Keynesian Economics is Wrong or Right

Exactly as you said, the only way they can deal with the snowballing debt (because they simply cannot raise taxes enough due to the current political system there) is by inflating it away. Which is what they are doing now. It’s hard to see this though because there are so many other ‘big economic things’ happening at the same time.

Europe has a debt and austerity crisis which is depressing demand. The US housing market and consumer market is also depressed. Even Asia has it’s foot off the boil. This seems to be depressing the effects of the expected inflation. But there is inflation occuring in the oil and gold market (oil again is tricky as demand and supply struggle to stay even…and being priced in USD primarily). Other commodities like iron ore and copper are getting steamrolled due to Chinese games and huge speculative investment that has already occurred.
Then you’ve got changes in the labour market that depresses employment and reduces inflationary wage pressure (compared to the 1970s for example). It’s a real mess!

Inflation is starting to rear it’s head in Taiwan but again Taiwan is pretty strange, while almost everywhere else was booming Taiwan pretty much stagnated for the last 10 years and that also prevented inflation that would have occurred previously.

Is anybody or anything safe :slight_smile: . I would say invest some money into forward looking companies like google or diversified companies which will take you along the rocky ride to come. The farm land isn’t a bad idea in the context I guess.

I just can’t see anyway out from inflation speeding up in the next couple of years…but it feels weird because it’s not very strong at the moment…and there are strong deflationary pressures in areas like housing bubbles and labour and over capacity in mining and factories.

EDIT- There have been examples of countries cutting debt and spending through tough measures and pulling through. Ireland in the late 80s, Canada in the 90s. But I don’t see that being possible in the US political system now. And that means they are going to export their inflation to the rest of us.[/quote]

There are very few ways of resolving debt issues, and expansion of the money supply is the easiest (and sneakiest). You’re right that it does seem weird right now, but that’s the sneakiness of it.

I welcome hard data from any source on exactly how deep entitlement cuts need to be and how high (and wide) taxes need to be to solve America’s fiscal problems. Merely making generalizations about entitlement cuts and/or tax increases being necessary without providing any factual sense of their required scope is idle blathering.

Winston is cherry picking his IMF reports, if he isn’t just getting quotes from right wing blogs. Read the latest IMF report on debt and you’ll see they suggest that generally an easy monetary policy combined with inflation should help most countries to deal with their massive debts.

It’s not like we don’t have examples of countries lowering debt levels over 100% and without stellar economic growth.[/quote]

Can you please provide a link, so I can read it? I’m not sure which report you mean.[/quote]

imf.org/external/pubs/ft/weo … /index.htm

Chap 3.

No one is suggesting there is a magic bullet. I went through my own country’s restructuring and debt reduction and it was very painful, but more so than it need to have been according to most reports (ie, the austerity was too much and contributed very little to debt reduction). But within 8 years Canada was back on its feet. This is not the end of the world for America.

The US deficit is expected to half by 2014. Okay so still a debt of $21 trillion or so. But even with 2-3% growth the economy will be larger than that in 10 years time (it’s around $16 trillion now. And the eventual size of the debt makes a mockery of the claim that the US can’t afford another trillion in stimulus (at record low borrowing rates). They can and the effects would have been 1.5 million more employed, with greater business activities, greater tax revenues, greater confidence and greater continual prospects for so many (who are right now losing skills and motivation) all with a marginal increase in the debt.

Since around 1972, which was the last time that the U.S. left the gold standard. For the British, it was around the time of the second world war.
Since then they have done nothing but ramp up debt, and they are now feeling the pinch. The debt they are presently trying to maintain is due to default. There can be no other practical solution to this, and it is inevitable that fiat currency suffers such a fate.

Guy, you may also want to read this:
ftalphaville.ft.com/blog/2012/10 … e-a-chasm/

Potentially good news for the UK. Faster than expected growth is a godsend for countries trying to escape debt.

@GiT:

I still think you are being a bit alarmist, quoting the most extreme figures and then advocating extreme solutions.

The main problem over the next few years is the deficit. Getting that down below 3% of GDP is the first priority. This would stablize the nation’s finances considerably. Obama’s budget will almost get the US there by 2015.

Step 2 is bringing the deficit down to under 2% so that debt reduction can begin.

Taxing the rich, that is ending Bush era tax breaks to the rich, would help, as would gradually cutting spending - hopefully in synch with a recovery. No one is suggetsing they liquidate the top 400 fortunes in the country, as you colorfully but irrelevantly suggest.

Step 3 is a real long term plan for the economy, a difficult thing in the American system. But the bottom line would be steady reduction of debt, ad infinitum.

If drastic moves NOW were essential to saving the US economy there would be a consensus on that, as there was for the stimulus packages in 2008 and beyond. Let’s not forget that this is an election year and that there are plenty of fiscal hawks ready to pounce on this moment as a chance to defeat “socialism” in America forever.

About the welfare state in general, I hear you. Some sort of cultural change is necessary. But measured and calculated, not slash and burn by the billionaires.

