While the number eight is lucky, the number four is death, and on Friday the Dow Jones Industrial Average closed the day at a rather inauspicious 11,444. Today, the Dow fell 5.55 percent, closing at 10,809 while the S&P 500 fell to 1,119, a drop of 6.66 percent.
S&P 500 Extends Worst Slump Since 2008 Bear Market [SocketSite]

Comments from Plugged-In Readers

  1. Posted by NoeValleyJim

    This market slump has assuredly closed the IPO window for Zynga. If it continues for too long, they will have to pull it, which would be bad for the SF housing market.
    There are a bunch of other companies that are closely watching Zynga to see if they can file as well, so quite a bit is riding on this one.

  2. Posted by catchafallingknife

    You voted for him…he has no plan….you reep what you sow…. this is just the beginning of the death spiral Zynga and the others will just have to wait… 666 is the mark of the devil…hang on tight it’s about to get bumpy

  3. Posted by Joshua

    Generally agree with NVJ, however, note that many of theses companies have already found a way to cash-out founders and many key shareholders. (follow-on rounds, secondary market, etc.)
    I’ve always maintained that high-end SF real estate tracks the S&P500, with a lag. The only difference this time around is the social media companies have been savvy about getting liquid before their IPOs.

  4. Posted by lyqwyd

    Anybody still think QE3 isn’t going to happen?

  5. Posted by tipster

    Well, it’s certainly looking like Ben B held his finger in the dike as long as he could, but he couldn’t hold off the inevitable forever.
    He pumped money into the economy, and with nowhere to go it went into commodities and stocks. But the money pumping seems to be ending and the smart investors understand that none of the structural problems of the economy have been solved, so without that artificial flow of funds into the market, it’s time to exit.
    And yes, a lot of companies had hoped to sop up those excess funds, and will now have to sit on the sidelines for a while longer, hoping they can stay afloat long enough for the next opportunity
    In a week or two, people will stop feeling as flush as they had been and the next leg down in the economy will begin. Gold isn’t shooting up because people have lots of faith in the economy or the economic leadership.
    Was fun while it lasted.

  6. Posted by ex SF-er

    note that many of theses companies have already found a way to cash-out founders and many key shareholders. (follow-on rounds, secondary market, etc.)
    Perhaps, but that’s rear view window stuff… things that have already helped the SF metro wide market. (the people already cashed out and presumably used those winnings to purchase homes, incluing my relatives who did it 2 months ago).
    Of course: it still will cause future SF RE pain whether or not those employees cashed out because where do you think many of these employees put their winnings after they cashed out? (hint: probably not in a savings account or gold).
    Do you think there will be a strong secondary market for Facebook stock if the S&P falls to 666 again and we are in global depression? (I do not think the S&P will fall that far, I use it only as a discussion point).
    The “Seldon Moment” I’ve discussed since January is now here. I’ve been taken to task a few times by various commenters, but as I’ve said the markets are too reliant on central control/manipulation, YES similar to the old USSR. and thus, the way forward now depends very much on the actions of a very few number of people. (Obama, Repub/Dem leaders, Bernanke, Trichet, Merkel, Berlusconi).
    There are two major catastrophic events occurring simultaneously now.
    1) The Euro is near failure. Italy and Spain are illiquid (IMO they are truly not currently insolvent, and are thus different than Greece/Portugal, Ireland) but there is no credible way to backstop them. The USA downgrade is critical here because it means that France cannot be considerd AAA either… and Germany cannot/will not be the sole support for the entire EFSF
    2) QE2 is done and Markets are starting to understand what austerity means. The USG is now completely broken and nothing will get done. This is a dream for some political parties… however we must understand that the last 2 years of “recovery” were only a technical recovery predicated on massive governmental welfare to Equities and Big Biz especially Finance. This welfare is in jeapordy.
    Banks are taking it on the chin, because they are all zombies and the largest welfare goddesses of them all… Banks are “systemically important” or whatever, and have been made more TBTF. Thus they “must” be saved (by saved I mean hordes of money given to them so they can pay themselves record bonuses and crush the little people by ramping up commodity prices… but I digress). But how to do it again?
    Since Fiscal policy is not possible (broken govt), only monetary policy remains. Therefore QE3 is, and has for some time, been assured. The question is only when. I’ve suspected for some time it would be in the fall, but things are falling apart faster than I expected.
    And as I’ve said before, just as QE2 worked less well than QE1, so will QE3 be less effective than QE2.
    and remember, obviously the Fed will not call it QE3. another name with lots of confusing letters will be used.
    The infantile markets are throwing a temper tantrum in order to force Govt leaders to be more specific about how much more taxpayer blood can be funneled to Big Biz. This current drop will continue until Govt blinks (it always does). The “markets” have long ago figured out that they control the situation… just hold a gun to Govt head and threaten Depression and torpedo the markets to prove a point.
    My original thought was 20-25%… however I was not expecting 2 simultaneous Seldon Moments. (I’m not surprised about it… just wasn’t expecting it this early).
    Of note: the more important Seldon Moment is the EUROPEAN one.
    on a side note: I doubt that this current drop will last more than a few more days. Govt will blink. it always does, partly because it wants to. they’re just waiting for regular people to Panic as they see their 401k’s decimated, and then the people will beg for intervention. But this time things may go a bit differently… the same game gets tiring, even to “little” people.
    but can I be sure? of course not. read above where I called this the Seldon Moment. It really does depend on what a few world leaders decide to do. Scary, huh.

  7. Posted by FormerAptBroker

    Another great post ex-SF-er.
    Did anyone else notice that the S&P 500 dropped 6.66% yesterday?

  8. Posted by Pfffft

    Yup, you voted for him. Now lie in the bed you made and continue to “hope” for pocket “change.”

  9. Posted by sfrenegade

    “Yup, you voted for him. Now lie in the bed you made and continue to “hope” for pocket “change.””
    Oh great genius Pfffft, what exactly would you have done differently to prevent the stock market from dropping yesterday? I am sure you must be full of solutions.

  10. Posted by lol

    Yeah, like Tax-cuts-and-spend really worked its magic. Look at what kind of mess you’ve left us when you moved out.

  11. Posted by Pfffft

    ^^^ Look at the worst-in-history mess you got us into. It’s easy to want and spend other people’s money, isn’t it?

  12. Posted by lol

    It’s funny you mention it.
    What has Obama voted that would be considered as “runaway spending”?
    Food stamps? Unemployment insurance?
    Yeah, that’s some government gone wild right there. Not.
    Not like a war started for false pretense or tax cuts to the rich without any matching spending cuts.
    8 years after and the same people come back and say the government spends too much.

  13. Posted by Samuel

    Yes, I voted for him and I’m freakin glad I did! The tech market is back! The stock market was doing well until the Tea Party came in and screwed everyone. The housing, while not crazy like in 2005, has stabilized. My tech friends are getting multiple offers with bonuses. My friends in the construction business are now finding jobs when previously every single one of them were sitting at home. And on top of that, we are getting high-speed rail! What’s not to like. If only Bush was one-quarter as good to California as Obama is.

  14. Posted by [anon.ed]

    Seriously. Dubya’s deficit spending + tax cuts for wealthy + the repeal of Glass Steagall (yes technically signed into law by Clinton, but it was late in 1999 by a lame duck Clinton, appeasing a REPUBLICAN CONGRESS, and Bush ran with it) get us here. Then Obama comes around. He tries to reverse course. The GOP screams foul. “No taxes!” “No military cuts!” “How dare you spend on infrastructure, NO MORE DEFICIT SPENDING” blah blah blah
    what the heck? Why isn’t reversing course the logical thing to do? makes no sense.

  15. Posted by lyqwyd

    Democrats tax and spend, Republicans cut taxes and spend. Both are pretty messed up, but at least Dems have a theoretical plan.
    Both parties are living in a fantasy, but Republicans are way worse. Until they are willing to seriously talk about cutting Medicare, Social Security, AND Defense, there’s no possibility of a balanced budget. We have a $1.4 trillion dollar deficit, If you cut ALL government spending other than Defense, Medicare & SS, and debt service you would only cut about $1 trillion, still leaving a $400 billion dollar deficit. There is no serious discussion about balancing a budget without cutting those three programs, or significantly raising taxes.
    I’d love to see a balanced budget amendment, but the tea party republicans are only talking about it for political reasons. They are not serious as passing it would pretty much instantly result in significant across the board tax hikes.
    I got my data from wikipedia and please feel free

  16. Posted by sfrenegade

    Still no concrete proposals from Pfffft. It is easy to criticize, isn’t it? Again, I ask, what would you have done that would have prevented yesterday’s drop? Seems like a simple question for someone who claims to know the answer.

  17. Posted by lyqwyd

    Here’s a nice summary by Michael Pento of what our congress came up with after all the fighting over the debt ceiling:
    short version:
    “The debt ceiling agreement virtually assures that over the next decade the U.S. will add an additional $8 trillion in public debt, an increase of nearly 80% in 10 years.”

    “The back-end-loaded deal will cause the amount of deficit reduction to be just $21 billion in 2012 and $42 billion in 2013.”

    “It helps to think about these numbers, in terms that we can relate to. … pretend this is the household budget for the fictitious Jones family.”
    * Total annual income for the Jones family: $21,700
    * Amount of money the Jones family spent: $38,200
    * Amount of new debt added to the credit card: $16,500
    * Outstanding balance on the credit card: $142,710
    * Amount cut from the [annual] budget: $385

  18. Posted by lyqwyd

    A more complete version of the above:

  19. Posted by lyqwyd

    And let’s not forget that the republicans only started being concerned about the deficit immediately after they demanded a $700 billion dollar tax cut for the wealthy.
    And don’t get me wrong, I’m no fan of the democrats or the president right now, but the republicans are doing even more harm than the democrats are.

  20. Posted by lol

    All these numbers mean squat compared to the growth potential of the US.
    The GOP’s newly found chastity on debt (is there surgery for that?) is a pointless exercise.
    Growth is what brought the US to a SURPLUS on 2000.
    Growth is what vaporized the GD’s national debt in the 50s
    Thinking that we should behave as if America were not able to reinvent itself in the next 10 or 20 years – as it always have – is typical of a party stuck in the past, dreaming of “good old things” like years before Social Security or Medicare or Latino immigration.
    The GOP is living in an alternate universe of wrong assumptions supported by lies. The sooner it gets a slap in the face the better.

