Whether he's right or wrong, I think it's too bad this viewpoint isn't even represented. It's all about how we handle the crisis, with no mention of whether the crisis is even valid. I'd add that goes for more than just this crisis.Hungary Jack wrote:Regardless of who hold the Treasury bills and bonds that have financed our spending, these bondholders expect to get repaid. It's almost certainly a one-way ticket to higher taxes and less consumption, the latter of which drives our economy.ghostrunner wrote:I wish I heard more of this POV in the media. There's been plenty of talk about cuts and taxes, and sports like coverage about who's winning, but it would be nice to at least hear the central premise challenged.longhornbaseball wrote:A crisis implies that if we don't undertake fiscal tightening soon, there will be dire immediate consequences in the form of higher interest rates and/or a currency collapse, which will lead to hyperinflation. There is currently very little evidence that suggests either scenario is likely to occur in the future, and no evidence that either is occurring right now (which is what the word crisis implies).Hungary Jack wrote:I do not understand how you can state that there is not a public debt crisis in this country. I understand that our federal and state governments can raise taxes, that our central bank can (continue) to devalue our currency, and that we can continue to borrow even if it means paying significantly higher rates as the credit agencies and Chinese get nervous, but all of these remedies have serious consequences for our economy and standard of living. It is a theoretical argument, and one that fails to recognize that our public fiscal policy is really taxing the limit of our economy and trading partners to finance public consumption.
The only reason the ratings agencies are discussing a downgrade of US federal debt is due to the BS debt ceiling, which is an outdated relic of the gold standard. If there was no debt ceiling, the ratings agencies would not be discussing a US downgrade. The argument that the Chinese might decrease their demand for US treasuries ignores the fact that the Chinese need to buy US treasuries (or other dollar denominated assets). As long as they keep trading us goods for dollars, they need to do something with those dollars. US treasuries continue to be the safe-haven asset for the entire world, and I don't see that changing anytime soon.
The primary factors that drive US treasury yields are Federal Reserve policy and inflation. Currently the Fed funds rate is around zero and inflation is 3.6%, which is higher than we'd like, but primarily due to the oil shock which began with the Libyan revolution. As long as there is stability in the global energy markets, inflation shouldn't be much of a problem.
I started reading this blog several months ago
http://www.optimist123.com/
Oddly enough, though he hasn't updated it since January, the last post is about the debt ceiling. You can go back and read the archives though and there's a lot of thought provoking stuff contrary to the conventional wisdom. Basically he thinks the debt crisis is a bunch of hooey. As I recall, his major point is that we owe ourselves quite a bit of this debt, and therefore don't need to worry so much about it. He's more concerned with what percent of the debt is taken up by interest.
Foreigners still own about a third of our total public debt, which is rapidly nearing 100% of our GDP. The last time our public debt exceeded this figure was during WWII.
We really do not have a liquidity crisis in this country, but our borrowing is simply unsustainable at current trends, especially when it is primarily financing consumption. So the debt limit issue has become a pretty useful pawn for conservatives to force the issue on our deficit and our debt.
The author is correct in stating that the cost of debt service is the main issue. Historically low interest rates are really helping the US in this regard. Still, net interest consumes about $200 B in federal spending each year.
In hindsight, I think Obama could have come out with an even larger stimulus had he paired with something similar to what he's proposing now. Massive spending in the short term would have been more palatable with at least a plan for some permanent or long term cuts to come later, along with some tax increases.
With respect to tax increases specifically, I'd be framing it in terms of our wars and our military. If it's important enough to go fight somewhere, it ought to be important enough to pay for it upfront, and ask everyone to chip in. Bush screwed up royally on that. Tax increases should be automatic in that situation, IMO. Since that never happened, it's time to catch up.
