Obama policies: "Debt Explosion"
Meanwhile time to hunker down and get ready for the second stage and the Obama recession.
In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.Meanwhile other economists are saying that California's nightmare will kill Obamanomics.
The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”.
The Obama administration has no shame, and is willing to abandon reason altogether to achieve its short-term political goals. Ronald Reagan ran up big deficits in part because he believed that his tax cuts would produce economic growth, and ultimately pay for themselves. He may well have been excessively optimistic about the merits of tax cuts, but at least he had a story.
Obama has no story. Nobody believes that his unprecedented expansion of the welfare state will lead to enough economic growth. Nobody believes that it will pay for itself. Everyone understands that higher spending today begets higher spending tomorrow. That means that his economic strategy simply doesn’t add up.
Character Deficit
Back in the 1980s, Reagan’s own economist, Martin Feldstein, spoke up when he felt that the Reagan administration was pushing the deficit too far. Where are the economists with such character today? Apparently, the job description for economists has transformed from recommending policies that are defensible to defending whatever policies that the political hacks in the West Wing dream up.
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22 comments:
I heard Biden over the weekend say the economy they inherited was worse that they thought.
So the Bush recession lives.
But as long as Obama continues raising taxes, expanding goverment and restricting american people businesses and energy supplies will pull out of it.
Yeah sure.
Obama is like an asteroid hitting the planet in slow motion.
Obama with the democrats dominating congress are striking every arena with insane policies, driving forward comittments to massive spending and debt that will never be fulfilled or deliver the intended progress.
Progressive government at all levels means a collapse of our economy and everything depending on it's stability. Which is everything.
Good job loons. You've managed to condemn us to a third world future.
On this Sunday news shows Democrats' common refrain:
"The dog ate our homework."
I haven't read anything about this in The Oregonian. You must be making it up.
I'm skeptical of any economist who proclaims that interest rates will go up because of large deficits.
There were record deficits during the Reagan administration (16-17% in years 2-5, 10 - 12% in years 1 and 6 - 8), yet the prime rate, which spiked at over 20% several time in his first year (and reached its highest lever, higher than any time during Carter's administration, in August of Reagan's first year), came down to the 10 - 11% range by the end of 1982, and mostly stayed in that range through mid-1985, then dropped below 10% and stayed there.
There is no evidence of a causal relationship between large deficits and high interest rates.
RR,
But Reagan was growing the economy which also increased income to the Federal Govt.
The problem with Obama (if you would have taken the time to actually READ the attached articles) is that he has created the largest deficits in history and his policies are killing the economy.
So... If the economy is not growing, and thus bringing in less money to the Feds, how are you going to pay down the deficit?
Answer... Borrow or print more money.
What happens when you print more money?
yip yip
There is no evidence of a causal relationship between large deficits and high interest rates.
Consider a supply/demand graph with the money supply on the x axis and the interest rate on the y axis.
As the government borrows more, the demand for money increases; the demand line shifts to the right resulting in an increasing rate of interest.
I've said this during the Bush Administration and I will say it during the Obama Administration: government deficits are BAD FOR BUSINESS. Government deficits crowd out borrowing in the private sector.
It's too bad the ignoramus GOPers couldn't muster the ability to challenge King Bush, that tends to be a trend with them.
******************
As for this being the "Obama" recession, this is more ignoramus speak in which the minority power has nothing left except to project their own failures onto the opposition.
What happened to the stock market under Bush? What happened to the housing market under Bush? What happened to forecasted foreclosure rates under Bush? What happened to real wages under Bush? What happened to the credit markets under Bush?
To call this "Obama's Recession" is to call the first few Reagan years the "Reagan Recession". It's just another way for Republicans to further shirk responsibility.
Too bad they can't man up.
So... If the economy is not growing, and thus bringing in less money to the Feds, how are you going to pay down the deficit?
Answer... Borrow or print more money.
If you're so upset about this, why didn't you support Ron Paul?
Actually the GDP decreased in Reagan's second year, so he didn't "grow the economy" in his first year of a huge deficit.