  21. Posted by A.T.

    “Today, the Dow fell 5.55 percent”
    Oh. Never mind.

  22. Posted by lyqwyd

    @lol, I have to disagree with you regarding growth. Our deficit growth is much higher than our GDP growth, and there is no realistic long term economic growth for the U.S. that will make much much of a dent.
    Our debt is growing at about 10% per-annum, while at best we could grow our economy at 5% (and even that is so aggressive as to be almost impossible). And that’s with the current low interest rates, which will go up sooner or later, increasing our debt service burden.
    There are really only two approaches to the deficit: significant tax increases, or significant spending cuts (or some combination thereof). It’s simply not possible for us to just grow our way out.
    Unfortunately in our current political environment both cutting spending and raising taxes seem to be impossible (both parties bear responsibility in my opinion), hopefully that will change soon. The task will only be worse the longer we take to get serious about tackling the problem.

  23. Posted by Legacy Dude

    lyqwyd is correct – from the end of WWII into modern times, real GDP growth in the U.S. has averaged about 3.5%/year through cycles. We are a mature economy – we cannot reasonably expect to grow our way out of this. Even China struggles to maintain annual growth of 7-8%, but of course their numbers aren’t exactly transparent. Either way, seems like the GOP is not the only one “dreaming” here, lol.

  24. Posted by lol

    We agree to disagree,
    1 – Out infrastructure is based on 1950s-1960s. A jump to the 21st century would bring a ton of growth.
    2 – Geographically, you have a few core pockets of wealth surrounded by huge swaths of land. This land is grossly underutilized. When it is, natural resources used to “underutilize” it (corn, cotton) bring very poor ROI. California is much better at this than the Midwest. These areas have immense value and growth potential.
    3 – Demographically and economically, we could be so much more efficient with the most valuable resource (people). Why do we limit education to those who can afford it? We should be aiming to give everyone a chance at education. Instead we have created a sub-class that views the educated as an elite.
    We have tons of potential. Tons of untapped resources.

  25. Posted by A.T.

    I don’t see growth alone doing it as it could not possibly reach sustained levels of past decades. The labor force participation rates grew steadily from the 60s through the 90s – due to women entering the job market and the baby boomers growing up. Now you have just the opposite – declining labor force (now below 64%, down from over 67% in 2000) and an aging/retiring baby boom cohort.
    That’s not to say that growth can’t play a role, and we should be stimulating the economy for growth rather than shrinking it through counter-productive tea party thinking. But we’ll also need higher taxes on the wealthy and we’ll need to get entitlement spending under control. Growth alone can’t cut it because we couldn’t get enough of it.

  26. Posted by lyqwyd

    @lol, I’m not saying that America’s not going to grow, just that it will not grow even close to enough to overcome the growth in our debt & deficit. I doubt we will even be able keep our growth as high as the 3.5% it was over the last few decades, much less do better. The bigger our debt grows, the harder it will be for our economy to grow.

  27. Posted by lol

    Growth in the 50s happened with very high tax rates. One funded the other and vice versa.
    A fun fact. McCarthyism and commie witch hunting happened even when people had cradle-to-the-grave protection. Meaning there was a consensus around the “better good”.
    The GOP has since been gutted off its compassion with the varnish of Christianity. What will it take to make them human again?

  28. Posted by A.T.

    lol, I never said high tax rates and growth can not co-exist. I’m all for higher tax rates (on corporations and higher incomes – raise taxes on lower incomes and you’ll suck that much more spending out of the economy).
    But the 50s cannot be repeated. WWII decimated the production capabilities of nearly all our market competitors. They bought lots of American goods and created lots of American growth. High tax rates did not cause that – may not have hurt growth, but they were not a primary creator of growth.
    Then women and baby boomers flooded into the economy for the next 40 years. Now retirees are flooding out of the labor market and sucking up expensive gov’t benefits each year as well.

  29. Posted by lol

    We can have high tax rate, decent growth, low unemployment, high productivity and an aging population.
    Ask the Germans!
    They invested in education, infrastructure and technology, keeping salaries steady (decreasing when accounting for inflation) while almost everyone else in the developed world was creating borrowed and non-productive growth (you can’t export McMansions or Pergranisteel, and it does nothing to make you more competitive). They did all of this while keeping a very generous welfare system, became much more productive and kept their famous edge over everyone else.
    I think it’s just that we became lazy, thinking we’d borrow, create inflation and stick it to our lenders. Deleveraging is a B!tch.

  30. Posted by Legacy Dude

    lol, your GOP-bashing here is about as entertaining and relevant as watching Glenn Beck or Rush Limbaugh. No offense, as I’m not a republican anyway, just pointing out that hackneyed, uncompromising rhetoric exists on both ends of the spectrum. Yet we all wonder why nothing gets done in D.C….
    Anyway, to lyqwyd’s point, I think the most recent GDP growth rate revision was 1.3%. What could we temporarily raise that to with more fiscal stimulus, maybe 2.0%? And we’d need to borrow at 2.3% to do it (likely more once current volatility subsides and rates rise). Obviously that’s not a long-term solution. Infrastructure spending will funnel lots of money right back to where we borrow it – China – so also not a panacea. Replacing a functional old bridge with a new bridge, while probably an eventual necessity, is not going to make the workforce more productive. Especially when you import the bridge from China.
    In reality, there is no easy solution here. We had a gigantic credit and asset bubble in this country for roughly a decade. Now we’re paying for those excesses and their bailouts. There is no magic wand to wave, and our government isn’t going to “save” things.
    Ex SF-er uses the lung cancer analogy, but I prefer alcoholism given our nation/economy was and still is addicted to endless amounts of cheap debt; eventually you have to stop or heavily curtail your drinking and suffer through the hangover to return to normal. Well, welcome to the hangover.

  31. Posted by ex SF-er

    There is a deceptive problem with growth with respect to helping our economy and govt balance sheet, however.
    In the past, increased productivity was shared among workers and owners (or those with capital). those days are no more. Due in part to automation and also globalization we now see surging productivity but none of the spoils go to the workers.
    This has massive implications. When productivity gains are shared among workers and owners/capitalists, the workers tend to spend their gains which boosts consumption which then boosts the economy and GDP. The owners/capitalists use their gains to reinvest in new businesses that can service the demand made from the worker bees spending.
    however, for many years now we have encouraged automation and globalization with resultant global wage arbitrage, reducing labor’s share of productivity gains. In this scenario labor does not have enough income to consume, and therefore the economy does not get the boost it once did with productivity gains. In addition, there is more accumulation of capital in the owner/capital class, but they start having too much capital with which to invest and not enough productive opportunities given the lack of demand caused by low worker income.
    therefore, you get the so-called “savers glut”. Those with capital have nowhere to invest productively due to a lack of demand for new products, and workers lack income to purchase.
    This worsened dramatically over the 1980’s and 1990’s, but was masked with the credit bubble which allowed the workers to buy on credit… but underneath worker balance sheets eroded severely.
    Looking at our tax and economic policies, we continue to encourage hoarding of assets into a small % of the population (the top 0.1 to 1%), and despite what people say those people will NOT deploy capital into areas where there is no end demand. Instead, it simply starts going into more and more nonproductive areas (like gold) or gambling scenarios (CDS, swaps, commodity speculation). Financial rentierism. (which ironically erodes worker disposible income even further which exacerbates this even more!)
    Thus; even if we had a surge in GDP it would likely not improve the balance sheet of our government as much as we would hope unless we can find a transmission mechanism to get the productivity and economic gains into people of upper middle, middle, and lower economic strata.
    The uber rich simply cannot/will not spend enough alone to create the demand needed to employ people.
    But of course, neoliberal economics pretends that tax policy has not directly contributed to the assymetric wealth accumulation that we’ve seen over the last 20-30 years.
    I am not suggesting a 100% tax on “the rich”, nor a stimulus spending program. I’m only pointing out that despite Tea Party dogma, clearly there is no class war against the rich. they are doing better and better every year. clearly the deck is in their favor.
    as a society we must decide what to do about this. we can continue our current path, and we’ll have something similar to Brazil. astonishing wealth next to astonishing poverty. Or perhaps something more “socialist” or “communist” like a maximum 35 hour work week, or progressive taxation? Or perhaps something else.
    but un/fortunately, there will never be enough jobs for everybody… it’s just the way things are in the 2000’s.

  32. Posted by lol

    Legacy Dude,
    Agreed the new span on the Bay Bridge is a missed occasion to spend tax dollars as wisely as possible.
    For instance there’s a big need in public transportation building. The backbone of BART was built between 30 and 40 years ago. We would need 3 or 4 BARTs. People would spend less time commuting, less money on (unproductive) gas, more in consumption or savings/investments. Companies in SF or the SV would be able to tap into other worker pools, and workers could have better and cheaper housing options.
    HSR, one of my per peeves, would be a great investment. No one did a cost/revenue analysis on roads in the 1900s because everyone had a can-do attitude at the time. The horizons opened from HSR are yet to be explored in CA, just like we didn’t know what impact the Internet would have on everyone’s lives.
    Now we’re just fat cats sitting on our parents couches asking “why try?”. The snacks keep coming. We’re still entertained. Why change anything?

  33. Posted by hangemhi

    as usual intelligent conversation from everyone except the Obama bashers who conveniently disappear once they are forced to say something constructive. the rise of the “no nothings” is the sadest part of this whole mess.
    per exSFer “When productivity gains are shared among workers……, the workers tend to spend their gains which boosts consumption which then boosts the economy and GDP.”
    Why is that so hard for to understand? Morons like Larry Kudlow can admit that lower gas prices are like a tax cut and will result in workers spending and increase demand. But he can’t grasp that free education or free health care or tax cuts for regular people are what will create jobs. He rants every day about more tax cuts for wealthy people and businesses even when businesses are sitting on hoards of cash and still won’t hire anyone.
    If consumers had money they would spend it, and then businesses would hire. If there was demand for new products and services businesses would form and create jobs no matter what the tax code was.
    we are getting what we reaped with who we voted in….. austerity will win the day and further drive our economy into a hole. We’re in for 10 to 20 years of pain and it won’t be long before the no-nothings realize Obama had next to nothing to do with the less that started 10 years ago, and arguably 31 years ago.

