UK Has Run Out of Money

[Bigfatbillsfan]

TPS has never been great at staying on topic when he's going to take an ass whipping.

 

Fiscal conservatives in the UK have been sounding the alarm for DECADES. They'd look a hell of a lot like Greece if they'd gone all in on the Euro - luckily for them they didn't.

 

The fiscal conservatives in the US (not Republicans) aren't wrong either. We're pretty much screwed unless a miracle happens. The Administration is floating the idea of raising military TriCare premiums 345% as one way to close the gap. These are the "ideas" we deserve because we keep electing these buffoons.

 

 

 

TPS was replying to Rob who brought up the topic of Greece.

[Alaska Darin]

TPS was replying to Rob who brought up the topic of Greece.

Thanks, Chachi. I can read. I also know a hell of a lot more about TPS and his games and don't need your help with, well, pretty much anything.

[Chef Jim]

TPS was replying to Rob who brought up the topic of Greece.

 

And based his whole argument on his reply to Rob's mention of Greece which has nothing to do with the thread topic you dipshit.

[3rdnlng]

And based his whole argument on his reply to Rob's mention of Greece which has nothing to do with the thread topic you dipshit.

 

 

What did you expect from the "stupidest poster on this board"? Actually DIN has a much larger volume of work but this guy is special.

[Bigfatbillsfan]

And based his whole argument on his reply to Rob's mention of Greece which has nothing to do with the thread topic you dipshit.

 

Whatevs...

[TPS]

As I said in the quick post, I have some things that are keeping me occupied, so I will post bits when I can. It's not something that can be answered with a quick post. I started with saying I'd answer the easy part of Rob's post--equating the US to Greece. But of course people have to jump on that and say I'm off topic. While the OP is on the UK, the topic concerns whether a country that issues its own currency can "run out of money." Rob's concern is that the US is going to end up like Greece. I say it can't.

 

Rob's post also brings out two issues regarding deficits and debt--there is a long term problem regarding unfunded liabilities; and there is a short term problem of trillion dollar deficits. I agree that there is a long term issue that needs to be addressed, but in the short term expansionary deficits are necessary to maintain total demand in the economy, otherwise balancing the budget will cause a depression. While I believe that deficits are a necessary evil in the short run, they don't have to come about from increased spending, you can cut taxes and/or give various business investment credits. This is NOT to argue that government is good or bad, rather it's about the expansionary impact of deficits on the economy as a whole. The short term issue is to get the economy back to its average real growth rate of 3% and unemployment close to 5%, and most of the short term deficit will be resolved.

 

So the belief is that the US is going to go bankrupt because the federal government has run deficits of $1 trillion over the past three years, and will continue to run deficits until the economy recovers. If you believe that the US can't pay, then one would expect interest rates to be extremely high reflecting that risk premium, but they remain at historic lows. Are bond traders just stupid (and they should be reading PPP)? Can any of the doomsayers explain why the bond markets don't reflect the belief that the US will go bankrupt?

I'll get to the main argument--why deficits are necessary--next time.

[Bigfatbillsfan]

As I said in the quick post, I have some things that are keeping me occupied, so I will post bits when I can. It's not something that can be answered with a quick post. I started with saying I'd answer the easy part of Rob's post--equating the US to Greece. But of course people have to jump on that and say I'm off topic. While the OP is on the UK, the topic concerns whether a country that issues its own currency can "run out of money." Rob's concern is that the US is going to end up like Greece. I say it can't.

 

Rob's post also brings out two issues regarding deficits and debt--there is a long term problem regarding unfunded liabilities; and there is a short term problem of trillion dollar deficits. I agree that there is a long term issue that needs to be addressed, but in the short term expansionary deficits are necessary to maintain total demand in the economy, otherwise balancing the budget will cause a depression. While I believe that deficits are a necessary evil in the short run, they don't have to come about from increased spending, you can cut taxes and/or give various business investment credits. This is NOT to argue that government is good or bad, rather it's about the expansionary impact of deficits on the economy as a whole. The short term issue is to get the economy back to its average real growth rate of 3% and unemployment close to 5%, and most of the short term deficit will be resolved.

