Where is the US economy headed?

@okie,

Quote:

And you cannot simply wave a magic wand and lower the prices for our products without being able to lower production costs.

Actually, his proposed policy does exactly that. Like Thomas said - do you have any specific criticisms of his approach; can you show how it wouldn't work? Or are you just ideologically against any other economic action than tax cuts?

Cycloptichorn

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@okie,

Quote:

And you cannot simply wave a magic wand and lower the prices for our products without being able to lower production costs.

Thomas isn't waving a magic wand. He is changing the money supply. It's called supply and demand.

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@parados,

From my observation point on the issue of money supply, it's being horded by the most wealthy in our country and people around the world. That's the reason most middle class and the poor are having trouble with money management; they don't have much to spend - from loss of jobs and wages not keeping up with inflation.

When we see the increasing number of home-owners getting behind in their mortgage payments, we know that we do not have an over-supply of money.

We still don't know how long this recession is going to last; five to ten years? Nobody really knows, but when this recession ends, our government will need to control the money supply in order to control inflation.

In the mean time, they are playing some dangerous games that seems to this individual is ass-backwards to what they should be doing on interest rates.

Even though the feds are "borrowing" money on the cheap from China, Japan, and some other countries with US treasuries, our feds over-spending and increasing the interest payment on those loans are now at a very dangerous point where they will not be able to control inflation and higher interest rates.

Obama keeps telling us he will decrease the national debt, but I doubt he will.

That will leave our children and grandchildren holding the bag - and paying the piper.

1 Reply

@parados,

Okay, so if I understand you guys, you agree with Thomas solution:

"Easy enough. Just print enough money so the value of the dollar drops. That makes US exports cheaper for US businesses to sell, and foreign imports more expansive for US consumers to buy. It won't work as long as the current liquidity trap persists. But in principle, "competing in world markets" is a shallow problem, not a deep problem."

Such a solution involves highly inflationary factors, which would be a disaster in many ways I think. It is a return to Carternomics, is it not? And we know the Carter years were an utter disaster. I do agree in one respect, that perhaps the only way for the government to pay down the debt is to pay its debts with devalued or watered down dollars, so such a policy would not at all surprise me, in fact I have been expecting it to happen for a few years now.

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(Over on the Obama thread there is a Pop Quiz regarding Presidential Approval Polls. Guesses are due by 6 pm. Cyclo, Okie and Spendius have joined so far.)

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@realjohnboy,

Cyclo's disqualified surely.

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@spendius,

The suspense is killing me. Why should cyclops be disqualified?

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@okie,

Quote:

Such a solution involves highly inflationary factors, which would be a disaster in many ways I think.

Yes, but it would fix what you said you wanted fixed.

Quote:

It is a return to Carternomics, is it not?

No.

Quote:

I do agree in one respect, that perhaps the only way for the government to pay down the debt is to pay its debts with devalued or watered down dollars, so such a policy would not at all surprise me, in fact I have been expecting it to happen for a few years now.

Unless the government first balances it's budget and runs a surplus it won't work to pay down the debt since new debt would come at ever higher interest rates. Now you are not seeing the long term okie.

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WHAT DO YOU THINK WILL HAPPEN TO THE FOLLOWING IF US CURRENCY IS INTENTIONALLY DEVALUED TO PAY OFF DEBT?

Quote:

http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf
Year.......FEDERAL RECEIPTS FINAL FULL YEAR OF TERM
1980......$0.517 trillion [CARTER]
1988….…$0.909 trillion [REAGAN]
1992.......$1.091 trillion [BUSH41]
2000......$2.025 trillion [CLINTON]
2008......$2.521 trillion [BUSH43]
2010.......$2,931[OBAMA] (June and not final year of term)