  34. Posted by catchafallingknife

    This from zero hedge…some of the smartest guys in the room…
    “…The real cost of capital has to rise. That will happen through default in one way or another. Debt has to be cleared. Multiple contraction is inevitable.
    Financial sector innovation has to be squeezed by engineering and scientific innovation. Until the debt is cleared and capital starts to be properly allocated, economic growth per unit of additional debt will continue to sour.”……
    “Energy is the cash flow in this story. Until we get some real breakthrough technology, requiring large amounts of capital to both innovate and then roll out, we have no chance of supporting the economy.”
    BTW it’s not about dem’s, repugs or TP…’s about US…get it…STOP POINTING FINGERS…let’s get to work…enough already!!!

  35. Posted by catchafallingknife

    Maybe we start here…

  36. Posted by Po Hill Jeff

    I noticed a strange thing in the market’s reaction to the US debt downgrade: investors rushing to “safe” investments, by which they mean Treasuries! The result was an increase in the prices, and therefore a reduction in the yield, of the exact debt securities that had been downgraded. Can anyone explain this discrepancy?

  37. Posted by lol

    Yes, renewable energy should be on the top of our priorities.
    But I disagree on the finger pointing. The GOP is bought and paid for by oil interests because fossil fuel companies want to go on selling their products even if it means making Americans poorer and less safe. Dems are sprinkled as well but “drill baby drill” is a GOP slogan.
    Filling you tank with gas amounts to doing your own little fundraiser for the Al Sauds or Putin or Chavez. The rest goes to Texas GOP billionaires. Yikes.
    Making the switch to alternative energies would not be a gigantic effort. After all, how many years were there between the first fission of the atom and the first nuclear power plant? 13 years? In the mean time we were waging the biggest war of all times…
    There are many alternatives to gas. They are simply grossly underfunded. And this is anything but the result of a political decision based on lobbying from existing interests.

  38. Posted by lyqwyd

    Po Hill Jeff, here’s my theory:
    1) The downgrade was more of a commentary on our political system, and the short term likelihood of default is basically unchanged.
    2) The stock market turmoil has little to do with the downgrade, it’s all about europe, and US treasuries, at least in the short term, are looking much safer than any euro related investments. Also, US treasuries are very liquid, so easy to move into when you are selling large quantities of other assets.

  39. Posted by Rillion

    Yeah, what I’m hearing is that the selling this week has more to do with the problems in Europe and the effect that will have on the global economy then it does the US debt downgrade.

  40. Posted by sfrenegade

    Obviously that’s not a long-term solution. Infrastructure spending will funnel lots of money right back to where we borrow it – China – so also not a panacea. Replacing a functional old bridge with a new bridge, while probably an eventual necessity, is not going to make the workforce more productive. Especially when you import the bridge from China.
    That’s not completely true though. People focus on the fact that certain parts of the new Bay Bridge east span are from China, but it’s because we don’t have those kinds of steel fabricators here any more. If we had more infrastructure projects to modernize ourselves, maybe we would, and it would be economical to have them. It would certainly fix the supply chain issues, where we have to wait significant amounts of time for new fabrication, or scramble for something local that can be done quicker but at high cost, if something is screwed up.
    Manufacturing can come back here to some extent for goods being sold here. There has been the suggestion by consultants, not politicians, that manufacturing could easily start becoming more prevalent here because China won’t be as cost-effective as wages rise, and many other developing countries don’t have the workforce, education, and infrastructure to support it:
    I agree with lol that many people have a “why try?” attitude about this these days. After all, manufacturing gets outsourced to the US too — just look at cars.

  41. Posted by lyqwyd

    It’s not a “why try” attitude, at least not for me. If we are going to spend public money on anything, infrastructure is number 1 on my list, especially stuff like HSR & public transit. I would be against highway expansion, but in favor of bringing current highway infrastructure up to a higher quality (correct deferred maintenance). There’s lots of other useful infrastructure problems as well. The problem with thinking of things like that as the solution are twofold:
    1) It is not enough: these types of projects will help growth, but still will not get the U.S. where it needs to be to counteract the growth in our debt.
    2) It’s putting the cart before the horse: Our debt is not growing because we are not spending on infrastructure. The problem is that we cannot spend on infrastructure because we have too much debt and it’s growing too fast.
    I’m in favor of continuing to spend money on infrastructure, but the root problem is our growing debt & deficit. There are only 2 ways to solve it: cut spending, or increase taxes (or a combination). In my opinion it has to be a combination of both, but I wouldn’t cut infrastructure spending. As I mentioned previously, Medicare, Social Security and Defense spending are where the cuts will have to come. We cannot simply grow our way out of things.
    The problem with trying to grow our way out is that if by some miracle our growth actually exceeded expectations, interest rates would have to go up, meaning our debt service costs would go up (drastically), which would result in our deficit growing. Rapid growth in our economy would actually cause faster growth in our deficit. Some of that would be counteracted by increased tax revenues, but I do not believe it would be enough. Growth is simply not a solution to the problem.
    I personally don’t even think we need a balanced budget, I would be happy enough if it were simply that our debt was growing more slowly than our economy. I believe that would be a long term sustainable scenario. But until the conversation includes cuts to the 3 areas I mentioned, it’s not serious and the problem will only get worse. If we don’t tackle the problem soon, our debt will become too much and we will have to go farther than just limit debt growth, we’ll have to reduce overall debt, and that will be so much worse. I don’t know what the exact point is, but at the current pace I believe it’s less than a decade away.
    As a final note our debt is currently around $14-15 trillion dollars, which is about 100% of our GDP and growing at about 10% per year (about $1.5 trillion per year). At that pace in another 10 years our debt will have doubled to $30 trillion. There is simply no way we can grow our economy quickly enough to double our GDP in 10 years.

  42. Posted by lol

    the root problem is our growing debt & deficit.
    It’s a symptom of something else, not a cause. It’s a symptom of a country that is being challenged by emerging countries and is not stepping up to the plate to counter the challenge. We have been for a while and this is the accrual of several shortcomings that has brought us there.
    Let me explain.
    Before 1990, the US was the only big free shark in the water. We almost owned the free world, it was our ecosystem and we were doing great. We had the best infrastructure, one of the highest productivity, the highest lifestyle and one of the most fair societies on the planet. Not a small feat in such a big country. Luxembourg us rich thanks to its size and tax shelter laws, but a country the size of the US? Wow freaking wow. To be true, 45 years of communist challenge had to keep us well treated, housed, employed, fed and on edge technologically.
    In 1990 we were at the top of the world, having defeated communism and about to kick some Saddam a$$.
    After 1990 China and others went through wave after wave of growth. Some had hicups (Argentina, South Asian countries), some have been very steady (China). What were we doing during this time: pretending we would still be #1 forever. After all, we wouldn’t be challenged anytime soon by the Chinese who were less than 10 times smaller.
    For the country this “cruising in the middle of the road” attitude was reckless. Instead of doing what was needed to make sure others couldn’t touch us in the future, we focused on milking what 60 years of good decisions had built. Our momentum made sure cash would still flow, right? When it stopped flowing, we borrowed but failed to restart the engine. We borrowed again to pay the bills and keep everyone employed.
    Fortunately we have great people. Probably the best people that I have seen on this planet. This is why we still have pockets of growth. But we cannot let the symptom become the disease. It would be like someone who would stop chemo because it makes him sick.

  43. Posted by sfrenegade

    “growing at about 10% per year (about $1.5 trillion per year). At that pace in another 10 years our debt will have doubled to $30 trillion.”
    I don’t disagree with some of what you said, but there’s no indication that our deficit will continue to be $1.5 trillion/year and that we’ll hit $30 trillion in 10 years.
    Here are CBO predictions:
    It once was the case that the debt could have been extinguished by 2010, of course:
    I agree, however, if some of the things on this list were lower and some were higher, we could do it again:

  44. Posted by lyqwyd

    Yes, the debt and deficit is a symptom, but if you cure the symptom, you’ve cured the problem.
    I don’t believe in American Exceptionalism. I believe America is in general good, but there’s nothing miraculous about us. Even further, we may be good, but we are also bad (3 current wars, all over spurious causes, except perhaps Afghanistan, but had we not gone into Iraq, we probably would have been able to finish what we started in Afghanistan). Ultimately the stuff you mention in your post has nothing to do with solving our current problem. I’m not too concerned with why we are in the state we are in from a historical perspective, but what we need to do to get out of it.
    10% long term growth is impossible for a developed nation. Therefore our debt growth must be brought down. We don’t have to balance the budget, but we do have to bring the debt growth in line with our GDP growth, preferably somewhat lower than GDP growth. There are probably other structural issues that we have to tackle, for the reasons ex SF-er mention regarding GDP growth, but at the very minimum we have to reduce debt growth. If we don’t do it soon, other countries will replace the dollar as the global reserve, and then we will be royally screwed.
    Yes we can increase growth and manufacturing, but there’s simply no way we are going to go from the current ~2% to 10% and keep it there.

  45. Posted by lyqwyd

    Note: when I said “if you cure the symptom, you’ve cured the problem” I meant it only in reference to this particular discussion, not all problems & symptoms in general.

  46. Posted by lyqwyd

    Given that in 2001 the CBO predicted that we would have -$2.5 trillion debt in 2011 (they were off by ~$17 trillion) I don’t put much faith in their estimates.
    They have some very optimistic estimates, some of which are already going to be wrong. They are predicting we will reduce our deficit by $380 billion next year and grow our GDP by 3.1 this year. Given that our GDP is going down, and the fight it took to cut the deficit by just $30 billion, both of these seem unlikely.
    Ultimately I agree that we probably won’t get to $30 trillion in debt by 2021, but it’s I think it’s much more likely than we will meet the projections of the CBO. I point it out mainly because that’s the path we are currently on.

