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Thread: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

  1. #11
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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    Quote Originally Posted by tessaesque View Post
    The money spent after the depression was spent in vastly different ways. Just spending money doesn't accomplish anything...there must be a practical application.
    Some auto manufacturing jobs were saved but I am not seeing any program dedicated to building some category of new jobs. No groundbreaking industries, no great inventions, no National plans. Just throw the money out there and the rich will catch it and there will be trickle down. Let me know when you start getting your little round brown balls. We know what trickles down.

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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    One should keep in mind that the effects of fiscal stimulus are typically shorter-term in nature. The idea is to borrow from tomorrow's economic growth to provide a boost to today's economic growth so that downturns are less severe (output and employment impact). A perfectly structured policy would entail stimulus during a downturn and then the discipline necessary to totally mop up the stimulus when the economy is growing again.

    However, that is not what has typically happened in the U.S. Instead, there has been a persistent bias toward accommodation. Stimulus--be it in the form of additional spending or tax cuts--is not completely mopped up by a total elimination of that additional spending/reversal of those tax cuts. As a result, some share of the incremental debt added during the downturn is not eliminated when the economy recovers. Moreover, some portion of the cyclical budget deficit that should disappear completely when the economy rebounds persists in the form of a structural deficit.

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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    Quote Originally Posted by donsutherland1 View Post
    One should keep in mind that the effects of fiscal stimulus are typically shorter-term in nature. The idea is to borrow from tomorrow's economic growth to provide a boost to today's economic growth so that downturns are less severe (output and employment impact). A perfectly structured policy would entail stimulus during a downturn and then the discipline necessary to totally mop up the stimulus when the economy is growing again.

    However, that is not what has typically happened in the U.S. Instead, there has been a persistent bias toward accommodation. Stimulus--be it in the form of additional spending or tax cuts--is not completely mopped up by a total elimination of that additional spending/reversal of those tax cuts. As a result, some share of the incremental debt added during the downturn is not eliminated when the economy recovers. Moreover, some portion of the cyclical budget deficit that should disappear completely when the economy rebounds persists in the form of a structural deficit.
    It will be interesting to see how this scam ends. Let's remember that the tech bubble lasted for years after the Greenspan irrational exuberance speech. The housing bubble went on for years after the bubble was identified by a few ( mostly hedge funds that got rich). Now we have treasuries and the federal debt that is being financed at less than 1% for two year notes, and about 3% for ten year paper. Look back a few years and see where Greek paper was trading.

    Doesn't QE2 with the Federal government issuing debt at just about the rate that the Federal Reserve is buying it up look a bit like the Madoff scam which went on for about 20 years.

    Seems to be a matter of when not if.

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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    Quote Originally Posted by washunut View Post
    Doesn't QE2 with the Federal government issuing debt at just about the rate that the Federal Reserve is buying it up look a bit like the Madoff scam which went on for about 20 years.

    Seems to be a matter of when not if.
    Quantitative easing is not a sustainable policy. While it was justified during a time of crisis when the threat of destructive deflation loomed, its continuation can no longer be rationalized. Even in the context of sluggish growth, it is not appropriate. Should QE2 be extended or replaced by QE3, there will be growing concern that QE is being used to monetize the federal debt. Those concerns would be reflected via foreign exchange rates, interest rates (risk premia) as appetite for Treasury securities erodes (especially if Treasury yields were persistently < than inflation), and rising inflation despite considerable macroeconomic slack. The credibility of the Fed's commitment to price stability would also be damaged. I suspect that the Fed will not renew QE2 and will gradually begin to pare back its extraordinary measures down the road (recent Fed minutes hint at just such a prospect). Still, real risks remain long-term, especially if the fiscal imbalances are not addressed. Many other countries have embarked on monetization in the face of enormous fiscal challenges. Such a prospect for the U.S. cannot be ruled out, especially if Congress took a more active role on trying to shape monetary policy.

    For now, I have greater concern that progress toward credible policy changes will lag on the fiscal front, with fundamental political differences and positioning for political advantage in 2012 impeding progress on that front. The big policy decisions will likely be put off in an agreement to raise the debt ceiling, even if ambitious goals/targets are set forth to create the perception of a significant breakthrough. Concrete details, not the expression of ambitious goals, will provide the narrative as to whether the nation has embarked on credible fiscal consolidation.

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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    Nooooooooooooooooooooooooooooooooooooooooooooooooo ooooooooooooooooooooooooooooooooo!?

    You mean another government scheme and prediction of government intrusion in our lives has gone wrong yet again!!!

    How can this be?

    I think we need another Ponzi/Madoff Scheme to fix this, higher taxes on the rich (now at 100,000) and corporations... and I think Obama should run it, as he's done a bang up job dontcha think?

    All in favor say "Aye".

    PS. Obama cronies are permitted to file for exemptions, and a few others so it doesn't look like favoritism. The rest of you dweebs... go screw yourselves.