Year.......FEDERAL OUTLAYS FINAL FULL YEAR OF TERM
1980.......$0.591 trillion [CARTER]
1988….….$1.064 trillion [REAGAN]
1992........$1,.382 trillion [BUSH41]
2000.......$1.789 trillion [CLINTON]
2008.......$2,931 trillion [BUSH43]
2010........$3,091 trillion [OBAMA] (June and not final year of term)

Year………FEDERAL DEFICITS
1980.......$0.074 trillion [CARTER]
1988….….$0.155 trillion [REAGAN]
1992........$0.291 trillion [BUSH41]
2000.......SURPLUS $0.236 trillion [CLINTON]
2008.......$0.410 trillion [BUSH43]
2010........$0.160 trillion [OBAMA] (June and not final year of term)

Year………GROSS FEDERAL DEBT
1980.......$0.909 trillion [CARTER]
1988….….$2.601 trillion [REAGAN]
1992........$4.002 trillion [BUSH41]
2000.......$5.629 trillion [CLINTON]
2008.......$9.654 trillion [BUSH43]
2010.......$10.954 trillion [OBAMA] (June and not final year of term)

ftp://ftp.bls.gov/pub/suppl/empsit.cpseea1.txt
Year……TOTAL US CIVIL EMPLOYMENT
1980……………..99 miillion [CARTER]
2000……………137 million [CLINTON]
2007………..….146 million [BUSH43]
2008………….. 145 million [BUSH43]
2009,……….....140 million [OBAMA]
2010.……………139 million [OBAMA] (June)

Year.…….PERCENT OF CIVILIAN POPULATION EMPLOYED
1980…………………………………….59.2 [CARTER]
1988…………………………………….62.3 [REAGAN]
1992…………………………………….61.5 [BUSH41]
2000…………………………………….64.4 [CLINTON]
2007…………………………………….63.0 [BUSH43]
2008…………………………………….62.2 [BUSH43]
2009…………………………………….59.3 [OBAMA]
2010…………………………………….58.5 [OBAMA] (June)

I bet the result will be a great reduction in investments in all of the US private economy except gold. Consequently, TOTAL US CIVIL EMPLOYMENT, and PERCENT OF CIVILIAN POPULATION EMPLOYED will greatly decrease even more.

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@Cycloptichorn,

Cycloptichorn wrote:

Well, inflation wouldn't remain near zero if we started printing more money, so I didn't take that into account.

Fair point. But since the economy is currently demand-limited (rather than supply-limited as it was in the 70s), inflation will only take off after America reaches full employment---at which point the Fed can stop printing money and start raising interest rates.

Cycloptichorn wrote:

But it drives up the price he pays for foreign goods - something he could never support.

I think you misjudge Okie entirely. He's not just a successful businessman who needn't penny-pinch about the goods he buys. He's also a patriot who will surely buy American just to help the country he loves.

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The real solution is removal of the Obama Democrats from our governance, and greatly cut federal spending.

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@cicerone imposter,

cicerone imposter wrote:

From my observation point on the issue of money supply, it's being horded by the most wealthy in our country and people around the world.

Are you sure? I would have said that the most wealthy in your country are hoarding treasury bonds---and to a lesser degree, equity. Neither of the two affects the money supply.

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@parados,

parados wrote:

Quote:
Such a solution involves highly inflationary factors, which would be a disaster in many ways I think.

Yes, but it would fix what you said you wanted fixed.

And, as I said, the Fed could stop at the time aggregate demand is high enough to cause inflation. There will be full employment before that happens.

parados wrote:

Quote:
It is a return to Carternomics, is it not?
No.

And so what if it was? On average, America's real GDP grew 3.6% under Carter. (For comparison, it grew 2.3% under Bush.) I can understand that right-winger's still believe in the myth that the Carter economy was a disaster. I don't understand how they duped American liberals into believing the same, and into disowning the Carter presidency. Is Obama a return to Carternomics? I wish!

1 Reply

@Thomas,

Thomas wrote:

I can understand that right-winger's still believe in the myth that the Carter economy was a disaster. I don't understand how they duped American liberals into believing the same, and into disowning the Carter presidency. Is Obama a return to Carternomics? I wish!