@ BigJohn

I know within the past few, short years everyone loves the socialist idea of taxing the rich until all government debts are paid off, but the issue here is not the rich. The issue here is government spending. It was government spending which got these economies into this mess, and it can only be government who can end this catastrophe. If the rich were left to their own devices, to conduct business according to the law and free market, then you certainly wouldn’t see national deficits. And any bankruptcies would certainly not be national ones.
Taxing the rich into oblivion while governments continue reckless, fruitless campagnes of pumping up the housing market, like they have a clue what that means to the average man, is only going to continue on the same path which has been well trodden until now.
It was silly schemes like this which started the trouble. Now the government is into all sorts of business. The U.S. government for one example is the greatest single investor in the stock market of all time these days and its ridiculous in every way in my opinion. It systematically makes the worst investments imaginable, looses on practically every one it makes, prints more money to compensate, and then charges its losses to the taxpayer and the Chinese. I mean talk about a ponzi scheme.

The rich are perhaps one of the greatest asset of any country, financially speaking. Reducing their profits, and inevitably their savings is not only the worst way out of a financial crisis of this magnitude, but it practically cripples any future hopes of a rebound.
Taxing the rich sends a clear message to any future investors in a country. STAY AWAY! And thats also why many choose to do business in other countries which offer more financial freedom and fewer regulations.
If the U.S. wants to bring investors back home and out of China, then it’s not really that difficult. After all, most people don’t really like China’s environment. It isn’t a free country after all. The government can change its rules at any time, and doesn’t need always care much for Joe. It tends to sell it’s favour to the highest bidder. You can’t vote it out of power, and you can’t stand up and demonstrate when it takes away all your assets.
All the U.S. really has to do is to stop devaluing its currency and encourage saving, raise its interest rates, reduce its taxes, and drop a ton of regulations.
Why does it need such a heap of regulations? Simple. It’s trying to keep a lead on it’s runaway fiat currency-debt.
The thing is that no U.S. government is willing to do this. It’s going to hurt in the short term and its going to produce an extremely unpopular government over that short term. They’ve been selling fiat currency as the be all and end all for the past few decades, and its very difficult to re-educate a few million brainwashed folks into trusting in anything else.

No it didn’t. The financial crisis and the ensuing recession were not caused by government spending/debt. What are you talking about?

No it didn’t. The financial crisis and the ensuing recession were not caused by government spending/debt. What are you talking about?[/quote]

Just a little thing called fiat currency, precious metals confiscation, Fanny and Freddie, the housing bubble, illegal foreign wars, bank bailouts, GM bailouts etc., etc. All government debt printing, and poor investments. Let’s remember here, it is not the job of the U.S. Federal government to print IOUs, to make loans to private enterprises, or make investments on behalf of the public. In no way does the constitution make mention of this or make allowances for this type of behaviour.

@sulavaca:

I never said that taxing the rich was the answer. I said ending tax breaks to them was part of the answer. It’s a simple question of revenue.

As to investment, it is clearly good for the entire world if the US economy doesn’t tank. Radical ideas that are untested and totally unlikely to be implemented are hardly a solution.

But like I said, this is a great time for economic drama queens to take to the stage! :laughing:

[quote=“BigJohn”]@sulavaca:

I never said that taxing the rich was the answer. I said ending tax breaks to them was part of the answer. It’s a simple question of revenue.

As to investment, it is clearly good for the entire world if the US economy doesn’t tank. Radical ideas that are untested and totally unlikely to be implemented are hardly a solution.

But like I said, this is a great time for economic drama queens to take to the stage! :laughing:[/quote]

Oops. Sorry. A bit of knee jerking on my part.

I don’t think it will matter too much to the world if the U.S. goes offline for a few years and isn’t a significant trading partner. The U.S. has to work on it’s home market and economy, as does China, in order to work out their own trade imbalances. Britain too for that matter, Spain, Ireland, and so on and so forth. I think greed works very well for economies, but until a point. Over leveraging, which all of these economies have suffered from needs to be put in check before any other great strides into the debt territory can be made. A debtor who regularly pays their debts is a reliable customer and can be relied upon to do business. A debtor who is tardy for too long however, means that everyone pays the price of their illl practice or over-exuberance.

[quote=“sulavaca”]
Oops. Sorry. A bit of knee jerking on my part.[/quote]

No worries mate. I think most of us on the pol forums are guilty of that from time to time.

[quote=“sulavaca”]
I don’t think it will matter too much to the world if the U.S. goes offline for a few years and isn’t a significant trading partner.[/quote]

I’d have to disagree with you on that one.