  47. Posted by lol

    Nice approach to medicine 😉
    I get your point. Debt drags us down from your point of view. As far as I can tell, the only drag I see for now is the toll on everything government-driven like roads, services (DMV sucks these days)… It hasn’t spread beyond because the Guv is not bankrupt and is not levying emergency taxes. But so was it in the 1950s. Of course times are very different.
    Also, we do not need 10% growth. China will eventually stop growing at 10%. They’ll probably go through some swings (overinvesting leading to a crash) followed by stabilization, like everyone.
    We could live with a 3-4% inflation and 5% growth. That would stop the deficit in 5 to 7 years while making the debt almost vanish in terms of % of GDP in 10 years.

  48. Posted by sfrenegade

    “Given that in 2001 the CBO predicted that we would have -$2.5 trillion debt in 2011 (they were off by ~$17 trillion) I don’t put much faith in their estimates.”
    lyqwyd, your overall argument isn’t bad, but this particular statement is poor support of your argument. Presumably, you’re talking about what Zero Hedge posted recently:
    That report is from January 2001, we still hadn’t seen the Bush tax cuts, Iraq, Afghanistan, 9/11, and the credit bubble/bust.
    The issue is not that CBO was wrong in its projections, but rather that revenue and spending decisions were changed by politicians. Obviously, if you change the inputs, the outputs will probably change.

  49. Posted by lyqwyd

    It’s not really a question of point of view, debt drags us down. It’s currently costing us about $200 billion a year to service our debt, at artificially low interest rates, sooner or later rates will go up, meaning the interest payments will go up. Now debt is not inherently evil, there are certainly good reasons to use debt, but we are not using it for those reasons. Think of it like this, that $200 billion per year we are spending on interest is $200 billion we are not spending on High Speed Rail, or Public Transit improvements, or public healthcare, or education. It has a real cost, right now. And it will likely more than double when interest rates go back to where they should naturally be, even if we don’t add another single penny of debt.
    I think you may misunderstand my comments about growing the economy at 10%. I do not say it because China is growing at 10%, I say it because our debt is growing at that rate. It has nothing to do with China, or any other nation. Our debt is growing because we are not willing to live within our means as a nation. It’s perfectly fine to have some debt, and it’s fine to grow debt, but the problem comes when debt grows faster than the economy. When that happens it becomes unsustainable.
    Due to the requirement to service debt (pay interest) there will always be a finite length of time that any economy can grow it’s debt faster than the economy itself. At a certain point the interest payments alone will exceed the entire economy. Realistically you will never even come close to that level.
    So what it comes down to is that if we want to grow our debt at 10% per anum, then we need to grow our economy at least the same. For the long term, whatever rate we want to grow our debt at, our economy will need to grow at least the same rate, it’s got nothing to do with China, or any other country.
    We will not be able to grow our economy at 10%, we will not be able to grow it 5%, I don’t believe we will grow it even at our long term average of 3.5% since that was done under much lower debt constraints. Even Germany has grown it’s economy at less than 4%, and that’s probably going to change for the worse now that the U.S. and many other European and nations will be unable to consume at the rates they have for the last few decades.
    It’s easy to say we can grow at 5% but even the overly optimistic CBO doesn’t claim we can do that (I believe their projected growth rate is just under 3% over the next ten years), so there’s very little reason to think it’s remotely possible.

  50. Posted by lol

    Growth in regard to debt is a virtuous circle. You grow and lower your deficit. You grow and make your old debt lower in % of GDP.
    Growth is the main factor that killed the deficit from 1996 to 2000. Then we had a surplus and the % of debt to GDP was scheduled to plummet then reach 0. Then came the crash that Bush converted into a fiscal mess.

  51. Posted by lol

    In addition, I think we can grow at more than 5%. The money is there for massive investments: it’s called the Bush tax cuts and 2 wars that we will have to phase out. Also some tax loopholes imposed to us by very powerful lobbies. ExxonMobil or BAC would have to pay some taxes. It’s freaking time.

  52. Posted by sfrenegade

    Speaking of the belief that growth cannot outpace interest, did you see this op-ed by Scott Adams (yes that Scott Adams) in the WSJ?

  53. Posted by sherman

    The US was “on top” for so long b/c of a fluke. Western Europe was wiped out for the most part. Eastern Europe was always backwards but was even more wiped out and on top, along with half the world, burdened by an idiotic economic system and East Asia either or both of the above. Africa, L.A., etc. were banana republics.
    But now, thinks have changed. For one, thanks to tv and internet people outside of the US see how Americans live and, understandably, want to live the same. Many are smarter, more motivated, more ruthless – or all of the above. Secondly, the country for the long time was run by a WASPocracy which provided a leading culture for everyone else – and, importantly, everyone for the most part accepted that. That time is now gone and we’ve reached the tipping point, however, so every ethnic/racial/social group, etc. is scrambling for power. A society like that – where everyone feels like a minority being screwed – is not society that’s likely to want to pay higher tax, invest in infrastructure or follow any “social compact”. So we have hedge fund managers whose social background has nothing to do with the common man – be that man in Oakland or Kansas. Many our our leaders and “prominentes” have multiple passports – they’re here today and tomorrow they’re elsewhere – they have far less interest in this country than generations past. The “masses” see this and, not to be saps, react accordingly.
    Zynga, Google, etc. may affect real estate prices locally for a while but if you think that this country which has offshored its entire industrial base to China, etc. will be saved by Zynga providing the kind of union, stable, pension paying, blue collar jobs that have stabilized America after WWII, I have a bridge or two to sell you. The employment these companies offer is way too little to make any difference and, importantly, these aren’t the kind of jobs that anyone coming from a family of 10 in East Oakland will – likely – qualify for. In fact, these companies likely have to hire from abroad to fill these high-tech positions. The US will, therefore, likely continue to have some of the most innovative companies in the world but, unless we can deport citizens, will also be home to a growing, simmering population with a victim attitude (rightly and wrongly). Note what happened in the last 20 years, Oakland (despite Rockridge, Montclair) is still mostly Oakland. The Tenderloin is the Tenderloin, etc. But we now have a whole new host of problem cities, Antioch, Pittsburgh, Novato is going down. The basic problem is that the poor population is reproducing much faster thatn the rich – resulting in further per capital wealth disparities. That is why “gentrification” is a dream that can only occur on a very small local scale.
    Moreover, the world’s population trends are such that this problem will continue being exported thanks to our jet age. Nigeria’s population will overtake the US sometime around 2050 (and will likely continue to grow thereafter, of course). Does anyone seriously expect plutocratic Nigeria (and I wish them well) to generate jobs sufficient to sustain that population? Or is it more likely, like with Mexico’s population which only exploded in the 50s-60s, that the poor will seek living elsewhere.
    But how does this affect real estate values? Well, the likeliest scenario is that “secondary” rich places like Piedmont, Mill Valley, Menlo Park will, over time, be overrun. On the other, hand, top of the market places, are likely to be even more valuable than today – people will pay a lot to get away from the throngs. Would not surprise me if PacHeights and Atherton became entirely gated by 2050.

  54. Posted by sherman

    as regards the specific debt comment, even that is now politicized along ethnic/racial lines for the obvious reason that the federal and state governments provide jobs and pensions for people who were unable to find employment in the private sector. Cutting the debt and, therefore, the bureaucracy, is strangling these kinds of people economically. It’s a lot easier to demand to cut the debt if your f&f are all doctors and lawyers. On the other hand, it’s a lot easier to clamor for tax increases where most of your relatives are employed by the DMV or similar agencies. As regards who is where, you can just cross-check biggest employers per city with their demographic profile.

  55. Posted by lol

    I could take your post and transpose it in the 1890s with northern Europeans, 1920s with the Italian or even 1850s with the Irish. I hope Latinos catch-up fast because we would benefit from a more educated young workforce. Latinos have been slaughtered by the bubble/bust (welcome to America, immigrant sucker) and are not getting the best of education to move up. There’s some headwinds right there and I don’t think it’s all cultural. Ultimately they moved here because they were looking for opportunity, not to be part of the existing underclass. Plenty of that where they come from.

  56. Posted by hasbro

    past performance is no indication of future success.

  57. Posted by lyqwyd

    “You grow and lower your deficit.”
    Growth has nothing to do with deficit. You can grow and increase your deficit as well (as we are doing now, our economy is growing, just very slowly, while our debt is growing quickly)
    “You grow and make your old debt lower in % of GDP.”
    That is true if your debt is not also growing, but if debt is growing faster than the GDP (as it is now) will increase as a % of GDP (as it is doing now).
    The growth that we experienced in 96-2000 was not sustainable. You cannot treat the height of bubble growth as if it’s a long term achievable goal. There will always be the business cycle, so you have to plan for it.
    The growth/bubble of the 90s was also predicated on low interest rates, but we’ve gone even lower now, and haven’t even been able to get employment to increase, after literally flooding the world with trillions of dollars. The 90s will not be repeated anytime soon. Also note, the growth rate did not even reach 5% for any full year during the boom.
    It took Clinton his entire presidency to balance the budget, it took Bush 1 year to undo everything.

  58. Posted by lol

    Sure growing can lower your deficit. It’s working from 2 fronts: tax intakes and financial assistance. Yet another virtuous circle.
    Of course today we have the opposite: low growth which causes unemployment (higher financial assistance) and lower tax intakes. A vicious circle that needs to be broken, and shrinking government spending will only precipitate it.
    There’s plenty of cash on the sidelines (thanks to the tax cuts). Increasing taxes on legalized tax cheats and the upper crust would not hurt anyone except maybe 20 Lamborghini salesmen.

  59. Posted by lyqwyd

    Growth cannot lower the deficit, it can be used to reduce deficit. Many people grow their income, but grow their spending even faster, the same principle applies to countries.
    Only changing habits can lower the deficit. There is no implicit connection between growth and spending. Our habit is to spend more than we make, and grow our spending faster than we grow our income.
    But it doesn’t matter. For the many reasons I, and others, have pointed out above, we are not going to grow even close to 5% per year, and even if we did by some miracle it still wouldn’t matter since we are growing our debt at twice that rate.