Does that not tell us all we need to know about Thomas's credibility in regard to his economics expertise? And to think this whole conversation started with rjb asking why should the government want to pay businesses to hire more employees when there isn't anything for them to do, to which Thomas opined that hiring employees would help more people have jobs and more money to buy more stuff, which would eventually result into the businesses having more to do, thus justifying more employees. Seems like a bass-ackwards approach to business in my opinion. I am summarizing the situation with your opinion, Thomas, but I think I am close. Would you also propose to hire people to break windows out of houses so that the glass replacement businesses improve, Thomas? That would seem to make about as much sense as hiring people when there is nothing for them to do.

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@parados,

parados wrote:

Quote:
I do agree in one respect, that perhaps the only way for the government to pay down the debt is to pay its debts with devalued or watered down dollars, so such a policy would not at all surprise me, in fact I have been expecting it to happen for a few years now.
Unless the government first balances it's budget and runs a surplus it won't work to pay down the debt since new debt would come at ever higher interest rates. Now you are not seeing the long term okie.

I thought of that although I did not include that with one of my responses to Thomas. High inflation and much higher interest rates on new debt would be a national disaster. Unless we first cut spending in a very serious way, which I am doubtful we have the political will or ability to do, we are on a collision course with the reality of how serious of a hole we have dug for ourselves.

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@ican711nm,

ican711nm wrote:

The real solution is removal of the Obama Democrats from our governance, and greatly cut federal spending.

Amen, which would include repealing another huge entitlement that Obama has created, which is Obamacare.

1 Reply

@okie,

How do you account for the fact that GDP growth was far higher under Carter than Bush Jr? Even though one's policies were supposedly a disaster, the economy fared better.... it doesn't seem to match your rhetoric.

Cycloptichorn

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@okie,

Quote:

Amen, which would include repealing another huge entitlement that Obama has created, which is Obamacare.

But "huge entitlements" are popular okie. Look at the bankers.

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@okie,

okie wrote:

Would you also propose to hire people to break windows out of houses so that the glass replacement businesses improve, Thomas?

No, that won't be necessary. There are plenty of windows in America that are broken already. I would, however, approve of hiring people to repair the many windows that are already broken. Moving from metaphor to reality, here's some "broken windows" I see:

America's bridges are in bad technical shape. Thousands of them are as brittle as the Interstate-35 bridge that collapsed into the Mississippi river three years ago. Now would be the time for a concerted effort to fix them.
Pretty much all cabling in American communities, electric or for telecommunication, is above ground, so they break down every time a tree falls on them, every time there's a bad storm, or anything of that kind. Europeans solved this problem decades ago by moving their cabling underground. Now would be a good time for America to keep up with Euorpe on that point.
There's always work to be done tfor grooming the national forests, upgrading the National Park Service's trails, and similar environmental projects. In the short run, cleaning up the gulf after the BP oil spill is going to be a huge environmental undertaking along those lines.

There's plenty of work to be done out there. Why break new windows when there are already so many broken windows to fix?

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@parados,

parados wrote:

Unless the government first balances it's budget and runs a surplus it won't work to pay down the debt since new debt would come at ever higher interest rates. Now you are not seeing the long term okie.

To avoid interest rate increases, the government needn't pay down the debt by running budget surpluses. It only needs the economy to grow up to the debt to make debt shrink as a percentage of GDP. As long as government deficits, in the long run, are smaller than GDP growth, America will be fine debt-wise.

As to ever-rising interest rates: Right now, the bond market is itching to lend money to the government. The US government can sell 30-year treasuries at a yield of 4.4 percent---or at 2.1 percent plus inflation, suggesting that the market expects an average 2.3 percent inflation over the next 30 years. To look at this data and worry about inflation and interest rates is to yell "Fire! Fire!" in Noah's flood.

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Where is the US economy headed?

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