short hours, inside work, no heavy lifting…)?
Most people would, I think, like to get an income for no work and instead spend the time doing what interests them. I do this myself (I’m on a pension), but I do work that may possibly be very useful if I succeed so I feel my time is well-spent. Given that we need a fraction of the working-hours that we used to need to make the requirements of food, shelter and warmth (or cooling in some places) it’s inevitable that there will be a lot fewer people in gainful employment anyway. Somehow I think that Keynes didn’t allow for such a mismatch between available worker hours and what is actually needed for production, and some new thinking needs to be done to make a workable system based on what we can project of future working hours needed.
At the moment, taxing those people who do actually have profitable work seems the only answer, and as the effective tax-rate keeps rising we’re getting closer to the cliff (or possibly further away with air beneath us).
Never attribute to Malice what can just as easily be attributed to stupidity.
Some say Einstein said that, I am not sure. But it is true. And while some may argue that the current crop of government clowns are misreading Keynes, he was still wrong even in his original form. Government spending stimulates nothing as it creates no wealth. And it is the creation of wealth that is the stimulus – not idle cash. I would think the bankrupting of monarchies from time immemorable would have been enough evidence to prove you cannot spend your way to prosperity. But I guess not.
Bernanke and his ilk are simply more idiots monkeying with their toys while their house burns. The last great Fed Chair was Volcker. Greenspan at least was not an idiot. The same cannot be said for the latest occupant of the office, nor of one of his minions now serving – not time, unfortunately.
You missed ignorance of basic econmics being exhibited by high powered economists. Wealth needs to be created. It is created by busineses and farmers who create sometning from basic materials that the county, state, country can sell and receive wealth in return. All other service activities are akin to taking in each others washing and claiming that you are earning money. Service industries include the bankers. Then there is government necessary to set the rules. The best that a service industry or government worker can be is a symbiont they put in as much value as they take out – but they do not create wealth. As service industries like the banks get larger and greedier they become parasites taking more value out of the economy than they put in. Similarly, many government posts have become purely parasitic.
The problem with Keynesians and anti-Keynesians are that they think in purely financial terms argue about distribution of wealth NOT its creation.. THE major problem with initiating or running a manufacturing or real wealth creating job say farming, is regulations this is everything from competition killing ‘licensing’ at local level to EPA generated stupidities at Federal level. If the entire financial edifice was left ‘as is’ and the mass of time-wasting and stultifying regulations on small businesses were to be removed then wealth would be created. It appears that a deliberate attempt is being made by Federal authorities to prevent wealth creation in the USA at the same time as the number of parasitic bureaucrats is being increased and spending on non-wealth creating tasks is ballooning out of control.
The emphasis MUST be on wealth creation – take the brakes off and see how rapidly the USA would recover. .
Checks and Balances – not enough of either; Presidents, Congresses, and Courts all failed mostly through stupidity and, considering the volume of stupidity, a little dash of everyday, normal, very human greed and malice. The very same breed of academics who brought us AGW told us that what we were doing all those years to our economy was ‘just fine’, and ‘exactly what the doctor (PhD) ordered’. And of course, we can’t forget the people, the electors of all the bright, wise, humorous leaders we put into the lofty halls of government and the courts. Putting a man on the moon is ‘knowledge’, something we accrue over time from books; saving for a rainy day and not spending foolishly is ‘wisdom’, something we gain from our mistakes and which we don’t pass on to our children very well at all. I guess, in the end, we have adequate checks and balances for knowledge but have nothing to save us in the wisdom arena. Think maybe we’ve been electing the wrong type of people with the wrong qualifications for far too long? Think the voters today realize (or are going to realize in the next few weeks) that they must ‘face the music sooner or later and it’s better to do it sooner than later’? Think the candidates we have are really that different? Think either of them has any idea of what really needs to be done to save us from total collapse? If so, think he’s got the guts to try to do the impossible? Think he has the leadership to pull us together and push us to success? Do you believe in the Easter Bunny? Would you like to buy a very nice Bridge in Brooklyn, maybe?
