U.S. Politics 20

[Ser Scot A Ellison]

Shryke, Dinsdale,

My point is simply this. With more than a billion people the Chinese and their growing domestic market (additionally other large and growing Asian markets) can move to a position where they don't need to sell manufactured goods to the U.S. or the West. I'm sure they will always like to but the Chinese have never been afraid of difficult choices if they are in their national interest to make them.

[Former Lord of Winterfell]

Shryke, Dinsdale,

My point is simply this. With more than a billion people the Chinese and their growing domestic market (additionally other large and growing Asian markets) can move to a position where they don't need to sell manufactured goods to the U.S. or the West. I'm sure they will always like to but the Chinese have never been afraid of difficult choices if they are in their national interest to make them.

Or it gets to the point where U.S. consumers have less money to spend, and therefore buying less from China, which in turn means China buys fewer bonds. Or instead of buying bonds, it starts buying up property or other tangible assets. Or the value of the dollar sinks, the prices of Chinese goods starts to rise, so we have to buy fewer of them for that reason and the Chinese buy fewer bonds.

At that point, you have to start jacking up your bond rates to make them more attractive. Or, you simply start printing money and moneterizing the debt. A separate issue relating to rates is if the dollar loses its status as the world's reserve currency, which is certainly possible. Rates would have to rise to make up for that as well.

But whatever happens, the concept of financing your standard of living/government by selling bonds is not sustainable past a certain point. Just check out how interest payments on the debt have grown, and are projected to grow as both a percentage of federal spending and as a percentage of GDP in the future. That is simply not sustainable.

[Former Lord of Winterfell]

:laugh: For who, again? The US appears to be a secure investment for the Fed, because the fed is the largest holder of US treasuries right now. Not China, not Japan, the US federal reserve bank.

Which means after Ben Bernanke buys debt from Treasury, Treasury pays the Fed interest, which the Fed uses to buy more bonds, and so on. There's a phrase for that kind of operation... can't remember what it's called.

Foreign ownership of U.S. debt has jumped from about 13% in 1988 to more than a quarter now. The increasing share of foreign ownership has increased primarily at the expense of domestic, non-governmental holders of debt. Which means that though we've been in debt for a long time, at least we owed that money to our own country. Now, a growing percentage of a growing debt is owed to foreign creditors, which isn't good.

Oh hell, none of it is really good at this point.

[RWHamel]

What come to my mind is "Ponzi Scheme!"

[Former Lord of Winterfell]

I think it's significant that foreign debt ownership is increasing, but I think it's more worrying that the people who control the money supply are the ones financing US public debt.

Well, that's the real risk, isn't it? That they'll just start printing money to pay the bills. Once that happens on a significant scale, though, rates on U.S. debt will shoot up, and then we're really fucked.

[Commodore]

smartest president ever

Today President Obama held a press conference in which he talked mostly about his FY 2012 budget, and secondarily about events in the Middle East. In one respect, his performance can only be described as bizarre: he made claims about the ten-year projections in his FY 2012 budget that are patently untrue.

Obama began the press conference with a short opening statement that included this:

Presumably the middle of the decade is 2015. In that year, Obama's budget forecasts a deficit of $607 billion. If he was referring to 2016, the projected deficit in that year is $649 billion. Oh, and in Obama's budget the deficits are rising, not falling: for 2012, it projects a $774 billion shortfall. So what on earth was Obama talking about?

A few minutes later, while answering a question, Obama made the same claim, even more explicitly:

This is other-worldly. Has Obama not read his own budget? Or does he assume that no one else has

[Fez]

Presumably the middle of the decade is 2015. In that year, Obama's budget forecasts a deficit of $607 billion. If he was referring to 2016, the projected deficit in that year is $649 billion. Oh, and in Obama's budget the deficits are rising, not falling: for 2012, it projects a $774 billion shortfall. So what on earth was Obama talking about?

Except that its exactly true. The deficit in 2011 is now project at $1.6 trillion, and its been well over a trillion the past two years as well. Now of course that is partly inflated by some temporary expenses (TARP, ARRA, and possibly war expenses), and that's a valid point to make, but it doesn't change the fact that deficit will be much smaller in 2012 if Obama's budget were passed.