  60. Posted by lol

    It’s kind of a self-fulfilling prophecy, now isn’t it?
    We assume we cannot grow at a 5% clip and as a result we must take action to cut the deficit, shrink government expenditure with no counterpart investments which in itself will make sure we will never grow at a 5% clip.
    Geez. With such thinking my great great great uncle would never have moved to the Dakotas 140 years ago. I wouldn’t have bought property in the mid-90s’ slump. I wouldn’t have studied with unemployment between 8 and 10%. The future is ours to build.
    We’re in a deflationary circle with no visible end in sight and no trust we can resolve this. We know what happened in 1937. We know what (still) happens to the Japanese. And yet we do it. All. Over. Again.

  61. Posted by The Milkshake of Despair

    “With such thinking my great great great uncle would never have moved to the Dakotas 140 years ago.”
    Hmmmm… back in the 1800s the USA was still in a land expansion boom. Conversion of wilderness to to farmland was a surefire way to create growth.
    There was a finite supply of wilderness and there isn’t much left to exploit. We’re currently on the tail end of another natural resource exploitation boom: petroleum this time.
    To continue that sort of growth pattern some we’ll need some other resource out there ready for exploitation.

  62. Posted by lyqwyd

    It’s not a self fulfilling prophecy, it’s simply taking a realistic view at history and our current situation. 5% growth rate is only achievable by emerging economies. It is not sustainable by a large developed economy. If you think otherwise show a precedent in history. I’ve already shown that germany & the U.S. during the dot com boom were unable to achieve those rates, and that was only using the boom part of the business cycle.
    And like I’ve said repeatedly, growth does not solve the problem, as our habit now is to spend more than we grow. Changing the habit of growing our debt faster than our revenue is what needs to be done. Once we’ve solved that then we can prioritize economic growth. Ignoring it will just result in more pain down the road.
    The U.S. was a developing nation when your ancestor moved here, things are a little different today.
    But as a thought experiment, let’s assume that growth is the way to solve the problem, how do you propose we do it?
    I believe you mentioned education and infrastructure. While I agree that both of those are important, it’s hard to see how education will have any short term impact, it will take at least 10 years for any significant change through improved education. Infrastructure can certainly create instant jobs, but we would have to go into even greater deficit spending if we do not change our habits, meaning rather than doubling our debt in 10 years, it will happen in 5-7 years, and since we are now growing faster, interest rates would have to rise, and our debt service would go from $200 billion a year to $600-$800 billion a year, far outpacing the growth in the economy.
    Placing all our bets on growth is just not a realistic approach.

  63. Posted by lol

    Finite amount of land? Sure. Best use of land? Nope.
    Solar energy reaching the US could cover all of our energy needs many times. Wind is not negligible neither (it’s also solar, in another way). Water is mostly wasted on overproducing subsidized crops while we have a quality/quantity-food-based health crisis blowing in our face. The US could sustain 3 to 4 times its current population with necessary adjustments.
    We should be sucking out the human energy from all around the world. For those afraid of low educated migrants we could re-open mass immigration based on education levels. People would kill for an acre of land around their house in some countries, like in the Netherlands for instance. These countries would be drained of talent and we would maintain or regain our edge.
    What about China and THEIR incredibly increasing talent? Well, nobody said it would be easy.
    Moving towards post-oil / post-corn society would be as tough and challenging as moving towards a post-GD/WWII world. Retooling, reinventing, rethinking. Possibilities are endless. But freezing up because we stopped believing in ourselves doesn’t lead us anywhere. That’s the only sure thin and not the one we should be embracing.

  64. Posted by Legacy Dude

    lol, you sure throw out a lot of motivational buzzwords and fun ideas, and they’re almost supported by your irrelevant anecdotes and wispy tangents. Yet you keep dodging lyqwyd’s questions. Is there historical precedent showing the type of growth you think can be achieved? How do we finance these daydreams?
    I appreciate your enthusiasm, I really do. But we live in the real world, which is a world of limited resources. A world where good ideas ultimately need to be supported by real numbers. Unfortuantely for all of us, lyqwyd and sherman are pretty much correct here.

  65. Posted by lyqwyd

    At best solar energy will take decades to gain a big enough market share to make a difference, and that’s assuming it’s cost competitive, which it isn’t, and wont be for decades more.
    3-4 times the population in the U.S. via more efficient land usage? True, but then we would be taking a China approach, cut down the national forests for farming, fill Yosemite for hydroelectric power. Just so we can try for continued growth without having to change our ways. Not interesting to me.
    What else is the water going to be used for if not for crops? most other water intensive uses are pretty damaging to the environment.
    Drain the other countries of talent? Why would they go along with that? And that sounds like a beggar-thy-neighbor approach, or just another extension of imperialism. Plus that wouldn’t really work, since growth requires us to sell to others, but if we take all their talent, they will have nothing to buy our goods and services with.
    Prior U.S. growth was based first based on emerging nation dynamics, then on imperialistic expansion dynamics, both of which are no longer viable for us.
    China is taking uneducated people in poverty, which still accounts for the vast majority of their population and converting them into educated producers, it’s the same as what the U.S. did during the industrial revolution. But that doesn’t work for us since we’ve already done it.

  66. Posted by lol

    Call me an optimist. I believe a country that created an A-Bomb in 5 years and sent a man on the moon in 10 can get rid of fossil fuels in 20.
    Costs of EV solar is collapsing thanks to higher production. With massive projects they’ll be even cheaper and easily competing with coal and gas.
    Financing? Heck, have you seen at what rate the USG is borrowing these days? 10-Y around 2.2%. Short term is almost free! The rest of the world believes in our strength. Some people would almost PAY us to keep their money safe in the current environment. That’s one massive source of financing still to tap. Letting the Bush tax cuts expire, closing loopholes, stopping one war out 2 (the one that should never have been started). That’s another many 100s of Bs a year.
    Where there’s a will as they say…

  67. Posted by lol

    1 – Solar goes cheaper and cheaper by the year:
    It’s not decadeS. Probably less than a decade before it’s cheaper than coal. The more we develop it, the cheaper it gets, totally the opposite of oil that takes more and more $$$ to find. Plus the sun will not go anywhere for a few billion years.
    2 – Populationwise, I am not calling for 1.3B people in the US. Just saying that we could easily have 400M, even 500M with a few adjustments. No need to touch at the gems that are our national forest or parks. China has huge deserts and mountain areas and still manage to feed everyone.
    Israel for instance is a good example of a country with very limited water and land that has become the most efficient agricultural producer of the Middle East. They even export to Western Europe!
    3 – Importing talent. No need to “steal them”. Just change immigration laws. Around 14 Million people apply to the Diversity Visa lottery. Pick the countries you prefer if you’re afraid of mixity. These are people with at least 2 years of college. A million or 2 extra a year would balance the increase of low-educated migrants we already get these days.
    About China and bringing people from the country life to the higher-return city, what do you think about the lower crust of the US population that could be brought up to speed? The last bubble was inflated in part to employ them in building useless houses and sell them these houses. It was unproductive and they are mostly back to square 1. Let’s give them something more productive to do with their lives. Hint: it starts with education.

  68. Posted by Legacy Dude

    “Where there’s a will as they say…”
    And that’s just sooooper! But you’re still side-stepping the issues that lyqwyd pointed out. Lemme guess – you’re an “idea person” and not a “numbers guy”, right?
    1) Our economy cannot grow out of this; post some kind of evidence to the contrary if you have it. “We can do it!” is not evidence.
    2) Given 1, even at current low interest rates, eventually we will have difficulty servicing our debt if current trajectories persist; reducing it is another issue altogether.

  69. Posted by lol

    1 – If we cannot grow out it, what do you suggest? You’re unnaturally depressed and there are pills for that. Ultimately we will grow and our debt will shrink as a result. Learn from Japan and 1937, shrinking is not the solution.
    2 – Wrong if we grow strong enough. So much potential growth is wasted in both people and resources. Cheap oil allowed us to get where we are. Now the training wheels are coming off. Want to move forward or step down?

  70. Posted by lyqwyd

    “Call me an optimist. I believe a country that created an A-Bomb in 5 years and sent a man on the moon in 10 can get rid of fossil fuels in 20.”
    That’s not optimism, that’s daydreaming. A-bomb’s and moonshots are technical innovation, and were done as part of major war efforts.
    Replacing fossil fuel means changing society, and if you want to even dream of doing it you have to force the entire nation, if not the world, to do it. No easy task.
    Solar nationwide? You have to rebuild our entire energy distribution system, and combat the coal industry, the freight rail industry, the mining industry, who’s existence is based on coal fired energy. We can’t even get the coal industry to install scrubbers on existing power plants.
    EV cars nationwide? You have to force everybody to get rid of their existing car, install a charging station in their house, and build public charging stations to replace existing gas stations. You also have to do this while fighting the oil industry, as well as every person who’s job is based on oil or gas.
    Either of these tasks would be tens of trillions of dollars. Where do you get the money for them? No easy task.
    It’s easy to say you believe you can replace fossil fuel in 2 decades, it’s an entirely different thing to come up with a plan that both realistically enables it, as well as addresses the massive social upheaval that would ensue.
    I’m all for getting off fossil fuel, but there’s no way in hell it will happen in 20 years. If we’ve reduced it’s usage by 20% in 20 years I’ll be pretty impressed. Right now it’s still growing.
    “Financing? Heck, have you seen at what rate the USG is borrowing these days? 10-Y around 2.2%. Short term is almost free!”
    That’s what I’m talking about when I say artificially low. It is not sustainable. It’s only possible now because the economy is so week, particularly on a global scale. When it grows that means things are better, and interest rates will go up significantly (2-3 times where they are now for the 10 year).
    “The rest of the world believes in our strength.”
    No they don’t they believe there is currently no alternative and that the other options are even worse. Both Russia and China are very loudly and clearly saying they want off the dollar as a reserve currency, there’s just currently no alternative, but if we keep going the way we are they will figure out an alternative sooner or later. They are already making moves that are reducing their exposure to the dollar.
    “Letting the Bush tax cuts expire, closing loopholes, stopping one war out 2”
    That’s what I’ve been saying the whole time, but that alone is not enough to fix the problem. According to this, in 2010 we took in $2.16 trillion in revenue and spent $3.45 trillion. If we are going to solve our debt problem by solely increasing taxes we will have to go much further than that, the deficit would require about a 61% increase in revenue. 2011 is projected to be even more.