I don’t see “Recession” just ahead, I can only see a huge Wall Cloud and an uncountable number of lightning flashes, and all around me I see 300 million stupid people standing and looking up at the sky. I also see a few taking advantage of the situation, running around picking pockets and carrying away new TV’s. This is depressing. Or is it Depression? (Can’t remember if I took my med yet;-)
What are the odds of any hope? (I don’t do this kind’a thing very often, but hopefully you’ll get the idea of what I’m thinking and trying to say;-) We have two choices on election day –don’t think the world’s going to end before then, but I guess that just shows I’m an optimist at heart– one is a known and the other is an unknown. I figure we’ve given the known all the time we can spare, that just leaves the unknown. Already our chances are down to 50-50. Now the unknown is likely no better than any of the past 12 presidents –might as well just count the ones who served during my time on the surface of this rock– and the way I see it the odds are 50:50 again that he’s an idiot or a bigger idiot and that makes our chances 1 in 4 (25%?). Now we have to factor in Congress and the Courts, I’d put a smart, brave, wise, good Congress at 1 in 1000, and a smart, wise, good, brave Court at 1 in 500. Back to the president, let’s say he’s just an average idiot but he can balance a checkbook and is OK with only a four year term, chances of that are probably 1 in 100. Well, I’m just going to take a scientific wildassed guess and say our chances are probably one in a million and that only 300 of us are going to get to a South Pacific paradise before the end of the world and the second coming. Aloha!
@E.M. What if you would “brief” us instead? Then your affirmations would adjust to either side you would be representing….So, something nobody asks: Who will pay now that the “party is over”? “They”?, nope!, “they” never pay anything…WE PAY!, wheresoever “we” may live, in Peru or in China, then all will go just “roses, roses” for them, as always.
Excesses in money always end being paid with increased poverty: Oh, that´s nice!, thanks God there are fools out there which work as “break linings” for the economy.
The positive way would be to generate revenues, as soon as possible…(alternatives energies forbidden, and cheating by extension).But, there are too many “but”, like those doubtful “loans”, really junk loans which “they” hope to be transmuted into real assets, etc. Thus these fake “loans” could be rejected. So, the ideal agreement would be: Ok, we don´t pay you and you must happily agree with it…otherwise things will look very bad for you,…
And, at the same time, we agree to live with our means and not doing crazy things as retiring being 45 years old,etc.
However the market it is already a drug-addict market, fatally addicted to make money out of nothing, from just pouring the “empty into the void”…Just don´t care about those fools out there, just keep them amused and distracted! (ya know, we pledge every year to be free of “care”), but, again, this won´t be easy…when they feel a vacuum at the stomach pit they usually become angry against us….wouldn´t it be better to get the hell out of here before they get mad? :-)
Nice succinct explanation, Chefio. The bottom line as I see it is that the entire world is suffofating under an impossible burden of debt and the bond markets are about ready to dry up, so there will be no more debt sellable.
There are as I see it only three ways to deal with this excess debt. Firstly governments can repudiate part or all of this debt. We saw this in Argentina when they defaulted in 2001, we saw it this year in Greece when the debts were written down by 70%. The problem with this is that unless the IMF, or in Greeces case the ECB can provide support to cover government obligations during a transition period, the government is unable to sustain a defecit and is obliged to reduce spending and increase taxes, IMMEDIATELY, in order to get receipts and payments into balance. There is no entity in the world large eneough or with enough money to cover the defecit in the US. Plus nobody will be inclined to buy your bonds for many years to come.
The next option is to knuckle down to it and pay back the debt. It is necessary to reduce benefits and increase taxes. Ireland is an example of this approach and has been largely successful at the cost of enormous pain to the population. It can also only be done with outside support. The end result has been a falling level of defecit with rising (but at a rapidly reducing rate) debts and a steady decline in the required interest on new debt as the bond markets give a vote of approval to the progress made. In a few years the defecit is reduced to zero and the overall level of debt can begin to be paid down. It is the only honest way of dealing with the debt and was only possible because Ireland is too small to say F.U. to the world.