[Former Lord of Winterfell]

I mean, aren't we, though? We're not directly monetizing (ie, treasury isn't going to treasurydirect.com and buying bonds, they're buying them from primary dealers), but we're basically doing the same thing, right?

At this point, it's just cascading IOU's. I consider it moenterization when we literally start printing more greenbacks rather than issuing securities.

That's why I think it's scary that Obama's budget plan has steadily decreasing basis point rates on debt financing. I mean, really? Am I missing something? We have some really smart people on this board, so maybe I'm not looking in the right place. It just doesn't make any sense. Obama tells Bernanke to funnel hundreds of billions through Goldman to Timmy G and expect rates to go down? That's coupled with Obama's projection that USG revenue will be up 50% in the next two years (WTF?).

I agree that it is really strange. The only possible circumstance under which it makes any sense is if he expects significant deflation. But he can't honestly be expecting that.

Coupled with Commodore's post on the other weird budget statements -- that the budget will be balanced in years when it shows a deficit in excess of $600B -- I just don't know. I've never agreed with the guys economic program, but this is the first time I don't think it even makes sense on its own terms. I'm just sort of at a loss at this point.

I'm pessimistic about all this. Just like any other ponzi scheme, this Fed/Treasury scheme won't stop until we're caught. QE3 will likely be announced later this year (they might do it differently, since QE2 isn't doing what they wanted it to do, though). If we run into serious inflation, Bernanke will have to raise rates and you'll watch the stock market implode and unemployment to shoot up like it did under Volcker, only worse.

Except that I don't think the effects will be nearly as temporary as they were in the early 80's. We're getting into some serious shit here.

I'm not silly enough to think we'll default on our debt. Too damaging to the world's elites.

I agree with you on that, and the alternative will be moneterization. But that's some really bad shit there.

[Former Lord of Winterfell]

Except that its exactly true. The deficit in 2011 is now project at $1.6 trillion, and its been well over a trillion the past two years as well. Now of course that is partly inflated by some temporary expenses (TARP, ARRA, and possibly war expenses), and that's a valid point to make, but it doesn't change the fact that deficit will be much smaller in 2012 if Obama's budget were passed.

No it isn't. Look at his statements:

"When I took office, I pledged to cut the deficit in half by the end of my first term."

The budget deficit for FY 2008 was $438B. Cutting that in half means a deficit of less than $220b.

http://www.usatoday.com/news/washington/2008-10-07-deficit_N.htm?csp=34

"Our budget meets that pledge"...

Under his own budget, including some incredibly optimistic assumptions, the deficit for 2012 is still over $1TB. In what universe is $1T half of $438B???

http://dailycaller.com/2011/02/14/obama-releases-fy-2012-budget-as-deficit-rises-to-record-high-1-6-trillion/

"...by the middle of this decade our annual spending will match our annual revenues."

????? His own budget calls for deficits of over $600B by the "middle of the decade" -- 2015 and 2016. How does an annual deficit of over $600B constitute annual spending matching annual revenues?

[Fez]

No it isn't. Look at his statements:

"When I took office, I pledged to cut the deficit in half by the end of my first term."

The budget deficit for FY 2008 was $438B. Cutting that in half means a deficit of less than $220b.

http://www.usatoday.com/news/washington/2008-10-07-deficit_N.htm?csp=34

"Our budget meets that pledge"...

Under his own budget, including some incredibly optimistic assumptions, the deficit for 2012 is $774B. In what universe is $774B half of $438B???

"...by the middle of this decade our annual spending will match our annual revenues."

????? His own budget calls for deficits of over $600B by the "middle of the decade" -- 2015 and 2016. How does a deficit of over $600B constitute annual spending matching annual revenue?

C'mon, this is just strange stuff.

I never assumed he meant FY 2008, but rather FY 2009. And the FY 2009 deficit, and remember FY 2009 was a Bush budget, had a deficit of $1.4 trillion. $774B is about half of $1.4T, and so Obama has cut the deficit by half compared to when he first took office.

Now as for the spending matching revenue, that I'm not sure of. The charts I've seen show a continued deficit of about 3.3% GDP, perfectly sustainable, right up to 2021 where projections end.