  71. Posted by Legacy Dude

    Thanks lol, your boundless optimism has convinced me that looking at facts and numbers is just a path towards depression. We will fix our economy by posting whimsical pipe dreams on blogs.
    I’m currently on hold with the U.S. Department of Unicorns and Rainbows. I will ask about your solar-powered high speed rail manned by vegan PhDs from rural West Virginia in a minute. Right after I order my space dragon.

  72. Posted by lol

    Alternative energies receive a few 10s of Bs a year in investments. Add a zero to that and you’ll have sea changes. 10s of trillions? Let’s see…
    I’d say a few trillions would be more like it. 120 million households + businesses
    The US consumes 3.74149E+15 WH or roughly 3600 watts each and every hour per household
    That’s 427B Watts in capacity
    Getting this kind of power would be on the lower single digits of trillions range, not 10s of trillions. It’s very doable even with today’s $/W though it won’t be cheaper than coal for another 10 years.
    We need a source for gas as well. Solar photosynthesis can be perfected to produce that. That’s another story.

  73. Posted by lol

    Yeah there are people who throw prayers at the economy, and others who think there are ways to fix it without killing it. “Unicorns” as you say.

  74. Posted by lyqwyd

    We currently generate 857 GW of installed electricity generation via fossil fuels.
    I use this to estimate $1.2 billion for a 300 MW coal plant, and this to estimate $2 billion for a 340 MW solar plant. That’s $4 billion per GW for coal, and $5.9 billion for solar.
    So to replace 857 GW it would cost about $5 trillion to replace existing fossil fuel capacity with solar, or $3.5 trillion if they can bring construction costs down to be competitive with fossil plants.
    Unfortunately that assumes that coal and solar plants have the same operating profiles, but solar plants only run at a capacity factor of 20% while coal and most fossil’s have 85%, about 1/3 that of fossil. This is because of 3 factors:
    1) they don’t work at night
    2) They don’t work well when it’s cloudy
    3) They don’t work well at higher latitudes
    I’m sure the capacity factor can be brought up over time, but you are unlikely to get any higher than 50%.
    Wind has similar issues.
    So now you are talking 2-3 times the baseline replacement cost, or $10-15 trillion.
    Since both wind and solar don’t work constantly, you also have to have battery storage to supply power to homes and businesses when power cannot be generated, which adds even more to the cost. So we’re already at well over $10 trillion just to replace existing power capacity. That doesn’t include the additional money need to conduct research to improve the efficiency.
    So now we’ve spent $10+ trillion dollars, just to replace our existing capacity, all the while our debt has been building even more. Sure some jobs are created, but since we’re replacing existing infrastructure others are lost. We aren’t any better of fiscally than we were before, and we’ve got a lot more debt.
    And as you pointed out alternative energy is more expensive, so we would lose other jobs due to higher energy costs.
    Of course this is the smallest part of the problem. Remember, the coal & natural gas industries are not going to sit idly by as you try to put them out of business.
    “Yeah there are people who throw prayers at the economy”
    If you can’t be bothered to do some basic number crunching, then then that is exactly what you are doing. Daydreaming is not the same as actually proposing viable solutions to the problem.
    I’m all for renewable energy, but I’m realistic about the possible timelines, and understand it’s not a solution for our current fiscal problems.
    Enough daydreaming. If you still think we can grow at 5%, please show how. If you think that’s enough to counteract our 10% annual debt growth, please explain how. A reasonable plan that has some actual numbers, please.

  75. Posted by The Milkshake of Despair

    Perhaps lol is being optimistic but he’s got a good point that substituting renewables for fossil energy sources isn’t rocket science. Literally.
    Count me as another part of the “we” that doesn’t totally buy into Gore’s 20 year plan to eliminate fossil fuels. But a phased approach is certainly feasible. We could reduce fossil fuel consumption by 50% in 20 years easily by a combination of increased renewable capacity combined with reduced consumption (think compact fluorescents, HSR, better insulation, etc.)
    Even a 50% reduction would be a huge accomplishment. No need to completely eliminate fossil fuel usage (what would aircraft burn for example?). The increasing scarcity of oil will drive the remaining 50% away in a comfortable tail.
    Yes it is expensive but so are the costs involved in oil exploration and extraction. Those costs are continuously increasing as the low hanging fruit has been mostly picked. At some point renewables will be a bargain compared to fossil sources. I hope we don’t get caught unprepared when that happens.

  76. Posted by lyqwyd

    I’m all for replacing fossil fuels. And while it’s possible to reduce it significantly in 20 years, it’s certainly not easy. Replacing coal is the big issue. Yes, oil is getting more expensive, but there’s coal to burn for decades, and it’s cheap. Replacing oil isn’t just finding an alternative to oil, it’s replacing all of our cars and massively upgrading our electrical distribution system, as well as dealing with large social upheaval. It’s certainly possible, but I’m not just interested in what’s possible, I’m interested in what’s realistic. And replacing even 20% of our fossil fuels in 20 years is an aggressive timeframe in my opinion.
    But even if I’m wrong and we can replace all fossil fuels in 20 years it doesn’t matter. We don’t have 20 years. We’ve got 10 if we are lucky.
    I agree that replacing fossil fuels is important, but we won’t get the opportunity to do anything about it if we are crippled with debt. I have to go back to the original discussion, which is not if we can replace X% of fossil fuels in Y years, it’s what are we going to do about our current economic situation so we can even have the luxury of trying to replace fossil fuels.

  77. Posted by NoeValleyJim

    All you need is 8% inflation and 2% real growth to have 10% a year nominal growth. And I expect we will see that soon enough, certainly before 2020.
    Plus our 10%/yr growth in government debt is mostly a consequence of the current recession, it is not a long term trend. What really matters is the overall indebtedness of the economy, both public and private sectors. Which has been doing down since 2009, though quite slowly. We do need to do something about the growth of medical costs or it will eventually swamp everything else.
    I am personally much more worried about our trade deficit, which is mostly composed of imported petroleum. We need to find another way to get around.

  78. Posted by lyqwyd

    Inflation is not a substitute for growth. 8% inflation means our debt service interest rates will be 10%, upping our debt service costs from $200 billion to about $1 trillion a year, almost doubling our deficit. And of course each trillion we add to our debt via deficit spending will then cost us another $100 billion a year to service. Of course inflation means our deficit will grow, and if growth is only 2% then our deficit will be growing much faster than our economic growth.
    Yes private debt is declining, but much of that is due to default, not paying the debt down, which is the wrong way to lower debt. It is not a sign of strength.
    I tried to keep it fairly simple by just talking about Federal debt, but if we’re adding in other forms of debt, we really need to add in state & local debt & deficits, unfunded obligations (future social security & medicare promises) and unfunded pension liabilities. Depending on how you calculate it we are somewhere between $100 trillion, to $120 trillion in debt, as compared to a GDP of approximately $15 trillion. This is far worse than anything we saw during the height of the great depression or as a consequence of world war 2. It’s roughly $1,000,000 in debt per taxpayer, or $300,000 per man, woman and child.
    But federal debt is important alone, since the government operates by it’s revenue and spending.
    I’ll point out the simple example again, if the US was a person:
    they’d have an income of $20,000 per year,
    they’d already have racked up $150,000 in credit card debt,
    and they’d still be spending $35,000 per year (meaning adding another $15,000 to their existing credit card debt).
    Yes the recession is a large part of the problem, but it’s going to be years before it’s solved, and we will be adding $1-2 trillion per year to our debt for years to come. Given that all indication point to recession number 2 (if the first ever really ended) I wouldn’t bet on the end of the recession solving the problem. Right now we’re not even going in the direction of trying to solve the problems that have led up to this recession, the TBTF banks are bigger, and regulation is weaker (Mark to Model).
    The trade deficit is definitely a problem as well, but not as big, or as immediate, as our budget deficit.
    We have to fix the budget problems. Like I said it can be raising revenue, cutting spending or both. But pretending the problem will solve itself is a recipe for disaster.

  79. Posted by NoeValleyJim

    No, if the United States were a person:
    We would have an income of $20,000 a year.
    We would have credit card debt of $10,000.
    We would have a business loan of $30,000.
    We would have a mortgage of $14,000 and owe our parents (Social Security) $6,000
    and would own a property and a business worth $250,000.
    Doesn’t seem so dire when you look at the strength of the whole economy, does it?

  80. Posted by lol

    A bit of inflation wouldn’t hurt us too much if we manage to get our debtors confident.
    Also, there’s a lot of room for tax increases to balance the budget:
    We’re grossly underpaying historically and all we have to show for is a moribund economy. This is where much of the deficit is coming from and I would say most of the national debt. The tax cuts, wars and bailouts really bankrupted us.

  81. Posted by lyqwyd

    @NVJ, sorry, I meant if the U.S. Govt were a person, at which point my numbers still stand:
    $20,000 annual income,
    $150,000 in credit card debt,
    $35,000 per year spending (adding $15,000 to credit card debt).
    I say credit card because a credit card is unsecured, much like our debt.
    If the U.S as a nation (gov & people) were a person, it would be:
    $150,000 annual Income
    $1,000,000 – $1,200,000 credit card debt & mortgages
    $750,000 in total assets
    I haven’t been able to find our total private spending as a nation, so I’ll leave it out for now.
    looking at liabilities to assets does not reveal a good picture, it would be considered balance sheet insolvent, or over-leveraged. Not good.
    I get my numbers from the U.S. debt clock, which gets it’s numbers from the Federal Reserve and the US Census. Where did you get your numbers?