America is plenty big enough to say F.U. to the world, and is doing just that by going all out on option number three. Inflation. The fed has increased the total money supply in the US economy THREE FOLD!!! in the last 4 years by purchasing bonds, to the extent that the fed now owns 70% of all long term bonds. This will eventually trickle down to street level and you will see massive 1970’s level inflation for the next decade or more, which will inflate away the debt.
All the over-endebted countries of the world will try some combination of the above over the next decades and the world will be a grim place for that time. The biggest mistake people are making is in thinking that what we are in is a recession which can be dealt with as it has been previously. It is not, it is the second great depression, and the sooner people start realizing this and dealing with it the better.
“it is the second great depression, and the sooner people start realizing this and dealing with it the better”. Unfortunately many don’t realise there is a disaster, until they land in hot water.
Somewhat ironic that Keynes’s work was intended as a practical solution to the first great depression. Yes, he knew it wasn’t sound in the long term, but died before it became fashionable for Treasurers to “fine tune” the economy. The reason deficit spending became popular in the 1950’s and 1960’s was that it seemed to work. Much of that “success” was due to the prolonged economic growth in the First World. The USA had a higher debt (as % of GDP) in 1946, and growth and moderate inflation reduced that faster than the politicians could spend.
This “success” led to the rise of the State bureaucracy to control all aspects of the economy and the Welfare State to redistribute wealth, with government spending becoming a higher and higher % of GDP (hence higher taxes). How successful that approach was showed up later when (100% of official GDP) communism collapsed. Too much control stifles growth. Contrast the rise of the asian countries which have high growth rates, small bureaucracies, low tax rates with the western world. The asians (plus a few others) might not have much, if any, welfare or pollution controls etc. but they are the ones with the cash (so long as they don’t buy too many US bonds). You might not want to live there but their future looks a lot brighter. There have been graphs plotting economic growth rates against government spending (as a % of GDP). 10-15% of GDP shows up as fast growth, 40-45% as very slow. Currently, many european countries are running at 55% (or higher)!
Crosspatch says: I have been reading a book called “This time is different” which is a fairly heavy read, but they did point out in 2008 that this was indeed the second great depression, and it would last in many countries for 10 years or more. I would like to recommend a book The Law and the Profits by C. Northcote Parkinson. It was published in 1958 and predicted this very situation, which he thought would lead to revolutions. (As a guide to his prophetic abilities, he also published in 1962 East and West, in which he predicted the collapse of communism, the breakup of the USSR, and the rise of militant islam). You will have to check out the second hand book shops, but it was a best seller.
What a choice for western democracy, default, rampant inflation or revolution.
Is there a way out? I think not, given our current “leaders”. It will require a different generation to grasp the fundamental change. Parkinson suggested that the first step was to design finance such that no-one could vote for benefits paid by someone else (the end of “vote buying” and the Welfare State). That meant a flat tax rate, which has been trialled with some success in eastern Europe, and a reduction of the government’s spending to below 25% of the GDP. It won’t be easy.
That’s why the Central Banks are out there buying bonds like crazy and why the ECB is looking to get the power of unlimited buying as well. That’s also why the German Court ruling on on the question is such a hot button.
Central Banks can buy any amount of bonds as they have no limit on leverage (other than the self control of the bankers.)
In my more paranoid moments I think it’s a Grand Plan as laid out in pages like this:
Then I remember the “malice / stupidity” ratio and that “Intelligence is limited, but stupidity knows no bounds. -E.M.Smith”…
There’s a whole lot of stupid in the world…
FLASH: On Deutsche Welle they just reported the German Court approves the ESM et. al. constitutionality. Looks like more bond bloat is on the way… http://www.dw.de/dw/article/0,,16234047,00.html
You’ll like that above link ;-)
IMHO most folks only read the “Cliff Notes” and not the actual statements of Keynes. He was all about stabilizing, not inflating… being counter cyclical on BOTH sides…
Per self choice as to “when to go”: I find it humorous that some places make it a crime to commit suicide… hard to administer the penalty ;-) At any rate, there are a whole lot of toxic things in the world (“the poison is in the dose”) and many are ordinary household items. Heck, even salt is deadly at about the 1 cup level. Since you seem concerned about having options available, I’ll share my ‘backup plan’:
Old folks often have high blood pressure. This means avoiding sodium. So “No-Salt Salt” is often available. KCl – Potassium Chloride. Read the container. It says to be very careful not to take too much. Why? It is what is used to stop the heart in the legal murder in our prisons. (FWIW, I was all in favor of the death penalty until genetic testing started showing a way high error rate in things like rape and murder cases… with folks released after too many years in prison based on bad decisions. The error rate is just too high to allow a ‘final solution’… but I digress…) This means that simply, and ‘innocently’ asking for a shaker of “No-Salt” will typically have it delivered without question.