Well the reason I think so, is the same reason that I’m profiting in terms of USD in precious metals.
I don’t have to do anything at all and I’m making tons of USD. Now if I were actually sweating to produce good, sell them to the U.S. take USD in return and then watch it dwindle to a meaningless nothingness currency, then I’d have gained nothing. Well maybe a little exercise, but little more than that.
At the minute Chinese people are pissed to the hilt. They’ve been producing goods for the U.S. only to be paid in USD and then suffer the depreciation of their holdings. In other words, working not just for cheap, as they are paid little already, but they’re even seeing their country’s holdings being diminished in terms of value. If that value keeps sinking, then they’ve worked for nothing. Now China is only going to play that game for a while longer, but they are already actively getting rid of their USD, cautiously, so as to not upset their remaining holdings. They are sick of earning USD as its a non profit end game.
This is why I don’t see a big difference if the U.S. just goes on leave for a while.
Sure, it might signal the beginning of a new, more positive era, and the end of disastrous bailouts, and this will all happen anyway, regardless of how people feel about it, but it nearly always pays to be the first man to pull the pin on this thing, and perhaps China is the one to do it. After all, China has the most to gain, and the most to loose for not taking early action.

Let’s agree to a new era of enhanced fiscal responsibility on both sides of the red / blue divide without overly drastic measures which are promoted to serve the agenda of the removal or severe downsizing of New Deal socioeconomic structures in the American state.

Huh? Obama’s budget? You mean the one that went down this year in the House by a vote of 414-0 and in the Senate 99-0? His budget last year went down by unanimous votes in both houses of Congress as well.

[quote]A budget resolution based on President Obama’s 2013 budget failed to get any votes in the Senate on Wednesday.

In a 99-0 vote, all of the senators present rejected the president’s blueprint.

It’s the second year in a row the Senate has voted down Obama’s budget.

Obama’s 2012 budget failed 97 to 0 last May after Obama himself last April said he wanted deeper deficit cuts.

The House earlier this year unanimously rejected Obama’s budget.[/quote]
thehill.com/blogs/floor-action/s … 99-0-vote/

As far as bringing down the deficit below 3% of GDP goes it’s been between 7%-10% each year during Obama’s presidency and even if the U.S. is allowed to fall off the “fiscal cliff” in January by eliminating Bush’s tax cuts and implementing automatic spending cuts the deficit will still be at 5% of GDP so what exactly is the plan and how do its numbers work? If the fiscal cliff scenario is allowed to pass though every economist I’ve read predicts serious recession will ensue.

The fiscal cliff is an entirely politically created entity to get masses riled up prior to the election!

Sorry, but I think that boat was pushed out long ago and is now beyond half way down the river already. I don’t think there can be any non-drastic measure in order to correct the present deficits in the U.S. at least. It has thoroughly cooked its own sausage. It could raise interest rates considerably in order to keep the Chinese interested, but then it couldn’t manage its deficit repayments, and there would be another collapse in the housing market, which still accounts for a mountain of bad balance sheets (even though all negative entries, were allowed to be called positive ones under Bush’s ruling).
American banks are zombie banks as many of them have so many toxic assets, they can only hope to inflate their way out of trouble.
The problem with inflating their way out of trouble however is by doing so they destroy all positive value of any kind, destroy earnings, and destroy the bond market.
America is a done deal. It’s finished. They’ve got but a few more years of kicking the can down the street perhaps before they reach the end of the street and walk into a wall. No more options. No winning scenario.

The problem with America and globalization of the economy in general is accountability. Perhaps the standout example, but definitely not the only one, is the banking system. It works outside the supply-side and demand-side of the economy although it influences both. The way the modern banking system has been able to deleverage its exposure has been through bank fees and charges, which now make up a very large percentage of total revenue with a very low elasticity for demand and supply, i.e., uses are tied into to the charges. The number one cause of charges is cartel behavior. Banks work the legal and economic system to create cartels. An example of how banks manipulate trades and the cost of money would be the recent revelation of the manipulation of the Libor rate in England. This type of behavior ensures banks can directly control the cost of derivatives or in short the futures markets. In theory, futures markets are a form of stability but banks cannot make great money off a stable market – they make money off the up and downs of a market in both directions off large swings. The ability to influence the direction is critical to their ability to consolidate their cartels. Yes, they can make big money but the end game is to create a longer reach for the cartel, because here they have greater influence over bank charges and fees.

In America, the number of banking institutions has declined rapidly since the 70s. Additionally, the 2008 financial crisis led to rapid consolidation from which the banking system has benefited greatly in terms of cartel behavior (the ultimate goal).

This brings me to the Keynesian Vs supply-side economic debate. Put simply, it is a side line. The US can offer stimulus, but they can never fill the hole of 40% credit reduction that came with the global financial crisis. It’s impossible. This is something they have been finding out to their chagrin. The banks created a cartel enabling tool in the marketing of housing based bonds. Now the consolidation has occurred, they couldn’t care less which way the cookie crumbles because either way it puts them in direct control of the outcome, which means pricing power.

Blame Ben Bernanke and the Congressional Budget Office for that:

[quote]If the fiscal cliff isn’t addressed, as I’ve said, I don’t think our tools are strong enough to offset the effects of a major fiscal shock so we’d have to think about what to do in that contingency. So I think it’s really important for the fiscal policymakers to, you know, work together to try and find a solution for that.[/quote]–Fed Chairman Ben Bernanke, Sept. 2012