  82. Posted by lyqwyd

    8% inflation is generally bad for a country, especially if growth is only 2%. If the U.S. sees 8% inflation it means the Fed has probably lost control of inflation. When it happened in the 70s Volcker had to raise interest rates to over 13% to get inflation back under control. The Fed cannot do that today as it would send our debt service costs somewhere to $1.3 – 1.5 trillion a year, which would break the gov’t.
    Yes, I’ve mentioned several times that tax increases could be part of the solution, and I’m personally in favor of that. But that alone is unlikely to solve the problem, since we would need to raise taxes by about 60% in order to balance the budget. It’s possible that could happen, but very unlikely for political reasons, which means significant spending cuts would be needed as well.

  83. Posted by lol

    8%? I didn’t imply that. 3-5% would be perfectly acceptable I think.

  84. Posted by lyqwyd

    I assumed 8% since that was the number NVJ posted. 3-5% doesn’t come anywhere near what would be needed to inflate our debt away, and of course inflation would also inflate the deficit.

  85. Posted by sfrenegade

    3-5% doesn’t come anywhere near what would be needed to inflate our debt away, and of course inflation would also inflate the deficit.
    Yes, many things are indexed to CPI, so it is hard to inflate away portions of the deficit — for example Social Security and anything held in TIPS.
    Was it on this thread or another that someone pointed out that real rates are negative on 5 and 7 year Treasurys? That suggests we should borrow more, not less.

  86. Posted by lol

    Combined with higher taxes (targeted primarily at the rich)and the end of tax loopholes and wars, you could maintain the same level of spending while having a few 100Bs to fund infrastructure work and technological upgrades.
    Another thing: Cuts in government usually mean furloughs or lay-offs and loss of service. This can cripple a recovery because most of these services have a valid use to society. Think the pulling out of cops from city hot zones and the increase in crime (Hello Britain?). Ever been in a DMV lately? They are redefining the word shoestring each and every day.
    But to be true, when looking at public databases of local government pay, I am appalled that compensation in public service can often be higher that the private sector for similar jobs. The upper crust especially. This cannot go on forever.
    Therefore I think we should establish an official freeze of all government pay for at least 5 years. A small price to pay for still having a job.
    In the mean time crank up inflation while increasing taxation and massive infrastructure work. Unemployment would shrink and benefit the tax inlays (more payroll tax payers + less unemployed). The deficit would mechanically shrink even if we have a moderately high baseline inflation in the range of 3-5%.

  87. Posted by lyqwyd

    It was probably this thread. When one is reasonable about their debt, it’s a good idea to borrow when it’s cheaper than buying outright, but it’s been quite a while since the U.S. has been smart with it’s debt.
    In my opinion the gains of borrowing at slightly lower than real rates are trivial in comparison to the hazards of continuing our debt binging.

  88. Posted by lyqwyd

    I agree with most of what you just posted. I’d be ecstatic to end all wars, cut the remaining standing army in half (or less) and then raise taxes on the rich and corporations (and probably upper middle class) to make up the difference in our deficit. I would probably also make some cuts to other federal spending, but I’m perfectly fine if that doesn’t happen but the rest does.
    Yes, spending cuts will make the recovery difficult, but tax increases will likely do the same.
    I’m not too concerned about the specific solution at this point, I’m just trying to get people to realize that there is a serious problem, and to discuss any type of realistic solution.
    I believe that any solution that we put in place in the near future will be quite painful, but once we come out the other side, we will be in a position where we can once again start doing real productive growth, and get our country back into a position of strength.
    If we ignore the problem things will only get worse, and I believe that it will ultimately lead to the decimation of the middle class.

  89. Posted by hangemhi

    The US is not a person, nor is its debt akin to a person’s debt. Last time I checked I couldn’t print money to pay my bills. The US can, therefore we will never go bankrupt.
    Anyone been reading about MMT or Modern Monetary Theory. Most of you are a lot smarter about economics than I am, so I’m curious for your take. My url is a good place to start – the comments section that follows is also an excellent read.
    Among many interesting points – China buys treasuries in direct proportion to their import/export surplus. So if they don’t want to own US debt they have to stop selling us stuff.
    Another direct quote:
    “Deficits also add wealth: government debt is what we OWN, not what we OWE. The (in)famous debt clock near Times Square really should read “wealth clock” as federal government deficits add dollar net wealth to the nongovernment sector, “dollar for dollar”. This is debt that need not ever be “paid back” and indeed will not be repaid.”
    Worthwhile read.

  90. Posted by NoeValleyJim

    Total credit market debt outstanding is $52.6T:
    So total debt is 3.6X GDP, not the 6-8X that you state. What is *your* source?
    Total GDP is $14.6T:
    Total financial assets can be derived from Z1, the Treasuries flow of Funds report. Look on page 115, line 1. That is $150T.
    So we have in financial assets alone 10X GDP.
    Total net worth (assets minus liabilities) is about 5X GDP:
    This does not include the non-financial assets held by the government, which has got to be worth at least 1X GDP.
    So we are no where near balance sheet insolvent as a nation overall. It is entirely possible that the financial sector is balance sheet insolvent at least using mark to market accounting, though.

  91. Posted by NoeValleyJim

    The MMT guys do indeed have an interesting perspective. But they discount money owed to foreign entities too much, I think. This is a real claim on future production that has to be either paid off with real money, or inflation has to kick in, which will have a much wider impact on more than just the debt holders.
    I responded to your about assets and liabilities in detail lyqwyd, but it got hung up in moderation, probably because all the links.
    The US is no where near insolvent as a whole though:

  92. Posted by A.T.

    “Last time I checked I couldn’t print money to pay my bills. The US can, therefore we will never go bankrupt.”
    That’s true, sort of, but not really. First, remember that “bankruptcy” is primarily for the debtor’s benefit, not the creditors’. “Going bankrupt” is simply shorthand for saying “default with nothing further legally owed.” A person, can, of course, “go bankrupt” under the Bankruptcy Code and default on certain debts and have them wiped out. While the U.S. can “print money,” doing so in sufficient quantities to pay the debt would crash the dollar, which is in reality no different from a default since creditors get less than “full” payment. This would be the equivalent of “going bankrupt” for the govt.
    Regardless, the main point is correct – the U.S. govt is very differently situated from an individual person with respect to debt. In addition to being able to “print money,” the govt can levy taxes, pass legislation that favors the govt, borrow far more than any individual would be able, and there are lots of other important differences. The tea party refrain that “I have to live within my means and so should the govt” is simply wrong – apples and oranges. The market clearly agrees that U.S. govt debt is not a risk-laden catastrophe or it would not be making 10-yr loans at only 2.24% or shorter term loans at negative real rates.

  93. Posted by lol

    Thanks a lot for the link. Very insightful.
    It’s amazing to see the fake net worth increase of the bubbly years (dot com + housing bubble) and the trickling it had on the rest of the economy. Looking at how households have been hit and how important they are to the economy, no wonder we’re in such a pickle.
    These years were insane Manual workers making 20K in 2006 had net worth going from 0 to 100K in a couple of years. Some bought many toys or simply lived larger than they should have. These “consumers” are now gone, busy rebuilding their balance sheets if they still have a job.

  94. Posted by lyqwyd

    @NVJ, since I haven’t yet seen your critique I can’t respond, and since the wikipedia doesn’t explain how the numbers were come to I can’t critique that. But given that both wikipedia and the debt clock are using Federal Reserve information, there’s probably some apples to oranges going on.
    But It’s OK, because my concern is not so much oriented towards the U.S. as a whole, but the U.S. government, and the impacts to our economy if we continue on the current path. I agree that the concept of the entire public & private United States going bankrupt is fairly ridiculous. I don’t believe an entire nation has ever gone bankrupt, but there are numerous examples of their governments doing so.
    I was mainly pointing out that what you were talking about and what I was talking about were different. When I see your post critiquing my numbers, I may respond further.
    Lastly, I’ll point to another chart on the same wiki page that shows interest payments as a percentage of GDP, which despite interest rates being at historic lows, has been increasing for decades, which is not a good indication:

  95. Posted by lyqwyd

    @hangemhi, of course the U.S. is not a person, it’s a thought experiment. But I do believe that the same principles that apply to people and business apply to countries.
    Under certain situations a company (such as a bank) can print currency, and in fact have in the past. When they overprint, their currency collapses and becomes considered worthless. The same happens to countries.
    I have read a little bit of MMT, and there’s some interesting stuff there, but if they are suggesting that printing money has not consequence (which could simply be a misunderstanding on my part), then I do not find it credible. I haven’t read your URL yet, so it may explain my question. I’ll take a look.

  96. Posted by NoeValleyJim

    My post is now up.
    I should note that total financial assets of $150T is balanced by total financial liabilities of $116T and that some of each is held by “Rest of World.”
    But overall the sum of assets, financial and non-financial, exceeds the liabilities of the United States public and private sector, by something like $75T.
    Debt isn’t necessarily bad, it is what you do with it that matters. The US government is easily capable of handling all obligations but I agree with you lyqwyd that the growth in health care expenditures (and by extension Medicaide and Medicare expenditures) cannot continue at its current rate.
    That is why you should take projections of “unfunded liabilities” with a grain of salt. They always depend on a rate of growth of health expenditure that is simply impossible. They are also very sensitive to projections on the growth rate of the economy. A few tenths of a percentage point can make a huge difference.

  97. Posted by lol

    Well, obviously the Federal debt interest payments (green slice) are negligible compared to personal or business interest payments. Of course this is due to razor thin interest rates, not so much lower debt.

  98. Posted by lyqwyd

    “Regardless, the main point is correct – the U.S. govt is very differently situated from an individual person with respect to debt.”
    To me debt is like a force of nature. Countries are different than people, but they are still subject to the natural laws of debt. I just believe that we are currently pre-Newtonian when it comes to our understanding of debt.
    “… being able to “print money…”
    Individuals have printed their own currencies (Emperor Norton in San Francisco is a good example, but there are others). Companies have printed their own currencies. Stocks can also be considered a form of currency, the Dutch East India company coined it’s own currency, which I believe was tied to it’s stock.
    “… the govt can levy taxes, pass legislation that favors the govt, borrow far more than any individual would be able, and there are lots of other important differences.”
    This is the same is increasing revenue, or using one’s credit rating. A gov’s ability to borrow is strongly tied to it’s perceived ability to repay it’s debts in a timely manner.
    Although governments do have some privileges, the same rules of debt apply to them as they do to individuals and businesses.