Now, while swallowing it is not a very good option, getting it into an I.V. drip bag is less difficult. (I’m presuming if things are bad, you’re likely headed to the hospital… For me, it’s about 100 mg x 100 kg or 10 grams. A few cc dissolved in a few more cc of water and into the drip bag… If debilitated, it would take a helper… if not debilitated, just put the IV bag lower than the hose end and it will siphon in from a cup, then put the hose back into the needle and rehang the bag…
I suspect that only voting for your own is part of the problem, but to me it also looks like a larger pattern. Still a bit fuzzy, but there does look to be an ongoing effort to divorce voting from any actual effect… globally…
Interesting point…. I’ve talked about some of the effects of the generational issues as a “Demographic Bomb”, but not thought about tying it back to Keynes… Hmmm…. Interesting…
Bingo! Not just the “always the same and always thinking it is different”, but also the ‘when the rates rise we implode’ problem… It’s been this way for at least 2000 years:
Per the Democrats burning it at both ends: Yup. I’d only add that it ISN’T just the Democrats. The Republicans are just as culpable. The Republicans voted FOR the CRA as long as we took all the safeguards off the financial sector (burning Glass-Steagall for example). The Republicans gave us the “Drug Benefit” plan that’s a huge bucket of deficit spending. The Republicans gave us the Tax Cuts (with some Democratic help) thinking it would force the Democrats to cut spending – but it didn’t… The Republicans gave us a war machine that’s 1/2 or so of all global military spending (though the Democrats never reduce it either…) So, IMHO, it is BOTH major parties that are in the “spend now and borrow all you can” club.
Yes, the insidious insider dealing of Academia vs the Government is a big problem. BTW, my “20 something” daughter is still living at home… while working at a department store and admiring her creative writing major…
But are we REALLY saddling them with debt? Only if they must repay it. IMHO they will, if at all bright, just repudiate the debt. Tell the central banks and global money houses to bugger off. Look, who has any money to depreciate? My debts roughly match my assets, and I’m relatively well off. The kids have nearly no assets (and I’ve made sure they have no personal debts), so blowing off the $100k+ of ‘national debt’ share is ‘no big’. I think that’s why you see countries like Greece and Spain saying “just give us more money and go away”.
Basically, you can’t FORCE folks to work as debt slaves. They can just go to the beach and tell you to bugger off… That is the logical flaw in the debt slave “plan”… We see that unfolding in Spain, now, where the NINI generation are NOT working and NOT paying back the debt. Yes, lots of economic dislocations. Yes, a ‘bad idea’. But is it any worse than the alternative? IMHO, no, it isn’t. (What do I care if the Central Bank ends up with $15 Trillion of bonds usable for toilet paper?)…
Per Dodd-Frank: Yup. Sheer stupidity. On the one hand demanding more lending and providing ‘ballout money’; then with Dodd-Frank so arranging things that the cash sits in the vault. No concept that ‘velocity of money’ matters and that causing much lower velocity is “exactly wrong” during a recession…
Per the “Fiscal Cliff”: You’ve pretty much laid it out.