Yes, in terms of dollar amount these are the largest deficits in history (which was also true of Bush and Reagan at the time).
We may end up with a deficit, by percentage, larger than in some of the Reagan years, but it's unlikely that we'll have the sustained deficits of four consecutive years like we had with Reagan.
anonybat 10:10,
Why can't you just "man up" and accept this economy as your own?
Ted, here's an honest question:
At what point during an administration, particularly after a change in parties, does the economy "belong" to the current administration?
I'm asking because Obama has been in office less than six months, and you seem to think the current problems are all "his fault".
Yet conservatives still hold Ronald Reagan in great regard, but in his second year we had a full-on recession, with real GDP declining 1.9%, unemployment at 9.7%, and real median family income declining 0.2%. Was Reagan not responsible for that?
Rising federal debt is only news when it results from Republicans holding elective office. Now that Dems have veto-proof single party rule, it's a non-issue. That's because we have a hyper-partisan, intellectually dishonest fourth estate.
Coyote, don't forgot about the tax increase option, one Obama favors. Would it surprise anyone for Obama to issue an edict to the IRS, absent Congressional action, to apply a federal tax to savings in order to pay for his boondoggles? After all, he is now The Prince. (ref. Niccolò Machiavelli, who codified the insiders' handbook in 1532.)
The bottom line is, whether it's Bush or Obama, Presidents were/are temporary placeholders for the true powers-that-be behind the scenes: the insiders -- led by the permanent public corporate (and now, public union) bigs who pull the strings.
Their goal is to loot America 24/7. Their method is to regularly bring down the economy so they can buy it back on the cheap, then withdraw and allow things to get better so they can sell at the top of the cycle. Then do it all over again every 4-5 years.
None of this happens by accident, without a plan behind it. Conspiracy? No. That's just the way it has been in the U.S. at least since they got together and created the Federal Reserve. That's what Washington D.C.'s bubble-economics is all about.
Leftright is two sides of the same insiders' coin, just a distraction so we won't pay attention to their thievery.
The coin really belongs to the rest of us ... the outsiders who have to pay for it all.
Roadbat,
Obama promised that we would be seeing results from his "stimulus" plan by now.
Are you saying that we should not be believing him at this point?
There is a natural tendency to paint a rosy picture--all the Presidents I can remember have done this.
David Stockman admitted that the Reagan administration knew that they were blowing smoke.
You haven't answered my basic question: At what point does the economy "belong" to the current administration? And remember, this will be true of previous administrations as well.
Roadbat,
The Obama administration has said to start grading them on the economy now. (well last week anyway)
The Obama administration made some outlandish claims about how their stimulus plan was going to start working right away.
I will answer your question with their own words.
It is their economy and it is getting worse.
So, you're admitting that the bad economy of 1982 & 1983, (and the strange economy 1984, with huge economic growth but still high unemployment) is the fault of the Reagan administration?
Or does it only work one way--bad economies during Republican administrations are always the fault of the preceding Democratic administration (I remember people during the George H.W. Bush administration blaming Jimmy Carter for the bad economy then), yet Democratic administrations are immediately responsible for the bad economy.
Roadrunner, are you actually looking for a single universal answer? Do you honestly expect one can exist?
Various economic policies can have various long-term effects, the exact length of which is often impossible to determine. Some have far-reaching effects, others not so much.
Wanna blame the other guy, then show how it's his fault. Bush made some bad decisions, but so did the Dem Congress. The housing bubble's rise and fall was directly caused by the Fair Housing Act and govt. de facto guarantees of risky loans. Not the amorphous "greed" that so many on the Left like to trumpet.
Was Obama responsible for this? Well, he was in the Senate and probably voted for it (I have no idea if he did, or even if he was in the Senate at the time of the bill, but could you honestly imagine him not voting for it? And it would be easy enough to check), but it would be grossly unfair to claim it was exclusively Obama's fault.
However, Obama should be held accountable to what he himself said as president, and he said the extremely expensive stimulus would help and create and save jobs-- and it has not. And their response is to blame Bush, and completely discount the unprecedented spending of the past six months as having any bearing on the economy at all. They're acting as if the economy is a thing competely unresponsive to their own actions-- except when it improves.
