Where is the US economy headed?

WASHINGTON (MarketWatch) - President Obama on Monday insisted he will not accept a "stopgap" measure to increase the federal debt limit by 180 days or less, saying he'll continue to push for a bigger deal to put the nation's finances on sounder footing. "This is the United States of America. We don't manage our affairs in three-month increments," he said.

Obama's pitch didn't convince congressional leaders. Senate GOP leader Mitch McConnell said Obama's insistence on ending former president George W. Bush's tax cuts for couples with income above $250,000 was a non-starter. House Democratic leader Nancy Pelosi raised doubts about proposed cuts to Medicare, Medicaid and Social Security.

From marketwatch.

Quote:

WASHINGTON (MarketWatch) - President Obama on Monday insisted he will not accept a "stopgap" measure to increase the federal debt limit by 180 days or less, saying he'll continue to push for a bigger deal to put the nation's finances on sounder footing. "This is the United States of America. We don't manage our affairs in three-month increments," he said.

Will he hold this line?

If the house passes a temporary increase in the Debt limit, there's not much the president can do about it.

If the house passes a "temporary" debt increase, can John Boehner continue to be the speaker?

If the house doesn't pass a temp increase, can Boehner survive. I think that is what I meant to ask.

Our economy is headed south.

Cheaper Than Cash

Sunday ~ July 10th, 2011 in Economics | by Karl Smith

Paul Krugman points out again that interest rates have failed to rise despite heavy borrowing by the Treasury. He uses nominal rates but I think the point is better made using real rates and bar graph.



What this highlights is that real rate of return on government 5 year government securities is now negative. You want to stop and absorb that because I think it’s a bigger deal than most people realize.

Suppose the government had two choices. It could either pay for infrastructure improvements as it went along out of tax revenue or it could borrow money build the infrastructure now and then repay the money with tax revenues.

Ordinarily the question would be, does the advantage of building quickly outweigh the cost of the interest.

However, right now the interest cost is negative. The government saves money by borrowing now rather than waiting and paying cash. Let me say again because I have noticed that this goes against so much intuition that its hard for many people to wrap around when I first say it.

The government will wind up paying more if it decides to pay cash for a project than it will if it decides to borrow. This is irrespective of the return on the project itself or the advantages of avoiding delays or anything like that. It is simply that the cost of borrowing is negative.

It is cheaper than paying cash.

Quote:

If the house passes a temporary increase in the Debt limit, there's not much the president can do about it.

Sure there is - he can make it perfectly clear that the Republicans are acting as terrorists, and begin to publicly berate them on a daily basis for the pain that they are causing. He can also, cynically, arrange matters to cause as much pain as possible to groups that will be pre-disposed to blame Republicans for the problem.

If the Republicans are determined to act as terrorists, and crash our economy if they don't get their demands, they should be treated exactly like that.

Cycloptichorn

Cycloptichorn wrote:

Quote:

If the house passes a temporary increase in the Debt limit, there's not much the president can do about it.

Sure there is - he can make it perfectly clear that the Republicans are acting as terrorists, and begin to publicly berate them on a daily basis for the pain that they are causing. He can also, cynically, arrange matters to cause as much pain as possible to groups that will be pre-disposed to blame Republicans for the problem.

If the Republicans are determined to act as terrorists, and crash our economy if they don't get their demands, they should be treated exactly like that.

Cycloptichorn

He's already doing all of that. Not much more for the Republicans to fear.

It takes two to create a deadlock. The President and his supporters would have everyone believe it is only the Republicans who are preventing an agreement.

The Democrat mantra is that they only want to tax "billionaires and Big Oil". $200K/year does not make one a billionaire. Further, there's little Big Oil left in this country.

The fact is they are proposing to raise the marginal tax rate on any individual making $200K (not indexed for inflation) by about 9% (by raising their medicare tax; making it also apply to dividends and capital gains; increasing the % of adjusted gross income floor for itemized deductions; and restoring ther pre Bush tax rates.

The administration has stopped oil exploration and production on the Gulf, Atlantic and Pacific coasts as well as Alaska. They are also working hard to stop a proposed pipeline for petroleum from Albertsa to be transported to refineries in Texas.

There are two unusual features to the current economic "recovery" that have made it much slower and more dangerous than precvious ones. The first is the nearly worldwide crisis in government debt, and the second is the very slow pase of private sector investment and job creation. The Obama Administration is working hard to preserve both.

Cyclo appears to believe that low interest rates will continue indefinately. History teaches us this is not true. Indeed rates are starting to rise in Europe and Asia. We will follow soon enough.