Frankly, I’d almost LIKE for Obama to get a second term. It would so crash things, and so destroy the place, that the Dimocrats would be forever vilified. If Romney gets in, the Republicans will be stuck with trying to fix the unfixable. So THEY will be tarred with it. (Though I suspect that Romney will be the limp wrist he was in Taxassachusetts, and we’ll get the Republicrims looking to loot more in exchange for some Dimocrate plan support on and off. Sane folks from both parties marginalized by their most rabid ‘leaders’…)
But yes, there is NO doubt. Come January we have a SHTF moment, whoever is in charge. They have a lose-lose choice. Taxes that are going to crush the economy and drive wealth creators away, or a debt spiral that will such up an added 10% of GDP each year, or a cut in government of a size and scale that is not possible to imagine being passed by congress. The first one results in a slide into the socialist decline trap. The second has an eventual ‘blow up’ of interest rates as we cross too high %GDP levels, and bankruptcy… see Greece. The third would be political suicide, but at least we’d get over it fairly quickly. (Post W.W.II a similar shift from public to private under high debt load was done, and worked…) Though the social unrest would be spectacular. Huge cuts in global security, in medical expenditures, and in old age payments…
Personally, I’m expecting an attempt at another “kick the can”. I think we’re in the exponential decay part of that method. It used to work for a decade. Last big one was about a year. Then we had a 6 month punt to get it past the election. So 3 months, 6 weeks, 3 weeks, 10 days, 5 days, explosion… Call it June or so.
Per low stock market volume: Yup. Part of why I’ve not done a posting saying “Hey, trend is up!”. Frankly, it looks more like “duck and cover” into “real assets” time. Metals, land, “stuff”.
(I REALLY need to get another WSW posting done…)
“Where’s the Malice?” ;-)
IMHO the potential for it is in two places. One is a manipulative World Bankers Cartel (that thing Adolfo always harps on… or see the link in my prior comment for an example.) Not just doing banking as business, but banking as political power.
The other is from Socialism. There IS an international Socialist Movement and it DOES want to bring down capitalist systems. It is part of the core philosophy of the beast. So Obama was raised in it and steeped in it (see his ‘friends and advisers’ list). It is a reasonable expectation that folks praying for the ‘inevitable collapse of capitalism’ to bring about the ‘revolution of the proletariat’ might just be willing to help it along…. So is Obama bothered AT ALL by the notion of $5 Trillion more debt potentially bringing about the collapse of our economy? When all good socialists WANT the collapse of capitalism? When it is part of their dogma that it must happen to bring about the very socialism they advocate? So I see plenty of room for the various far left wing Socialists to want to bring down our capitalist system and government… If that’s not malice, nothing is.
Per the “work needed” argument: Be careful, you see that one a lot in socialist circles. It’s a slippery slope… The core problem is “what IS productive work?”… Is it really just farming, mining, and manufacture? Isn’t a hair cut “productive”? Isn’t a visit to a spa a “benefit”?
This is a two edged problem, BTW. Not only is the “so little work needed to make what we really need” used as an argument for socialism to fill in the rest of peoples lives with mandated “social benefit” work, and various schemes to cut the work week to ‘share’ the available real work; but the other end is also exploited. Government takes money from really productive folks and squanders it on stupid ‘make work’ programs, it used GDP to measure where we are at, even though breaking a window to fix it shows up a ‘productivity gain’.
The simple fact is that “productivity” is just what someone will pay for. So if I’m conducting seminars in “toe admiration and self esteem” and folks will pay for it, they are feeling some kind of benefit. Limiting me to a 30 hour work week just cuts productivity. At the same time, taking money from someone mining coal, and giving it to me because some government agency decides we need more ‘toe admiration’ (with no valid market and price distortions) is just as broken. That results in less coal than we really need and too much ‘toe admiration’.
So be very careful with that line of logic, as both ends result in ruin.
Keynes is right in one very narrow case (which he recognized!). That is the short term. In short term intervals (a year or so) rapid changes of ‘velocity of money’ can be damaging. Leading to various kinds of ‘cascade failure’. In those periods, the one player than can rapidly and decisively change the velocity of money is the sovereign. (See this link for a clear example: https://chiefio.wordpress.com/2009/07/04/business-panic-of-33ad-things-never-change/ and no, it doesn’t matter if the coin is silver or binary bits).