[Swordfish]

No it isn't. Look at his statements:

"When I took office, I pledged to cut the deficit in half by the end of my first term."

The budget deficit for FY 2008 was $438B. Cutting that in half means a deficit of less than $220b.

http://www.usatoday.com/news/washington/2008-10-07-deficit_N.htm?csp=34

"Our budget meets that pledge"...

Under his own budget, including some incredibly optimistic assumptions, the deficit for 2012 is $774B. In what universe is $774B half of $438B???

"...by the middle of this decade our annual spending will match our annual revenues."

????? His own budget calls for deficits of over $600B by the "middle of the decade" -- 2015 and 2016. How does an annual deficit of over $600B constitute annual spending matching annual revenues?

It will be entertaining to see how the spin on this looks. I didn't see the speech though,. so i suppose the blogger could be lying about it.

[Former Lord of Winterfell]

I never assumed he meant FY 2008, but rather FY 2009. And the FY 2009 deficit, and remember FY 2009 was a Bush budget, had a deficit of $1.4 trillion. $774B is about half of $1.4T, and so Obama has cut the deficit by half compared to when he first took office.

Even assuming he did mean FY 2009, the actual number in his budget for 2012 isn't $774B (looks like someone transposed the 1 and the 2 in the initial article, because the $774B figure is actually for 2021) but actually $1.1 Trillion. So even assuming he meant 2009, how is $1.1T half of $1.4T

Now as for the spending matching revenue, that I'm not sure of. The charts I've seen show a continued deficit of about 3.3% GDP, perfectly sustainable, right up to 2021 where projections end.

If he wants to claim that his projected budgets reduce the deficit to 3.3% of GDP, fine. But he said that spending would equal revenues.

[Dinsdale!]

Shryke, Dinsdale,

My point is simply this. With more than a billion people the Chinese and their growing domestic market (additionally other large and growing Asian markets) can move to a position where they don't need to sell manufactured goods to the U.S. or the West. I'm sure they will always like to but the Chinese have never been afraid of difficult choices if they are in their national interest to make them.

I'm still uncertain that's a bad thing. China desperately needs to increase internal consumption which has simply not grown anywhere near the rate of GDP growth. If they don't get the timing on that right, they'll have a major economic downturn, and the US might have one with them. I have little fear of China turning itself into a mercantilist pariah state that refuses to trade with the other 80% of the world, just as I have little fear of knife-men who like to stab themselves through the palm.

You're arguing as if China can just turn around and sell its production domestically. It doesn't work that way.

[Fez]

Even assuming he did mean FY 2009, the actual number in his budget for 2012 isn't $774B (looks like someone transposed the 1 and the 2 in the initial article, because the $774B figure is actually for 2021) but actually $1.1 Trillion. So even assuming he meant 2009, how is $1.1T half of $1.4T

But I thought we weren't talking about 2012, I thought it was 2015 (or possibly 2016) that was going to be half of 2009. I don't think anyone thought he said would halve the deficit by 2012, but he has shrunken it, and by $500 billion compared to the previous budget. And anyway off the top of my head, possibly he meant half in terms of GDP %, and maybe the 2015 deficit will only be half as much of GDP as the 2009 budget even if the actual number isn't half as much.

If he wants to claim that his projected budgets reduce the deficit to 3.3% of GDP, fine. But he said that spending would equal revenues.

And I wasn't defending that statement, since I've never seen it quoted anywhere else.

[Former Lord of Winterfell]

But I thought we weren't talking about 2012, I thought it was 2015 (or possibly 2016) that was going to be half of 2009. I don't think anyone thought he said would halve the deficit by 2012,

Yes, that's exactly what he said. Here's the transcript:

http://74.6.239.185/search/srpcache?ei=UTF-8&p=obama+press+conference+february+15%2C+2011+transcript&fr=yfp-t-701&u=http://cc.bingj.com/cache.aspx?q=obama+press+conference+february+15%2c+2011+transcript&d=27023595237803907&mkt=en-US&setlang=en-US&w=ec7a5ca1,53e16319&icp=1&.intl=us&sig=W2qYWGDskrl0P4KMP7zFPA--

And here's the quote:

"When I took office, I pledged to cut the deficit in half by the end of my first term. Our budget meets that pledge and puts us on a path to pay for what we spend by the middle of the decade."