  99. Posted by lyqwyd

    “Debt isn’t necessarily bad, it is what you do with it that matters.”
    I definitely agree with that and have said the same above. The problem is that what we are doing is the wrong thing.
    “The US government is easily capable of handling all obligations”
    Depends on what you mean by that. Right now it’s true, but in 2 or 5 or 10 years it is not a certainty. We currently have a number of nations that are unable to pay their obligations, and history is littered with nations and empires that fell on hard times for the same reason.
    “That is why you should take projections of “unfunded liabilities” with a grain of salt. They always depend on a rate of growth of health expenditure that is simply impossible. They are also very sensitive to projections on the growth rate of the economy. A few tenths of a percentage point can make a huge difference.”
    The impact of unfunded liabilities is certainly debatable, but the number I’m quoting says the are getting their information from the Fed. Since the government tends to err in favor of what looks good for the government, I’m inclined to believe the numbers will turn out worse. But I admit it could certainly be the other way, but even if they turn out to be half what is projected, it’s still pretty bad.
    Further, I’m concerned simply by the federal debt on record of the federal government, which does not include unfunded liabilities, and that alone is very concerning to me. Throw in unfunded liabilities, and it’s only worse, no matter how small they turn out to be.

  100. Posted by NoeValleyJim

    Your source is right?
    They say that total US debt is $54.9T (basically the same as my $52.6T) and going down.
    They say that total “assets” of the United States is $75T but they have confused net worth with assets. The total assets of the United States is $75T + $52T = $127T.
    You can see from the Z1, page 104 line 1, assets for households is $72T, not $58T like the Debt Clock reports. Net worth, line 42 is $58T.
    I will contact them and see if they reply.
    These are all the assets and liabilities reported on by The Fed, but remember there is a pretty substantial stock of assets that they don’t even bother with: the value of all land, buildings and other non-financial assets held by the US State and local governments.
    The Fed does not report on unfunded liabilities, they must be getting these numbers from the Medicare trustees.

  101. Posted by lyqwyd

    I would certainly be interested to hear their response.
    I actually misread the unfunded liabilities, usdebtclock is reporting it as worse than I thought. I read unfunded liabilities as including all other debt, but it doesn’t, they are saying unfunded liabilities alone are $115 trillion. On the other hadn I’ve seen other sources that are far lower ($40 – $60 trillion) than that, so I will happily agree that the number could be way lower than what is reported. The promises can also be changed, and it wouldn’t really be a default, so that could also make drastic differences in the realized costs.
    I’m perfectly happy to limit the discussion to only “real” federal debt, meaning money that has been spent, and can realistically be accounted for. That alone is enough to be very concerning in my opinion.

  102. Posted by hangemhi

    by “bankrupt” i meant the U.S. can’t run out of money, and will always be able to pay any debt.
    the more i read about MMT, the more my jaw is on the floor in amazement. most economists think thru a gold standard lens. yet we haven’t had any link to gold since 1971. the tea party crowd, the president and virtually every politician thinks we can run out of money….. but we can’t.
    managing inflation and deflation is easy if you know that insolvency is off the table. click on my name for more on MMT
    “the debt clock should be called a wealth clock” interesting stuff

  103. Posted by lyqwyd

    True, the U.S. need never go bankrupt, but the dollar can become worthless, history says that this will happen, the only question is when.
    A statement like “the debt clock should be called a wealth clock” is an interesting statement, but without some pretty solid support it’s not much use. I don’t think that’s even proposed by by MMT.
    If printing money were the same as creating wealth, then we could just print one hundred quintillion dollars and instantly solve all our fiscal problems, and make every U.S. citizen fantastically wealthy.
    A dollar is not an asset, it’s a liability of the U.S government. When the U.S. government prints a dollar, it is a promise to the recipient to get a dollars worth of good or services. The dollar only has value because the recipient expects to get a “dollar’s worth” of goods or services at some future date.
    If the U.S. were to print one hundred quintillion dollars, the dollar would pretty much instantly become worthless, since everybody would know that there was no real increase in actual wealth.
    I believe the biggest misunderstanding about the dollar is that it is not money, it is currency. It is not a store of wealth, it is a means of exchange.
    I do not believe a gold standard is necessarily any better than our current system, it has a separate set of flaws, but I do believe gold has an important role in modern economics. I’ve been reading about the Austrian School of Economics, and so far it seems to make the most sense to me.
    This is all certainly very debatable, this is just the way I see things.

  104. Posted by hangemhi

    printing a quintillion dollars is equivalent to drinking 20 gallons of water in an hour. water is healthy for you, but you can die if you abuse it.
    MMT clearly doesn’t recommend that. i only just starting reading out it this week, and can only say you need to check out the pragcap links which compare and contract to austrian and keynesian.
    but if i’m reading it correctly it is saying that money is being sucked out of our economy via the great deleveraging, and the only solution is for the govt to pump money in to counter act it.
    it goes on and on how the govt debt is not what people think it is. everyone – including the president and every republican candidate for president equates government spending to regular people’s budgets – yet they are two completely different things.

  105. Posted by A.T.

    Check it out – Paul Krugman must have read my 8/12 entry above on a significant flaw in MMT logic about infinite money-printing and “not going bankrupt.” Always an ego boost to be a source for a Nobel Prize winner’s writings!

  106. Posted by lyqwyd

    I’m speaking more in regard the the quotes you provided:
    “government debt is what we OWN, not what we OWE.”
    “the debt clock should be called a wealth clock”
    If that were true, then we should be able to print a quintillion dollars and be better off, but that is not the case.

  107. Posted by hangemhi

    sorry A.T. but i’ve only spent one week reading up on MMT and can see that Krugman doesn’t get it. he claims to have read the link – the same one i provided above, by the way – but his entire article reads as if he hasn’t read one word of the article he cites.
    since i am not an MMT expert – and there are many insanely smart ones who i have been reading – Krugman is about to get a TON of blogosphere feedback so you can read much smarter rebukes then mine. but already one theory on krugman is that he does get MMT, and he is making silly arguments that he knows others will make, so that when he comes out and accepts the theory he can point to his own public skepticism as proof that he’s thought this through.
    fwiw, the idea that inflation can be sparked in a massively deflationary environment where 64% of the population is flat broke, many banks and corporations are sitting on tons of cash, while others are still highly leveraged, there isn’t even a threat of regular inflation let alone hyper inflation. So why is he arguing about the possibilty of hyper inflation when that should be the least of our worries.
    btw, MMTers believe that Bernake can do QE3 4 5 6 7 and 8 and it will do nothing other than pad bank reserves. They can’t lend because no one who needs a loan can get one, and anyone who can qualify for a loan has all the cash they need.
    hyper inflation is also discussed by MMTers – Weimar and Zimbawa had problems we simply don’t have. too much money chasing two few resources firstly needs the condition of having too few resources. but we aren’t short on bread. in fact we have huge untapped productivity and supply and could meet just about any demand at the moment for just about anything. but there is no demand. what we need is to stimulate demand to stimulate the economy. there is no demand because there is no money in consumers pockets. and without money in consumers pockets there won’t even be normal inflation let alone hyper inflation.
    the argument among MMTers is do you stimulate demand via tax cuts, or govt spending on jobs programs? tax cuts are monetarily equivalent to govt spending – that is if targeted properly – both would put cash in consumers pockets and stimulate demand (yes, many would pay down debts – or deleverage – and so there are going to have to be trillions and trillions of dollars in cuts or spending before we are deleveraged and there is even a remote threat of hyper inflation).
    is krugman playing the strawman on purpose? or did he really not read the article he cited?????

  108. Posted by hangemhi

    krugman debunked by the author of the article that i don’t think he read – see my link

  109. Posted by Legacy Dude

    hangemhi, I admit I have not read your links. But out of curiosity, where did this guy get his PhD in econ?

  110. Posted by hangemhi

    don’t hate the playa, hate the game…. it isn’t just one guy, and it isn’t a new theory.
    read the links – then attack the info if you choose. this isn’t conspiracy theory stuff – this is stating that everyone is focused on gold standard economic theory and we broke all ties to that in 1971. yet everyone is using the old keynesian map to try to navigate our current monetary system

  111. Posted by lol

    Any inflation yet?
    Krugman is proven right each and every day as the wolves keep adjusting their justifications as events unravel. Love his writing. Love his ideas.
    The Ayn Rand-inspired sludge is mainly a politically-driven theory that has been proven too destructive to be left unchallenged. It’s a bit as if a sci-fi book were taken as the serious basis of a new religion (oh, wait…).

  112. Posted by hangemhi

    wow there used to be intelligent discussion of economic topics here. first i get simpleton rebuttals, not i get rebutted for something that can only refer to some other theory.
    krugman and MMT agree on many things – MMT says there is no chance of inflation now. so i don’t have the slightest idea what you’re refering to lol.
    gotta love the shoot first and not aim or ask questions later either crowd

  113. Posted by lyqwyd

    I don’t find Krugman to be of much use, he makes the same errors over and over in his articles. I’m not knowledgeable about his scholarly work, so perhaps he is a good scholar, but his pop science is pretty shoddy.
    No inflation? Perhaps you missed the recent runup in everything that happened during QE2?
    I’ve really only read some pragcap stuff, and the entry on wikipedia, so I can only speak to that, but the first point on understanding MMT at pragcap:
    “The Federal government is the monopoly supplier of currency.”
    is wrong.
    From a historical perspective it’s wrong, there have been many currencies, and it is wrong today, as there are hundreds, if not thousands, of active currencies in this country today. There are at least 3 alternative currencies right now in the Bay Area, and there are many forms of currency that people do not even realize are currency. A check is currency, cigarettes are currency in prison, even a muni proof of payment is currency (it is a transferable token used as a means of exchange for a bus ride, the same as dollar bills are).
    Perhaps the author is mis-stating the essence of MMT, but that’s all I have to go on at the moment.

  114. Posted by NoeValleyJim

    From the guys:
    “Thank You for your comments. Although we can’t respond to all emails we really appreciate your input and Thank You for your support.”
    I believe that they are deliberately misleading people.

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