Where you are right, is that nobody limits Keynesian Economics the same way Keynes himself did. Short term, and in the long term balanced out. The one we actually use (long term deficit spending) is, as you described, doomed. And yes, it is called Keynesian, but isn’t what the man said to do…
I class “ignorance of economics” as part of “stupidity”… and yes, it’s rampant. Several times I’ve pointed at it via things like saying “the one intro to Econ class they had” or similar slights. Though often in prior postings / comments…
While I generally agree with the content of your comment, one point is important to polish:
See the above discussion of what has value. A service CAN be wealth producing. If a farmer is about to die, and a Doctor removes the tumor, giving him another decade of productive life; I think it’s pretty clear that the Doctor contributed to that decade of wealth creation. For a mine to produce coal, somebody has to service the trucks. No oil change, and the mine shuts down pretty quickly. For an actor to make a film ( a physical product, BTW, so do you count a film as ‘manufacturing’?…) there are many services needed, from hair stylists to laundry services.
Those simply can not be tossed in the ‘unimportant’ bin due to being a service and not a physical manufacture.
One needs to sort the services into PRODUCTIVE and NON buckets. And that’s more of a judgement call than I like; but I’ve found no other way around it.
Take for example, the issue of long haul trucking. It is a ‘service’, but without it, no goods get to the consumers. Or transportation in general. Ships, planes. Just how much will be manufactured without the services of transportation? And do you account it differently if FedEx carries the shipment, or if GE does their own internal shipping on their own private trucks? Is it really any different if Peabody Coal changes the oil in their own trucks, or has it done by a ‘service contract’ provider? In either case, it is part of the process of making coal and moving it to markets…
So while I agree with the general sentiment of your comment, and agree that way too much effort and treasure goes into “mindless regulation” and productivity sapping “make work” black holes; it isn’t as simple as just sorting things into “Wealth creating manufacture” and “wealth consuming services”… And that, IMHO, is also why market based capitalism is so important. It “clarifies” which things are really contributors to productivity and which are not…
Well put. Sadly, we’ve go so many folks of limited wisdom with a firm grip on the leavers of power that I fear we’re destined to ossify and collapse. Take the party nominating procedures. NOT under the control of voters. You get to vote for the left hand, or the right hand, of the thief…
After a while, all the checks and balances are gummed up. We’re very near that point now.
So, sorry to say, I think your estimate of probability is just about right. It’s what to do about it that eludes me…
Where you going to go to ‘get out of here’? “There is no such place as ‘away’…”
BTW: I think you’ll find this link (also above) of interest: http://www.apfn.org/apfn/fed_reserve.htm
Still trying to sort out how much of it is accurate and how much is ‘stuff and nonsense’… but some of it is clearly accurate…
Yes, presently Asia is the Last / Next Great Hope… We’ll see. They are very export dependent…
Amazon has it. Over $400 new, about $20 used, less paperback:
I agree with the solution. Sadly, I also agree that our present class of “leaders” can not and will not provide it…
Perhaps we need a national “can kicking contest” / scorecard for our politicians…
EM – thanks for making me think about that. I think I’ll define a “productive” job as something that someone else would pay for. Otherwise, as you say, it becomes a difficult decision for whoever is in power. Let the market decide. Since the free market can change its mind very quickly (the salmonella scares caused an amazing drop in egg sales) it’s nice to have a public safety-net. The difficulty in when people make the net their home.
You also mentioned Potassium Chloride. I’ve read it’s somewhat painful – like having a severe heart attack (it is). There have been some experiments with pigs using Nitrogen. Some feed was put into a container with a flap on it, and the interior was filled with Nitrogen. The pigs put their heads in, lost consciousness, were pulled out and left to re-oxygenate, and as soon as they were awake they went back to eating the food – rinse and repeat. This shows that the pigs did not feel any pain, since otherwise they would have avoided the feed-trap.
My dad had Motor Neurone Disease, and it took him around 10 years from being ill to dying, with the last couple of years unable to talk or eat or move. There’s a possibility that that was a genetic problem, and I’m sure not going through that if I can avoid it.