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    when you have NO MORAL COMPASS.

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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    Quote Originally Posted by donsutherland1 View Post
    Quantitative easing is not a sustainable policy. While it was justified during a time of crisis when the threat of destructive deflation loomed, its continuation can no longer be rationalized. Even in the context of sluggish growth, it is not appropriate. Should QE2 be extended or replaced by QE3, there will be growing concern that QE is being used to monetize the federal debt. Those concerns would be reflected via foreign exchange rates, interest rates (risk premia) as appetite for Treasury securities erodes (especially if Treasury yields were persistently < than inflation), and rising inflation despite considerable macroeconomic slack. The credibility of the Fed's commitment to price stability would also be damaged. I suspect that the Fed will not renew QE2 and will gradually begin to pare back its extraordinary measures down the road (recent Fed minutes hint at just such a prospect). Still, real risks remain long-term, especially if the fiscal imbalances are not addressed. Many other countries have embarked on monetization in the face of enormous fiscal challenges. Such a prospect for the U.S. cannot be ruled out, especially if Congress took a more active role on trying to shape monetary policy.

    For now, I have greater concern that progress toward credible policy changes will lag on the fiscal front, with fundamental political differences and positioning for political advantage in 2012 impeding progress on that front. The big policy decisions will likely be put off in an agreement to raise the debt ceiling, even if ambitious goals/targets are set forth to create the perception of a significant breakthrough. Concrete details, not the expression of ambitious goals, will provide the narrative as to whether the nation has embarked on credible fiscal consolidation.
    Don, you should notice that I excluded QE1 but talked about QE2. QE2 was in fact a way for the fed to support the ruinous fiscal policies we are pursuing. You know that by the time of the 2012 elections we will already put in place the budget that runs thru Oct. 2013. If the current administration does win ( which looks likely) not sure what gives you the confidence that they will materially change fiscal policy. Each year of inaction, means we add about $1.5 trillion to our debt. Put another way, using normalized 10 year treasury rates that adds $75 billion of debt expense. Think about it, we had a huge fight for two years over universal health care. Many said we could not afford it with a cost of about 100-200 billion annually. That is the same number as the added debt burden accumulated in the period 2009-2011.

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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    Quote Originally Posted by washunut View Post
    If the current administration does win ( which looks likely) not sure what gives you the confidence that they will materially change fiscal policy. Each year of inaction, means we add about $1.5 trillion to our debt. Put another way, using normalized 10 year treasury rates that adds $75 billion of debt expense. Think about it, we had a huge fight for two years over universal health care. Many said we could not afford it with a cost of about 100-200 billion annually. That is the same number as the added debt burden accumulated in the period 2009-2011.
    I am not confident on the fiscal front in the near-term and worry that even beyond 2012 difficult choices will be evaded. At a minimum, real choices won't be made until after 2012. I worry that even then, something closer to the status quo will prevail. I am more confident about monetary policy, specifically the end of quantitative easing.

    I also believe that government's borrowing costs will be higher than OMB projects as I believe interest rates closer to the average of the last 15 years or so than the current abnormally low rates, will prevail within 5 years, barring the onset of another recession. The IMF maintains a similar view of expecting higher rates than either the OMB or CBO.

    I'll be interested to see what the IMF's 2011 Article IV consultation with the U.S. reveals. Some IMF staff comments have been far more critical of U.S. fiscal policy inertia and the U.S. risk profile (fiscal and current account) than official commentary. Absent credible medium-term fiscal consolidation, I believe that at least one ratings agency will cut the U.S. credit rating in the next 1-3 years and, more important, believe such a reduction would be appropriate.

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    Re: Stimulus Will Increase U.S. Deficit More Than Originally Estimated

    Quote Originally Posted by donsutherland1 View Post
    I am not confident on the fiscal front in the near-term and worry that even beyond 2012 difficult choices will be evaded. At a minimum, real choices won't be made until after 2012. I worry that even then, something closer to the status quo will prevail. I am more confident about monetary policy, specifically the end of quantitative easing.

    I also believe that government's borrowing costs will be higher than OMB projects as I believe interest rates closer to the average of the last 15 years or so than the current abnormally low rates, will prevail within 5 years, barring the onset of another recession. The IMF maintains a similar view of expecting higher rates than either the OMB or CBO.

    I'll be interested to see what the IMF's 2011 Article IV consultation with the U.S. reveals. Some IMF staff comments have been far more critical of U.S. fiscal policy inertia and the U.S. risk profile (fiscal and current account) than official commentary. Absent credible medium-term fiscal consolidation, I believe that at least one ratings agency will cut the U.S. credit rating in the next 1-3 years and, more important, believe such a reduction would be appropriate.
    I agree with your points above. The one I might shy away from is the ratings cut. We have to remember that these credit agencies skipped much of the critical discussions about the financial mess. While one went out on a limb to put a negative outlook on U.S. debt, not sure if they would have the courage to take on any administration.

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