** Private ** wrote: > He's making the same point, though, that has already been made isn't > he? That more US debt will mean default, inflation, or high taxes 3 > years from now.
Yes. But unlike some he is considering what that means in an international, macro-economic perspective. Consider what the CBO report says: "To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive capital. In economic parlance, the debt would âcrowd outâ private investment. (..) CBOâs basic assumption is that, in the long run, each dollar of additional debt crowds out about a third of a dollarâs worth of private domestic capital (with the remainder of the rise in debt offset by increases in private saving and inflows of foreign capital)." http://www.cbo.gov/ftpdocs/96xx/doc9619/Gregg.pdf Since foreign investors are supposed to be buying two thirds of the treasuries any effect on them is much more important then a crowding out effect on domestic capital. Yet the CBO is completely ignoring the effect the increased debt will have on the perception of risks to the people who are financing the US spending. The people who are financing the US debt are concerned about two things. The first is the ability of the US economy to bay back the debt, and the second is the willingness of the US government to pay it back at its real value.. The first one is influenced largely by the usual big numbers: savings rate, foreign account balance etc. A consumption oriented stimulus is not helping any of them. In fact it is pushing the fundamental unbalance that has been in the economic relation between the US and the rest of the world for the last 15 years in the wrong directory. The second is not objectively measurable. But the current stimulus package is certainly sending the wrong message because it is beginning to look like there is a fundamental inability for the US to raise taxes. The objectively best answer to a stimulus would be to increase spending instead of tax cuts, because it has larger multipliers. But instead the majority of the stimulus is going into tax reductions. If the US government can not even maintain tax levels when it is universally agreed that that is the best way to breathe life into its own economy, will it be able to do so to pay of a bunch of foreigners? At some point people are going to want risk bonus to buy treasuries. When that happens the US looses way more then the (questionable) effect of this stimulus bill. > He's saying that he's against the stimulus for this reason, which I > would disagree with because what I didn't read was how he thinks NOT > spending the money now will somehow create the situation he's offering > as the solution: more exportable products. The US is currently facing two problems: demand shortfall and a paralysis of the financial markets. (Which are related but not inseparable.) The stimulus and the absorption of bank losses will solve neither, and add third problem: a credibility crisis for US treasuries. > Obama's plan is clearly to spend the stimulus for immediate relief and > then use that credibility to raise taxes and re-tool industry to > exports. > > Call that political, but what's the alternative? Judging by the CBO report the world will not end without a stimulus, and the US will even be better off in the long term. And I think they are grossly underestimating the external factors. > So no matter who's in office, IMO, the best approach is short-term > stimulus and then "next-term" re-tooling, followed by "future-term" > higher taxes. > > That's where this graph comes in handy: > http://www.truthandpolitics.org/top-rates.php#fn-1 And you honestly believe that the US government will be able to extract 90% effective tax rates (effective, not nominal!) to finance the absorption of bad investment decisions and a fiscal expansion? The same US government that for the last 25 years has responded to every economic problem with a tax cut? Recession? Tax cut to stimulate the economy! Expansion? Tax cut to give people their money back! Depression? Tax cut for stimulus! Jochem ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Adobe® ColdFusion® 8 software 8 is the most important and dramatic release to date Get the Free Trial http://ad.doubleclick.net/clk;207172674;29440083;f Archive: http://www.houseoffusion.com/groups/cf-community/message.cfm/messageid:287684 Subscription: http://www.houseoffusion.com/groups/cf-community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=11502.10531.5