Politicians seem to get worried when a country’s external debts exceed 100% of the GNP. So take a look at this “Debt Clock”:
USA debt = 100% of GNP. Defintely a problem for our children.
Greek debt = 230% of GNP. Greece is in deep, deep trouble
UK debt = 498% of GNP. The UK is bankrupt beyond all hope of recovery.
Ireland debt = 1,266% of GNP. Ireland is now owned by foreigners. Next comes slavery.
“In the midst of chaos is great opportunity!” Well, it all depends on who, where, what, etc., you are I guess. The 21st Century isn’t going any better than any other, we only thought it might and have been proved wrong once again like our grandparents and great grandparents (I guess that applies if you’re an opptomist at heart, a little nieve to boot, and 51% human;-) Not only do we have a world-wide financial crisis brought on by our own stupidity and greed, we’ve also laid out a BIG, BAD, BEAUTIFUL playing field for the opportunists with the quick and easy answers to have a “field day’; and these people come in all kinds of shapes and sizes. You remember our old firends Hitler and Tojo, don’t you? World depression, lots of idle hands and hungry tummies, now insert some rather bad people with screwy ideas about making a BIG play and a BIGGER profit. It doesn’t take much for hundreds of millions of people to get in line and goose step, not when their out of work and hungry. The bloody problem, as our good friends across the pond say, is Bigger and Worser and more Complicated than most realize because we are devolving into chaos and there are going to be some hellasheous opportunities.
PS: seeing the last entry before mine (above) by PhilJordan was at https://chiefio.wordpress.com/2012/08/28/quakes-california-and-central-america/#comment-40038 (I haven’t read it yet) reminded me of another fly in the ointment: Mother Nature isn’t going to sit by nice and nurturing while we try to get out of our huge economic and political pickle barrel, I’m sure she’s cooking up some ginormous little treats for us as we speak that are also going to nock us for a loop or twenty. You know, it just doesn’t pay to be stupid.
@Gallopingcamel: GERMANY is broke too!. Really all the “welfare states”.
See this: http://www.indexmundi.com/g/r.aspx?c=pe&v=143
@ gallopingcamel “USA debt = 100% of GNP. Defintely a problem for our children.”
Definitely a problem and maybe bigger than we think. Some economists have pointed out that a large chunk (20%?) of the U.S. GNP is non-productive economic activity, i.e. “income” produced by swapping pieces of paper back and forth withOUT any actual creation of goods or useful services. If true, that would put us at a debt ratio of 125%.
@E.M. – I had to read your comment a couple of times, and think about it. Not so much in the part about everyone (read: politicians) getting Keynes wrong, as in his one instance of being correct.
Milton Freidman was once asked about Keynes. And in a totally freidmanesque response, he said (paraphrasing) that Keynes was a very smart man. After all, look at all the books he published and awards received. While I will not debate with Freidman (as he is passed away), I do agree with him in a small part. So yes, Keynes did get some right. But he was never able to see his theories bastardized to prove that no, government is not the answer, it is the problem.
I will always be a monetarist. But I am always open to hearing Keynsians that actually know and understand his principals so I can learn more about why it does not work (this is not to say you are a Keynsian).
@philjourdan Work only can make money…
@Adolfo – “Work only can make money…”
(SarcOn) Yea! And it’s easier than ever! Whichever definition of ‘make’ you use.(SarcOff;-)
They can’t “repudiate” the debt. Student debt can not be retired in bankruptcy and if you don’t pay it back, they simply garnish all your tax refunds and, if needed, social security money when you retire. Federal student loan debt is with you for life.
@adolfogiurfa says: 13 September 2012 at 8:50 pm
I would modify your statement to say “wealth”. Anyone can “make” money, but the value of it is in the store which requires assets. The Fed has “made” a lot of money, but there is no value in it as there is no “work” behind it.
Re. Student Debt – Would think that the Feds can be very imaginative about getting it back a little at a time over a lifetime and if need be even after people are dead. But, as with GM, they could also bend and break things to keep a lot of people happy too. These ‘representatives’ of the people are schzoid, even psycho, hell they’ve also been known to be a little stupid and schzoid and psysho all at the same time.