 

So the belief is that the US is going to go bankrupt because the federal government has run deficits of $1 trillion over the past three years, and will continue to run deficits until the economy recovers. If you believe that the US can't pay, then one would expect interest rates to be extremely high reflecting that risk premium, but they remain at historic lows. Are bond traders just stupid (and they should be reading PPP)? Can any of the doomsayers explain why the bond markets don't reflect the belief that the US will go bankrupt?

I'll get to the main argument--why deficits are necessary--next time.

 

Good luck with "next time". You're already operating way over their heads...

[Alaska Darin]

Good luck with "next time". You're already operating way over their heads...

It's so cute when you're trying to make friends.

 

TPS' post is basic economics - he's not operating over anyone's head. It's also the kind of thinking that's going to have your grandchildren's grandchildren pining for the days when the U.S. was still an economic superpower. Let's just keep kicking the can down the road because there's no way the next economic downturn can be the one that finally puts us over the edge, right?

 

Your desperate need to have some kind of backing on this board is starting to seem like the Who during the "Eminence Front" era.

[TPS]

It's so cute when you're trying to make friends.

 

TPS' post is basic economics - he's not operating over anyone's head. It's also the kind of thinking that's going to have your grandchildren's grandchildren pining for the days when the U.S. was still an economic superpower. Let's just keep kicking the can down the road because there's no way the next economic downturn can be the one that finally puts us over the edge, right?

 

Your desperate need to have some kind of backing on this board is starting to seem like the Who during the "Eminence Front" era.

Kicking the can in the short run, but as I said the long term unfunded liabilities--mainly Medicare--has to be addressed. The primary objective right now is to get back to full employment. If you think austerity will do that, then you miss the point on the UK. If the economy is taking hold now (given the revision yesterday) then no need for additional stimulus, and the deficit will come down.

 

Anyone want to answer the question why bond markets don't seem to care about the current deficits?

Ps. I love you too Darin.

[ieatcrayonz]

It's so cute when you're trying to make friends.

 

TPS' post is basic economics - he's not operating over anyone's head. It's also the kind of thinking that's going to have your grandchildren's grandchildren pining for the days when the U.S. was still an economic superpower. Let's just keep kicking the can down the road because there's no way the next economic downturn can be the one that finally puts us over the edge, right?

 

Your desperate need to have some kind of backing on this board is starting to seem like the Who during the "Eminence Front" era.

Mr. Limbaw,

 

You called him Chachi before. Did Chachi get fat?

 

P.S. Rodger Daltrey sucks

[Alaska Darin]

Kicking the can in the short run, but as I said the long term unfunded liabilities--mainly Medicare--has to be addressed. The primary objective right now is to get back to full employment.

No disagreement there, though we've been kicking the can so long that there seems to be no end to "the short run".

If you think austerity will do that, then you miss the point on the UK.

Never said that.

If the economy is taking hold now (given the revision yesterday)

Doubtful.

then no need for additional stimulus, and the deficit will come down.

Also doubtful.

Anyone want to answer the question why bond markets don't seem to care about the current deficits?

Because when you owe your creditors a few billion dollars, you have a problem. When you owe them many trillions, THEY have a problem. That's just a couple of cards in the foundation. The entire house is crumbling, so pointing to that as a win is ridiculous.

Ps. I love you too Darin.

You should.

[Rob's House]

Thanks TPS for making an effort to explain your philosophy, most will not. I'll wait until after your next installment to respond to the substance.

 

TPS was replying to Rob who brought up the topic of Greece.

Geez dude, I try not to bully you and run you off because without libs to argue with the discussion is reduced to arguing with Arctic hermits about whether it's ok for quasi-celebrities to beat up nurses that irritate them, but your lack of reading comprehension and logical thought make it tough. The topic didn't shift to Greece. Greece was a "canary in the coal mine" example tied in with most of western Europe as other examples of countries facing similar problems to the UK (which was the topic at hand). I tied that in with the US who has increasingly modeled our economic system after these enlightened socialists based largely on blind faith in a theory that economic growth generated from artificially inflated demand will sufficiently offset the debt created from by all the "compassionate" government deficit spending. The question was basically given the results how does liberal economic theory fix this problem. But somehow while TPS & [presumably] the rest of the board got that from one sentence, it [not surprisingly] went over your head.

[Magox]

Good luck with "next time". You're already operating way over their heads...

You really shouldn't be making this statement. Just sayin'

 

 

Where TPS has it wrong is he says "look at the bond markets, they say everything is ok". That's got to be the most dangerous view that any responsible policy holder can have. Luckily for all of us people like TPS or Krugmann who have no real stake, can just opine from the sidelines and continue to attempt to advance their leftist vision of America. Does anyone know where Greek Bond rates were just 1 year before their crash? I can tell you, they were in a sweet spot, very low by European standards, everything looked just fine until they weren't.

 

That's the most insane, warped sort of thinking that anyone can come up with. WHat were fannie mae bonds trading at 6 months before the collapse? Give me an answer. What were GM bonds trading at 6-12 months before the collapse?

 

With your way of looking at thing, you would of said "Gee, look at Greek bonds, or Fannie mae's, bond markets say they are just fine, so everything is fine. hahaha " well you would of been wrong.

 

You think that there is a gradual decline when insolvency comes at the forefront? No! It happens rapidly, things come to light but more importantly FOCUS becomes singular, and then you have a rush to the exits causing a stampede of investors flowing into other assets causing rates to spike. That's how it worksin the REAL world TPS. Not in the ideological academic world.

 

There is an old adage , Bond markets are fine until they aren't. Sorry your way of thinking is dangerous and deeply flawed and I just proved it.

 

Of course what TPS fails to include, either dishonestly or just through sheer ignorance (I'm thinking the former) is that the US bond market has benefited greatly off of all this mess in Europe. Bond investors are bond investors period. So when bond investors see that the Greek, Italian, Spanish, Irish etc bond markets look like a nonviable place to park their money, they shift it somewhere else. So who has been the benificiaries of this dynamic? Well, the US and the Germans. It's not as if all of a sudden Bond investors have suddenly deemed the US a fiscally sound country, it was through default. Just like Bill Gross says, Bond investors are looking for "cleaner dirty shirts". The US dollar is the reserve currency of the world and that thankfully gives us an advantage. Having said that, the reliance of the dollar is declining, and the dangerous sort of thinking from people such as TPS and Krugmann is that for the most part they assume all will be well in the short-term and to just go out and have a myopic solution of racking up deficits to stabilize the economy.

 

 

But you see, thats the problem, they don't criticize our government for implementing policies that aren't just short-term policies, but long-term budget busters such as the presidents health care bill. This bill does raise taxes, and it does increase spending by an enormous amount. We already have long-term structural problems and now we are gonna add yet another huge deficit spending entitlement? What about this supposedly short term pay roll tax cut? Does anyone really honestly believe that anyone now is going to want to take this tax cut away? Honestly.

 

What about all the job killing regulations? We've heard over and over in how the presidents regulations are inhibiting job growth. Yet somehow, no mention of that from TPS.

 

TPS and Krugmann happen to believe that stimulus spending will serve as a bridge or in some magical unicornesque way will thrust us into 5% sustained growth. That is the most ridiculous, insane, illogical sort of thinking that any economist can come up with. Stimulus spending; and I'm not saying can't serve a purpose, because I believe it can in certain circumstances be effective, but to somehow think that just for the sake of spending money to create short-term jobs will lead us to sustained prosperity on the other side of the bridge is nonsense. There is no basis in fact for that sort of thinking.

 

In order for their to be sustained growth in the US, there is no sort of magic silver bullet sort of panacea. Sorry folks, thats just what it is.

 

If you want to have growth here in the US, you have to address our structural employment issues. The reality is that we will not return to the high construction, manufacturing employment society we had before. That's just not going to happen. Employers are learning to do more with less. Technology is improving, so is software and robotics, and guess what? You don't have to pay healthcare benefits for these advances.

 

So in order to grow we need a president who has the vision of where future demand will come from. So what does Obama do? He has a vision of green energy, which I believe there is a future there, but he miscalculated the feasibility of that ideological dream at this point in time. If anything you spend money on the research of technological advances, not on the actual non feasible implementation of it. Seems like every week you hear of another Government grant approved by Obama towards the green sector is going bankrupt.

 

You know where the president can help create jobs in the PRIVATE sector right now? In domestic drilling. Did you know that the fossil fuel energy industry has seen the most increased percentage of employment? NO THANKS TO OBAMA! All this was approved in the Bush era, Obama with his extremist environmental activist Energy policies have in fact denied thousands of miles of drilling that would of been approved if he wasn't there. Yet the hypocrite touts that under his Administration more oil is being drilled! They say the president is a practical man, I say bull ****! If he was practical he would go where the private sector would create jobs RIGHT NOW! They would approve more oil drilling not only to create jobs now, but those actions would lower energy prices in the future. AND the kicker is that this would be ALL private sector money, not your money.

 

You know where there could be another structural area where we could look to improve? How about the BRIC nations? These nations are growing rapidly, and their appetite for good products and services are rising even faster. A good president would have the vision to see this. They would do everything in their power to increase trade, supply their needs with our American products and services. HOnestly, how many times have you heard that this has been happening? If you have it hasn't been nearly enough.

 

What about making out corporate tax code competitive with the rest of the world? Did you know that the presidents corporate tax plan has been shunned by his own economic council? No one is supporting it. You can find that on the web if you look for it. Why? Because at the end of the day, they found out that his corporate tax "cut" is actually a tax hike.

 

What about the presidents idea to raise taxes on dividends for all Americans to near 40%? What do you think that will do? You think that will encourage more investment towards companies?

 

You see these are structural issues, but the ideological deficit spending purists somehow believe that if you spend money just for the sake of creating a job, any job, that voilaaaaaaaa! SUSTAINED GROWTH!!!

 

Guys like you TPS are very dangerous. They give people the false illusion that things are going well "Look at the bond markets, everything is fine". This ideology is what the president supports, the people he nominated to the FED are academics who hold the belief that stimulus IS the panacea. They're wrong.

Edited March 1, 2012 by Magox

[Bigfatbillsfan]

Thanks TPS for making an effort to explain your philosophy, most will not. I'll wait until after your next installment to respond to the substance.

 

 

Geez dude, I try not to bully you and run you off because without libs to argue with the discussion is reduced to arguing with Arctic hermits about whether it's ok for quasi-celebrities to beat up nurses that irritate them, but your lack of reading comprehension and logical thought make it tough. The topic didn't shift to Greece. Greece was a "canary in the coal mine" example tied in with most of western Europe as other examples of countries facing similar problems to the UK (which was the topic at hand). I tied that in with the US who has increasingly modeled our economic system after these enlightened socialists based largely on blind faith in a theory that economic growth generated from artificially inflated demand will sufficiently offset the debt created from by all the "compassionate" government deficit spending. The question was basically given the results how does liberal economic theory fix this problem. But somehow while TPS & [presumably] the rest of the board got that from one sentence, it [not surprisingly] went over your head.

 

On the contrary, When you brought up the subject of Greece, and I don't think you or anyone else was trying to change the topic, TPS responded to that with the point that Greece is not a good example of how that would work here in the US because we print out own money and Greece relies on the European central bank.

 

Rather respond to that point other accused him of trying to change the topic and that's what i was addressing in my post. Is that a good enough answer for you?

 

Don't worry. You're not bullying me. I'm not going to run off.

[GG]

I guess we're forgetting that the US was also on the verge of "running out of money" in August?

 

To me, the UK and Greece parallels are perfectly apt because both cases are emblematic to governments running budgets that cannot be met with tax generation. Both countries also levy high taxes on the citizenry, so you cannot argue that their rich countrymen aren't being asked to pay their "fair share" to support the state largesse. Yet, by ignoring private sector economic growth and waiving a magic wand that will make financial problems go away with an application of a magic accounting wand, you end up in the precise same place as our friends across the pond.

 

Yes, TPS is right that there are two issues at play - the short term deficits caused by the recession and long term deficits caused by the free lunch crowd. And yes, Bernanke & Geithner can be a touch goosy now because near zero Treasury yields give them lots of rope. But as our esteemed professor once said, you can only push a string so far. Fiscal policy hasn't done squat to spur a recovery. We can argue for days on whether Fed's efforts to prop up the economy to avoid a Depression now will have a serious effect on long term yields & deficits, but at least right now, it's a minor issue. What is a major issue is that the recovery is so tepid, which defies any reasonable logic considering the huge fall in 2008 - 2009. So, while the economy does have the capacity to largely correct the near term deficits, it's not happening because there's no sizable recovery and you are just exacerbating the long term problem that is coming and is very real. So to use current bond prices as an indicator of longt term issues is folly, since you (TPS) are the biggest critic of traders' split second, near-term mentaliy. There' s no way a bond trader is thinking about what the bonds will trade in 5 years, when his paycheck is dependent on the spread he can make on today's pricing.

 

So you can take that mentality and apply it to the political class, which has zero apettite to level with the electorate that the budget trajectory is unsustainable and will progressively get worse. It's far to easy to wage class warfare to convince the voters that their biggest problem is that the jet set is only paying a 14% tax, and all problems will go away if that tax is raised to 30%. That's what people deserve for electing an amateur demagogue to the White House, who's still clueless in shaping an agenda and policy that will take the brakes off the self healing powers of the private sector. I wish this guy had a tiny percentage of Bill Clinton's common sense to recognize when to shed your ideology and let the private sector do what it does best. But, as he said in the interview, he likes being POTUS because Michelle is enamored of him being POTUS that he can't let the ego & reelection get out of the way of an economic recovery. And the longer you delay the recovery, the worse the future situation will be.

[Dave_In_Norfolk]

Ok, GG, Maggox, Darin, since the end is neigh, how long do we have left before the economy totally collapses? Can't be that long now? Tomorrow, ar you guys buying canned goods? Will paper money be worthless in 5 years? Or will Mitt boy save us? Seriously, any guesses?

[TPS]

I guess we're forgetting that the US was also on the verge of "running out of money" in August?

 

No. We ran into a self-imposed political budget constraint.

[TPS]

You really shouldn't be making this statement. Just sayin'

 

 

Where TPS has it wrong is he says "look at the bond markets, they say everything is ok". That's got to be the most dangerous view that any responsible policy holder can have. Luckily for all of us people like TPS or Krugmann who have no real stake, can just opine from the sidelines and continue to attempt to advance their leftist vision of America. Does anyone know where Greek Bond rates were just 1 year before their crash? I can tell you, they were in a sweet spot, very low by European standards, everything looked just fine until they weren't.

 

That's the most insane, warped sort of thinking that anyone can come up with. WHat were fannie mae bonds trading at 6 months before the collapse? Give me an answer. What were GM bonds trading at 6-12 months before the collapse?

 

With your way of looking at thing, you would of said "Gee, look at Greek bonds, or Fannie mae's, bond markets say they are just fine, so everything is fine. hahaha " well you would of been wrong.

 

You think that there is a gradual decline when insolvency comes at the forefront? No! It happens rapidly, things come to light but more importantly FOCUS becomes singular, and then you have a rush to the exits causing a stampede of investors flowing into other assets causing rates to spike. That's how it worksin the REAL world TPS. Not in the ideological academic world.

 

There is an old adage , Bond markets are fine until they aren't. Sorry your way of thinking is dangerous and deeply flawed and I just proved it.

 

Of course what TPS fails to include, either dishonestly or just through sheer ignorance (I'm thinking the former) is that the US bond market has benefited greatly off of all this mess in Europe. Bond investors are bond investors period. So when bond investors see that the Greek, Italian, Spanish, Irish etc bond markets look like a nonviable place to park their money, they shift it somewhere else. So who has been the benificiaries of this dynamic? Well, the US and the Germans. It's not as if all of a sudden Bond investors have suddenly deemed the US a fiscally sound country, it was through default. Just like Bill Gross says, Bond investors are looking for "cleaner dirty shirts". The US dollar is the reserve currency of the world and that thankfully gives us an advantage. Having said that, the reliance of the dollar is declining, and the dangerous sort of thinking from people such as TPS and Krugmann is that for the most part they assume all will be well in the short-term and to just go out and have a myopic solution of racking up deficits to stabilize the economy.

 

 

But you see, thats the problem, they don't criticize our government for implementing policies that aren't just short-term policies, but long-term budget busters such as the presidents health care bill. This bill does raise taxes, and it does increase spending by an enormous amount. We already have long-term structural problems and now we are gonna add yet another huge deficit spending entitlement? What about this supposedly short term pay roll tax cut? Does anyone really honestly believe that anyone now is going to want to take this tax cut away? Honestly.

 

What about all the job killing regulations? We've heard over and over in how the presidents regulations are inhibiting job growth. Yet somehow, no mention of that from TPS.

 

TPS and Krugmann happen to believe that stimulus spending will serve as a bridge or in some magical unicornesque way will thrust us into 5% sustained growth. That is the most ridiculous, insane, illogical sort of thinking that any economist can come up with. Stimulus spending; and I'm not saying can't serve a purpose, because I believe it can in certain circumstances be effective, but to somehow think that just for the sake of spending money to create short-term jobs will lead us to sustained prosperity on the other side of the bridge is nonsense. There is no basis in fact for that sort of thinking.

 

In order for their to be sustained growth in the US, there is no sort of magic silver bullet sort of panacea. Sorry folks, thats just what it is.

 

If you want to have growth here in the US, you have to address our structural employment issues. The reality is that we will not return to the high construction, manufacturing employment society we had before. That's just not going to happen. Employers are learning to do more with less. Technology is improving, so is software and robotics, and guess what? You don't have to pay healthcare benefits for these advances.

 

So in order to grow we need a president who has the vision of where future demand will come from. So what does Obama do? He has a vision of green energy, which I believe there is a future there, but he miscalculated the feasibility of that ideological dream at this point in time. If anything you spend money on the research of technological advances, not on the actual non feasible implementation of it. Seems like every week you hear of another Government grant approved by Obama towards the green sector is going bankrupt.

 

You know where the president can help create jobs in the PRIVATE sector right now? In domestic drilling. Did you know that the fossil fuel energy industry has seen the most increased percentage of employment? NO THANKS TO OBAMA! All this was approved in the Bush era, Obama with his extremist environmental activist Energy policies have in fact denied thousands of miles of drilling that would of been approved if he wasn't there. Yet the hypocrite touts that under his Administration more oil is being drilled! They say the president is a practical man, I say bull ****! If he was practical he would go where the private sector would create jobs RIGHT NOW! They would approve more oil drilling not only to create jobs now, but those actions would lower energy prices in the future. AND the kicker is that this would be ALL private sector money, not your money.

 

You know where there could be another structural area where we could look to improve? How about the BRIC nations? These nations are growing rapidly, and their appetite for good products and services are rising even faster. A good president would have the vision to see this. They would do everything in their power to increase trade, supply their needs with our American products and services. HOnestly, how many times have you heard that this has been happening? If you have it hasn't been nearly enough.

 

What about making out corporate tax code competitive with the rest of the world? Did you know that the presidents corporate tax plan has been shunned by his own economic council? No one is supporting it. You can find that on the web if you look for it. Why? Because at the end of the day, they found out that his corporate tax "cut" is actually a tax hike.

 

What about the presidents idea to raise taxes on dividends for all Americans to near 40%? What do you think that will do? You think that will encourage more investment towards companies?

 

You see these are structural issues, but the ideological deficit spending purists somehow believe that if you spend money just for the sake of creating a job, any job, that voilaaaaaaaa! SUSTAINED GROWTH!!!

 

Guys like you TPS are very dangerous. They give people the false illusion that things are going well "Look at the bond markets, everything is fine". This ideology is what the president supports, the people he nominated to the FED are academics who hold the belief that stimulus IS the panacea. They're wrong.

I don't disagree with any of your micro points. There are a lot of issues that will make it difficult to create a sustainable recovery. My argument is about the macro effect of government deficits and how they sustain private sector surpluses. It's a matter of simple accounting. The reason households and businesses are net savers right now (improving their balance sheets) is because the government sector is running a deficit. The fact that the government spends more than it takes in taxes means the private sector and international sector are accumulating the bonds the government issues.

 

In 2010, the total government deficit (includes state and local) was $1.556 trillion. Of that, households accumulated $535 billion in assets (they were net lenders); businesses accumulated $541 billion; and the international sector accumulated $480 billion.

Again, it's accounting. The fact that government spends more than it takes in taxes means private sector incomes and assets are increasing. This is why businesses are accumulating and hoarding cash.

 

As businesses and households decide to start saving less and spending more, then the economy will pick up, their surpluses will fall, and the growing economy will generate more tax revenues and there will be less spending--the government deficit will fall as the private sector starts to save less (spend more).

Then there's the international sector and China...

[GG]

No. We ran into a self-imposed political budget constraint.

 

Same issue that UK is going through. They're not out of money, but the parties are arguing about how to "fund" the deficit.

 

I don't disagree with any of your micro points. There are a lot of issues that will make it difficult to create a sustainable recovery. My argument is about the macro effect of government deficits and how they sustain private sector surpluses. It's a matter of simple accounting. The reason households and businesses are net savers right now (improving their balance sheets) is because the government sector is running a deficit. The fact that the government spends more than it takes in taxes means the private sector and international sector are accumulating the bonds the government issues.

 

In 2010, the total government deficit (includes state and local) was $1.556 trillion. Of that, households accumulated $535 billion in assets (they were net lenders); businesses accumulated $541 billion; and the international sector accumulated $480 billion.

Again, it's accounting. The fact that government spends more than it takes in taxes means private sector incomes and assets are increasing. This is why businesses are accumulating and hoarding cash.

 

As businesses and households decide to start saving less and spending more, then the economy will pick up, their surpluses will fall, and the growing economy will generate more tax revenues and there will be less spending--the government deficit will fall as the private sector starts to save less (spend more).

Then there's the international sector and China...

 

The beauty of arguing with an economist. It's not that businesses and people don't see good investment/spending opportunities, it's that they decide to save? You guys always focus on the outcomes, yet talk about them as if they're the economic drivers. That's why your profession came up with the incomprehensible "deficit spending" concept. You cannot spend a deficit. A deficit is created by either spending more on stuff than you did before or by getting less revenue as you did before to spend on your stuff.

 

BTW, I'm sure you follow pesronal consumption statistics. Looks like they've rebounded in 2010 & 2011. So why is the economic growth still in the crapper and companies are willing to park their cash at 0% interest rates or buy back stock? Wonder what kind of hope & change can lift the investment?

[TPS]

Same issue that UK is going through. They're not out of money, but the parties are arguing about how to "fund" the deficit.

 

 

 

The beauty of arguing with an economist. It's not that businesses and people don't see good investment/spending opportunities, it's that they decide to save? You guys always focus on the outcomes, yet talk about them as if they're the economic drivers. That's why your profession came up with the incomprehensible "deficit spending" concept. You cannot spend a deficit. A deficit is created by either spending more on stuff than you did before or by getting less revenue as you did before to spend on your stuff.

 

BTW, I'm sure you follow pesronal consumption statistics. Looks like they've rebounded in 2010 & 2011. So why is the economic growth still in the crapper and companies are willing to park their cash at 0% interest rates or buy back stock? Wonder what kind of hope & change can lift the investment?

Gee, the part of investment spending which has not recovered--housing and structures. Wonder why?

As for consumers, real expenditures are back to the level they were at in 2007--5 years later. However, as someone who works in finance, you must know that debt financed expenditures drive growth. Household debt is still contracting, and has been since 2008--the number one factor keeping growth down. Also, state and local governments are contracting, which offsets some of the federal government stimulus. So, businesses are investing in equipment, they aren't building new structures, and won't until capacity gets back to 81-82%.