And by the way, you can actually find that exact statement that he made back in 2009 to which he is referring:

http://articles.cnn.com/2009-02-23/politics/fiscal.summit_1_deficit-spending-national-debt-health-care-costs?_s=PM:POLITICS

The end of his first term is the end of 2012. So yes, he did say he'd halve the deficit by 2012. Now that's not so bad, anyone can get their projections wrong. But to say that his new budget actually accomplishes that goal, with the "before" and "after" numbers already staring us in the face, is clearly false.

And I wasn't defending that statement, since I've never seen it quoted anywhere else.

I linked the transcript, and you can find that statement in his answer to the very first question after his prepared remarks:

"THE PRESIDENT: On the budget, what my budget does is to put forward some tough choices, some significant spending cuts, so that by the middle of this decade our annual spending will match our annual revenues. We will not be adding more to the national debt."

[Fez]

Yes, that's exactly what he said. Here's the transcript:

http://74.6.239.185/search/srpcache?ei=UTF-8&p=obama+press+conference+february+15%2C+2011+transcript&fr=yfp-t-701&u=http://cc.bingj.com/cache.aspx?q=obama+press+conference+february+15%2c+2011+transcript&d=27023595237803907&mkt=en-US&setlang=en-US&w=ec7a5ca1,53e16319&icp=1&.intl=us&sig=W2qYWGDskrl0P4KMP7zFPA--

And here's the quote:

"When I took office, I pledged to cut the deficit in half by the end of my first term. Our budget meets that pledge and puts us on a path to pay for what we spend by the middle of the decade."

And by the way, you can actually find that exact statement that he made back in 2009 to which he is referring:

http://articles.cnn.com/2009-02-23/politics/fiscal.summit_1_deficit-spending-national-debt-health-care-costs?_s=PM:POLITICS

The end of his first term is the end of 2012. So yes, he did say he'd halve the deficit by 2012. Now that's not so bad, anyone can get their projections wrong. But to say that his new budget actually accomplishes that goal, with the "before" and "after" numbers already staring us in the face, is clearly false.

Well I knew about the pledge, I meant now. And I'm surprised that is exactly what he said. However in 2009 the deficit was about 12.3% of GDP, as near as I can tell the projections have the FY 2012 deficit at about 7% of GDP. SO not quite half, but fairly close. Though, granted that's only nominal GDP.

I linked the transcript, and you can find that statement in his answer to the very first question after his prepared remarks:

"THE PRESIDENT: On the budget, what my budget does is to put forward some tough choices, some significant spending cuts, so that by the middle of this decade our annual spending will match our annual revenues. We will not be adding more to the national debt."

I know, I was agreeing with you on that count. That's clearly not accurate.

[The Progressive]

Would the GOP dare to shut down government over the budget?

C'mon teabaggers, don't let us down!!!

[awesome possum]

I can't help but find it amusing that with all the talked about cuts to the budget, each individual cut still equals less than 1% of the annual military budget.

[Fez]

Unless we cut taxes for the rich by even more. Then we'd see a huge rise in revenue that would be almost magical in nature.

You know why I'm never getting elected to Congress (besides all the other reasons)? Because I would immediately propose that we solve the deficit from the other side; i.e. start raising taxes. Or more accurately eliminating a whole hell of a lot of deductions.

I can't help but find it amusing that with all the talked about cuts to the budget, each individual cut still equals less than 1% of the annual military budget.

Its even better when you look at the amendments to HR 1 that were defeated yesterday, a whole lot of them were Defense cuts. Most couldn't even manage 100 yeas.

[TrackerNeil]

You know why I'm never getting elected to Congress (besides all the other reasons)? Because I would immediately propose that we solve the deficit from the other side; i.e. start raising taxes. Or more accurately eliminating a whole hell of a lot of deductions.

It's been pointed out that simply letting the Bush tax cuts expire would go a long way towards deficit reduction, but that's a non-starter with Republicans. I hoping that, come 2012, Obama vetoes another extension. We shall see.