"The housing bubble's rise and fall was directly caused by the Fair Housing Act and govt. de facto guarantees of risky loans."
This statement is demonstrably wrong. The vast majority of 'risky' loans that went into default were made by unregulated mortgage brokers, who immediately sold the loans, which were then securitized, etc....
The belief held by many that low income people looking for a hand to buy homes caused the tremendous rifts in the world economy that we are now experiencing is ridiculous. Many on the left have for some time been pointing to specific regulatory actions and decisions made by the Bush administration's SEC that are more direct causes. Feel free to disagree, but realize that unchecked 'amorphous greed' is not the position you are disagreeing with-it's criticism of actual policy.
Anon 12:59
If it's "demonstrably wrong," then demonstrate it. Simply putting in an assertion ain't a demo.
Such speculative policies regarding risky loans that you describe have been going on for many, many years, but at a very low levels because of the inherent risk involved and the high chance for massive losses. It was after the loans were basically guaranteed by Congress that such practices took off in the industry (why wouldn't it? Potentially high gains and low-risk thanks to govt. de facto guarantees) resulting in massive speculations and housing as investment.
"The belief held by many that low income people looking for a hand to buy homes caused the tremendous rifts in the world economy that we are now experiencing is ridiculous."
This is not the belief held by many. It is the belief that govt. intervention and artificial manipulation of markets to allow low income people looking for a hand to buy homes largely contributed to the recession. Before you ridicule something, it helps to understand it. Just sayin'.
The consumer power of the US is incredible and should not be underestimated. The rest of the world have their economic problems, but when their major importer of goods suddenly stopped buying because of money shortages, the housing bubble, and economic uncertainty, and the US dollar dropped in value, guess what happened?
Was the housing bubble the sole cause? No. But is there ever a sole cause? No. Was it a contributing factor? Yes.
The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 33% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-six percent (36%) Strongly Disapprove giving Obama a Presidential Approval Index rating of –3. Those figures reflect the highest level of strong disapproval measured to date and the lowest level recorded for the overall Approval Index (see trends)."
Anon @ 2:51.
As requested, I've provided a link below (from last September) to a business week story describing the non-relationship between the Community Reinvestment Act and the subprime crisis. This is one of many such articles that appeared around the same time when R's were trying to find someone other than themselves and the Bush administration to blame.
Interesting point of the article is that the fact that CRA loans are regulated actually led to more responsible lending than occurred in the unregulated market. Maybe you can tell us why that is a false statement.
Hope this helps you understand the situation.....
Anon @ 12:59
http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html
Your "evidence" is a blog entry in BusinessWeek that is both vague and suspect. Yes, the Community Reinvestment Act is not new, but it has gone through various changes in its thirty year existence. It was used to push forward the Congressional notion of housing as entitlement and "affordable housing." To ignore this is either intentionally deceptive or foolishly ignorant.
While laughably wiping away all blame from Fannie Mae and Freddie Mac, your glorified blog entry completely ignores the changes in the industry that came from govt. guarantees of loans. Odd thing to ignore, but not if you're busy laying the blame on targets other than Congress and over-regulation, especially while pushing for further regulation and supervision.
Sorry, but your 6 paragraph blog reference isn't too convincing. But then you idolize a president that is now claiming that the stimulus has worked. So I don't expect much critical thinking.
Yes, it's not a dissertation-it outlines the basic argument, provides some links to source material and similar discussions, etc. It is, as you say, a blog post. One that is more detailed than your argument, I might add.
Anyway, follow the lead if you want. Ignore it if you want. It doesn't matter to me how informed or uninformed you are or choose to be.
And finally, you wrote, "But then you idolize a president that is now claiming that the stimulus has worked. So I don't expect much critical thinking." You must be referring to the voices inside your head. I didn't even mention the current president in my comments, nor did I say anything about his efforts with respect to the economy. You may find it simpler to lump everyone you disagree with into the same simple caricature of 'liberals' or whatever you despise, but you have missed the mark this time.
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