@ Pascvaks “These ‘representatives’ of the people are schzoid, even psycho, hell they’ve also been known to be a little stupid and schzoid and psysho all at the same time.”
You left out “evil.”
@JasonCalley – Evil is hard to “ping”, but I know it when I see, and hear, and smell, and taste, and feel it. It’s like that old-fashioned thing they tried to outlaw once before the Supremes got a hold of it, something that’s everywhere now, can’t remember what they called it, ah… pornography? When words mean nothing, nothing means anything.
adolfogiurfa, 13 September 2012 at 3:12 pm,
That link you sent shows Japan with a 212% public debt:GNP ratio while my homeland is shown with only 86%.
The Debt Clock in my earlier comment showed the UK with an EXTERNAL debt of 498% of GDP. My head is spinning so I hope Chiefio can figure out how to reconcile these apparent conflicts!
Well, first off, you are mixing GNP and GDP. GNP is based on “ownership” while GDP is based on “location”. So the GDP of, say, the UK, is what is actually made on the islands. GNP includes any productivity based on things owned, like a subsidiary located in India.
While I’ve not checked your numbers, the interpretation would be that the UK owns a lot of overseas holdings, so debt is only 86% of productivity of “all things owned” while it is nearly 5 x what is actually made on the Islands.
Also realize that there are different kinds of debt. So that “External” debt, is that Government External Debt, or ALL external debt including private credit cards and loans to businesses? Often external debt is quoted as all debt, while “public” debt is only the portion owed by the government…
So putting all that together:
One says that the Government owes 86% of everything made on the islands OR in holdings owned overseas. The other says that (some probably all) debt owed externally to the country is nearly 5 times what is made on the islands in one year. That, BTW, might include mortgages owed to overseas banks on the factories owned overseas, but whose productivity is not counted in GDP…
Student debt is not the National Debt, which is what I was talking about. It’s the crushing money owed BY the government that’s an out of control entitlement that must be repudiated; not money owed TO the government by students…
“Frankly, I’d almost LIKE for Obama to get a second term. It would so crash things, and so destroy the place, that the Dimocrats would be forever vilified. If Romney gets in, the Republicans will be stuck with trying to fix the unfixable. So THEY will be tarred with it.”
Yes!, this is a large concern of mine. Your previous list of what to do to fix the economy, along with some real reductions in government pensions wages salary etc, as well as some means testing on social security, and a sane energy policy, could pull us over this with a far shorter period of pain, but as you say, I do not see your action plan in the cards.
Concerning your articulation of Keynes, my thought is that his idea of allowing govenments the capability of such stimulus and leverage is, like many liberal ideas, simply ignorant of the human nature you described as the “primary cause” of our crisis; so perhaps his economic idea is worthy of being tarninshed with his name, due to his economic thoughts assuming a discipline in human behaviour that is historically not present.
Thanks, Chiefio! I am definitely out of my depth.
Take a look at the long term US debt picture. Spikes corresponding to the unpleasantness between the states (1861), WW1 and WW2. The present spike is happening during a period with only low intensity wars.
@GallopingCamel – Yhep! Looks like GW went the wrong way. No wonder the Dims blame him for everything under the Sun. The figures don’t lie. Obama has just been trying to save GM, and the AFL-CIO, and the Chicago Teacher’s Union, and… Hummmmm… (Sarc1/2Off)
OK, looked into the particulars. UK GDP vs GNP are not all that different. It is the level of EXTERNAL debt vs NATIONAL debt that has the “bump”.
Has UK GNP about $2.4 Trillion US ( 2.3x to 2.5x) while:
has UK GDP as about $2.4 Trillion as well ( 2.2 x – 2.4 x) but a tad lower on average.
Has the UK National Debt as about $1.8 Trillion US while:
has the UK external debt at about $9.8 Trillion US.
So the “big bump” looks to be debt by UK businesses and individual to outside sources. Guess you have a lot of mortgages from Euro and $$$ based banks…
For comparision, the US external debt is about the same as our national debt at about $15.x Trillion. From:
with much more detail and information, including in what currencies, here: