Marshall Auerback: REPEAT AFTER ME: THE USA DOES NOT HAVE A ‘GREECE PROBLEM’
Marshall Auerback is a Roosevelt Institute Senior Fellow and Braintruster at the New Deal 2.0.
By Marshall Auerback
To paraphrase Shakespeare, things are indeed rotten in the State of Denmark (and Germany, France, Italy, Greece, Spain, Portugal, and almost everywhere else in the euro zone). An entire continent appears determined to commit collective hara kiri, whilst the rest of the world is encouraged to draw precisely the wrong kinds of lessons from Europe’s self-imposed economic meltdown. So-called respectable policy makers continue to legitimize the continent’s fully-fledged embrace of austerity on the allegedly respectable grounds of “fiscal sustainability”.
The latest to pronounce on this matter is the Governor of the Bank of England, Mervyn King. This is a particularly sad, as the BOE – the Old Lady of Threadneedle Street – has actually played a uniquely constructive role amongst central banks in the area of financial services reform proposals. King, and his associate, Andrew Haldane, Executive Director for Financial Stability at the Bank of England, have been outspoken critics of “too big to fail” banks, and the asymmetric nature of banker compensation (“heads I win, tails the taxpayer loses”). This stands in marked contrast to America’s feckless triumvirate of Tim Geithner, Lawrence Summers, and Ben Bernanke, none of whom appears to have encountered a banker’s bonus that they didn’t like.
But when it comes to matters of “fiscal sustainability” King sounds no better than a court jester (or, at the very least, a member of President Obama’s National Commission on Fiscal Responsibility and Reform). In an interview with The Telegraph, the Bank of England Governor suggests that the US and UK – both sovereign issuers of their own currency – must deal with the challenges posed by their own fiscal deficits, lest a Greece scenario be far behind:
“It is absolutely vital, absolutely vital, for governments to get on top of this problem. We cannot afford to allow concerns about sovereign debt to spread into a wider crisis dealing with sovereign debt. Dealing with a banking crisis was bad enough. This would be worse.”
“A wider crisis dealing with sovereign debt”? Anybody’s internal BS detector ought to be flashing red when a policy maker makes sweeping statements like this. The Bank of England Governor substantially undermines his own credibility by failing to make 3 key distinctions:
- There is a fundamental difference between debt held by the government and debt held in the non-government sector. All debt is not created equal. Private debt has to be serviced using the currency that the state issues.
- Likewise, deficit critics, such as King, obfuscate reality when they fail to highlight the differences between the monetary arrangements of sovereign and non-sovereign nations, the latter facing a constraint comparable to private debt.
- Related to point 2, there is a fundamental difference between public debt held in the currency of the sovereign government holding the debt and public debt held in a foreign currency. A government can never go insolvent in its own currency. If it is insolvent as a consequence of holdings of foreign debt then it should default and renegotiate the debt in its own currency. In those cases, the debtor has the power not the creditor.
Functionally, the euro dilemma is somewhat akin to the Latin American dilemma, such as countries like Argentina regularly experienced. The nations of the European Monetary Union have given up their monetary sovereignty by giving up their national currencies, and adopting a supranational one. By divorcing fiscal and monetary authorities, they have relinquished their public sector’s capacity to provide high levels of employment and output. Non-sovereign countries are limited in their ability to spend by taxation and bond revenues and this applies perfectly well to Greece, Portugal and even countries like Germany and France. Deficit spending in effect requires borrowing in a “foreign currency”, according to the dictates of private markets and the nation states are externally constrained.
King implicitly recognizes this fact, as he acknowledges the central design flaw at the heart of the European Monetary Union – “within the Euro Area it’s become very clear that there is a need for a fiscal union to make the Monetary Union work.”
This is undoubtedly correct: To eliminate this structural problem, the countries of the EMU must either leave the euro zone, or establish a supranational fiscal entity which can fulfill the role of a sovereign government to deficit spend and fill a declining private sector output gap. Otherwise, the euro zone nations remain trapped – forced to forgo spending to repay debt and service their interest payments via a market based system of finance.
But King then inexplicably extrapolates the problems of the euro zone which stem from this uniquely Euro design flaw and exploits it to support a neo-liberal philosophy fundamentally antithetical to fiscal freedom and full employment.
The Bank of England Governor – and others of his ilk – are misguided and disingenuous when they seek to draw broader conclusions from this uniquely euro zone related crisis. Think about Japan – they have had years of deflationary environments with rising public debt obligations and relatively large deficits to GDP. Have they defaulted? Have they even once struggled to pay the interest and settlement on maturity? Of course not, even when they experienced debt downgrades from the major ratings agencies throughout the 1990s.
Retaining the current bifurcated monetary/fiscal structure of the euro zone does leave the individual countries within the EMU in the death throes of debt deflation, barring a relaxation of the self-imposed fiscal constraints, or a substantial fall in the value of the euro (which will facilitate growth via the export sector, at the cost of significantly damaging America’s own export sector). This week’s €750bn rescue package will buy time, but will not address the insolvency at the core of the problem, and may well exacerbate it, given that the funding is predicated on the maintenance of a harsh austerity regime.
José Luis Rodríguez Zapatero, Spain’s Socialist prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 per cent cut in civil service pay to accelerate cuts to the budget deficit.
The austerity drive – echoing moves by Ireland and Greece – followed intense pressure from Spain’s European neighbors, the International Monetary Fund on the spurious grounds that such cuts would establish “credibility” with the markets. Well, that wasn’t exactly a winning formula for success when tried before in East Asia during the 1997/98 financial crisis, and it is unlikely to be so again this time.
Indeed, in the current context, the European authorities are simply trying to localize the income deflation in the “PIIGS” through strong orchestrated IMF-style fiscal austerity, while seeking to prevent a strong downward spiral of the euro. But the contradiction in this policy is that a deflation in the “PIIGS” will simply spread to the other members of the euro zone with an effect essentially analogous to that of a competitive devaluation internationally.
The European Union is the largest economic bloc in the world right now. This is why it is so critical that Europeans get out of the EMU straightjacket and allow government deficit spending to do its job. Anything else will entail a deflationary trap, no matter how the euro zone’s policy makers initially try to localize the deflation. And the deflation is almost certain to spread outward, if sovereign states such as the US or UK absorb the wrong lessons from Greece, as Mr., King and his fellow deficit-phobes in the US are aggressively advocating.
There are two direct contagion vectors off the fiscal retrenchment being imposed on the periphery countries of the euro zone.
First, to the banking systems of the periphery and the core nations, as private loan defaults spread on domestic private income deflation induced by the fiscal retrenchment. Second, to the core nations that export to the PIIGS and run export led growth strategies. So 30-40% of Germany’s exports go to Greece, Italy, Ireland, Portugal and Spain directly, another 30% to the rest of Europe.
These are far from trivial feedback loops, and of course, the third contagion vector is to rest of world growth as domestic private income deflation combined with a maxi euro devaluation means exporters to the euro zone, and competitors with euro zone firms in global tradable product markets, are going to see top line revenue growth dry up before year end.
Let’s repeat this for the 100th time: the US government, the Japanese Government, or the UK government, amongst others, do NOT face a Greek style constraint – they can just credit bank accounts for interest and repayment in the same fashion as if they were buying some helmets for the military or some pencils for a government school. True, individual American states do face a fiscal crisis (much like the EMU nations) as users of the dollar, which is why some 48 out of 50 now face fiscal crises (a problem that could easily be alleviated were the US Federal Government to undertake a comprehensive system of revenue sharing on a per capita basis with the various individual states). But, if any “lesson” is to be learned from Greece, Ireland, or any other euro zone nation, it is not the one that Mr. King is seeking to impart. Rather, it is the futility of imposing arbitrary limits on fiscal policy devoid of economic context. Unfortunately, few are recognizing the latter point. The prevailing “lesson” being drawn from the Greek experience, therefore, will almost certainly lead the US, and the UK, to the same miserable economic outcome along with higher deficits in the process. As they say in Europe, “Finanzkapital uber alles”.
Great piece Marshall (thanks Rebecca)
I’m glad you are trying to hammer this message home Marshall. You need to get on the Daily Show( I sent an email to Comedy central weeks ago asking them to contact you, Randall or Bill Mitchell) and Bill Mahers ( I emailed Bill via HBO a week or so ago as well) show. I know Jon Stewart had that moron from the Pete Peterson institute on his show a few months back (David Walker), you could present the “other” side of his argument.
Bill Maher would be great because you could get a little longer face time on his show, Stewart is often just a five minute blurb. Both these guys are good interviewers and will let you talk without interrupting and are willing to be persuaded by good articulate arguments.
Something I dont think gets brought up enough is that this monetary arrangement in the EU is extremely conservative. We here like to paint the Europeans as some sort of leftists with very little constraints on their govts but in fact they have set their monetary system up as if it were on a gold standard. They act as if there is a fixed amount of money and rely on interest rates to encourage reallocation. American libertarians/austrians should be encouraged to take note that the EU is what we could end up looking like if we adopted the gold standard that many seem to covet.
Marshall used the term “ratio of money to citizens” in one of his recent posts and I think it is very apt as a descriptor between the differences in the MMT paradigm and the gold standard paradigm. The EU is currently operating with a fixed ratio of money to citizens with no source of new injections as more people enter and as more demand for money arises. Marshall and the MMT people recommend letting the ratio be something that is endogenously determined by metrics such as unemployment, output gaps and current account deficits. If this is not an accurate understanding of you position Marshall (or Rebecca) please correct me.
The US, Japan, and Greece all have problems. But they don’t have the same problem. What Japan and Greece seem to have in common is that the science/art/craft/pseudo-science of economics has only the vaguest idea what causes their very different problems — and, so far as I can see — no useful suggestions for dealing with the problems.
The US situation is different in that the government and the financial sector have largely been hijacked by lunatics with the fiscal/governance skills of the Perons or Robert Mugabe. Any bright Middle School student can figure out the long term answers to the US’s problems — raise taxes and pay down the debt as soon as the economy recovers; cut the military back to levels that match the threats (1995 levels or below); scrap the Department of Homeland Stupidity; establish an energy policy at least to the extent of cutting petroleum imports dramatically; Re-evaluate this free trade nonsense; break any operation that is too big to fail into pieces that are not TBTF; and start weeding the fiscal nitwits out of both the public and private sectors. Is that going to happen? Not in my lifetime I’m guessing. You folks really ought to look into making it happen in yours.
I don’t know why they don’t just let everyone print their own money. We all have color printers now and it’s easy to bootleg a copy of Photoshop. We could even put our own photos on $100 dollar bills and have “vanity money”, much like our vanity license plates on our cars. (commercial plug: buy GM)
This way no one would run out.
But talk about stupid Europeans (and Middle Easterners). I’ve been reading about how many of them are opting for gold and silver! Don’t they know about that deflationary scarcity problem (pre 1913) that comes with these hard to find metals? I heard some people were trying to help by making gold plated tungsten bars, but gee, tungsten doesn’t grow on trees either.
But good idea about getting on the The Daily Show and getting the word out. Jon Stewart would have a lot to say about this, I’m sure.
I don’t know why they don’t just let everyone print their own money. We all have color printers now and it’s easy to bootleg a copy of Photoshop. We could even put our own photos on $100 dollar bills and have “vanity money”, much like our vanity license plates on our cars. (commercial plug: buy GM)
This way no one would run out.
But talk about stupid Europeans (and Middle Easterners). I’ve been reading about how many of them are opting for gold and silver! Don’t they know about that deflationary scarcity problem (pre 1913) that comes with these hard to find metals? I heard some people were trying to help by making gold plated tungsten bars, but gee, tungsten doesn’t grow on trees either.
But good idea about getting on the The Daily Show and getting the word out. Jon Stewart would have a lot to say about this, I’m sure.
I don’t know why they don’t just let everyone print their own money. We all have color printers now and it’s easy to bootleg a copy of Photoshop. We could even put our own photos on $100 dollar bills and have “vanity money”, much like our vanity license plates on our cars. (commercial plug: buy GM)
This way no one would run out.
But talk about stupid Europeans (and Middle Easterners). I’ve been reading about how many of them are opting for gold and silver! Don’t they know about that deflationary scarcity problem (pre 1913) that comes with these hard to find metals? I heard some people were trying to help by making gold plated tungsten bars, but gee, tungsten doesn’t grow on trees either.
But good idea about getting on the The Daily Show and getting the word out. Jon Stewart would have a lot to say about this, I’m sure.
Vt
I agree with the SENTIMENT of your post but not the specifics. Yes there is a lot of pseudo science in the economics field but I urge you to visit the places where Marshall writes regularly (New Deal2.0 and “New Economic perspectives from Kansas City) and a place called “billy blog”. Understanding our monetary system/banking system is crucial to knowing whether a policy prescription is good, stupid or harmful. As an example, when credit “froze up” in 2008, what was the first thing the govt did? They increased reserve levels in banks and dropped interest rates to zero. Why did they do that? To get credit flowing because they were acting on the belief that bank lending was a simple supply side problem, a liquidity problem. In fact banks never lend in this manner and apparently never have. They need DEMAND for loans coming through the door and more specifically demand for loans that will be repaid. Now you’ll never hear anyone with training in classical economics point this out. And this is not a trivial matter. Now increasing reserves did NO HARM because it was never going to be “lent out and cause inflation” but it was totally and completely ineffective. So what could have helped? Reducing payroll taxes and having the govt make everyones SS payment. All earners below 106000 would have had a 15% pay increase AND they would not have had to worry about their SS being non funded. Their employers would have saved some money as well. The only thing that would have happened is the deficit would have gone up some but it probably would not have gone up much more than what we injected into banks via TARP funds.
Try out these other sites. I think you might see that there are people with ideas about whats happening in Greece and Japan.
Ummm … isn’t Denmark not a Euro country?
Actually, if this hard currency plague does catch on, Spain at least would know what to do about it. Re-invade Mexico and commandeer the silver mines. In the 17th century they minted it into Pieces of Eight and that became the accepted reserve and global trade currency. This put Spain near the top in global economic standing. (was the only reason too)
That doesn’t solve the problem for the rest of the PIIGS, tho I can see some historical hope of Portugal invading Peru and commandeering the silver mines there.
The English, French and Dutch will be fighting over South Africa, I’m afraid. They would still store gold at Vatican City under the protection of the Swiss Guard, but too bad Vatican City is no longer part of Italy.
But that would be one way for at least some of the PIIGS to find their place in the 21st Century.
“I don’t know why they don’t just let everyone print their own money. We all have color printers now and it’s easy to bootleg a copy of Photoshop”
I know why we dont………………………………..it wouldnt help!!!!
Yes I realize you were being somewhat facetious but do you really think unlimited printing is what Marshall is advocating? Or anyone for that matter?
And I’m not sure what Europeans opting for gold and silver at this time means? Its not people who only have enough for food and housing. Watching the investment patterns/profit chasing activities of those with a lot of disposable income might be fun but it tells you nothing about the fate of the US or any other economy. No ones economy is dependent on gold anymore.(except some African gold mining nations)
How many people do you think are buying gold so they can use it AS a currency?? Virtually all of them are wanting to resell it to someone else and reacquire a currency sometime down the road. Dont mistake this activity as some sort of harbinger of doom for ALL fiat currencies.
Gold is in bubble territory now. I saw where there are some ATM machines that will convert your money to gold. Glen Beck is probably in on this.
The USA does not have a ‘Greece Problem’.
My turn (to author), REPEAT AFTER ME:
5 years ago Greece did not have a ‘Greece Problem’.
Auerback
you put your finger on it when you said “King sounds no better than a court jester (or, at the very least, a member of President Obama’s National Commission on Fiscal Responsibility and Reform)”
This is a manufactured crisis. And it’s purpose it to reshape the “world order” to the detriment of labor and to the firmer grip of the Big Bankers. They don’t even need approximate rationality on their side because they have discovered the people and the press don’t understand anything.
If this be paranoia, make the most of it.
Greg
why does everyone want Social Security to fix their problem. if you want to give people money just write them a check. or thow dollars out of windows in tall buidings. there is no damn reason to play games with social security.
Don’t know for sure what anyone is really advocating, but if I printed money, I know I would have my hands on it. I’d spend it too, as fast as I could, knowing that this would increase aggregate demand, which is what all you people desperately need.
I did finally learn what “bank intermediation” means back in my old econ course.
It is a confusing, not so descriptive word. But satisfying loan demand to qualified borrowers is a sensible way to think of it. Now I can understand how economists get mixed up about sensible, but I was disappointed to hear that our banks didn’t understand it (the “qualified” part) in the 2005-2007 timeframe. Then Reinhart and Rogoff published that book about how banks get amnesia on a regular basis for about the last 800 years.
“A government can never go insolvent in its own currency.”
What if the spoiled and rich are forcing the gov’t to become interest rate constrained?
“King implicitly recognizes this fact, as he acknowledges the central design flaw at the heart of the European Monetary Union – “within the Euro Area it’s become very clear that there is a need for a fiscal union to make the Monetary Union work.””
Seems to me like a step towards one world gov’t dominated by the rich?
Repeat After Me:
“I’m good enough, I’m smart enough, and Dog-Gone it, People Like Me.”
“This is undoubtedly correct: To eliminate this structural problem, the countries of the EMU must either leave the euro zone, or establish a supranational fiscal entity…”
Yes to leave the euro zone.
“… which can fulfill the role of a sovereign government to deficit spend and fill a declining private sector output gap.”
Should the currency printing entity (which would NOT have to be the gov’t / gov’t spending) run a deficit with currency or debt?
“Think about Japan – they have had years of deflationary environments with rising public debt obligations and relatively large deficits to GDP. Have they defaulted? Have they even once struggled to pay the interest and settlement on maturity? Of course not, even when they experienced debt downgrades from the major ratings agencies throughout the 1990s.”
Aren’t they running a trade surplus instead of a trade deficit?
If there is a trade deficit, doesn’t either or both the private sector and the gov’t sector need to run a deficit to avoid price deflation and/or asset price deflation?
“The austerity drive – echoing moves by Ireland and Greece – followed intense pressure from Spain’s European neighbors, the International Monetary Fund on the spurious grounds that such cuts would establish “credibility” with the markets. Well, that wasn’t exactly a winning formula for success when tried before in East Asia during the 1997/98 financial crisis, and it is unlikely to be so again this time.”
By “credibility”, do you mean the rich will continue to save in gov’t debt for a real return, will “rollover” the debt they own, and won’t raise interest rates as much?
“Let’s repeat this for the 100th time: the US government, the Japanese Government, or the UK government, amongst others, do NOT face a Greek style constraint – they can just credit bank accounts for interest and repayment in the same fashion as if they were buying some helmets for the military or some pencils for a government school.”
First, are you going to allow these “credits” to be redeemed 1 for 1 for currency?
Second, do these “credits” need to have debt issuance $ for $?
Third, what happens if the rich start using these “credits” on real/hard assets, wages do not rise, and interest rates rise enough? Now the lower and middle class have negative real earnings growth and can’t borrow to make up the difference?
***5 years ago Greece did not have a ‘Greece Problem’.***
They did actually. see http://en.wikipedia.org/wiki/2010_European_sovereign_debt_crisis
But I’ll give you that 5 years ago Spain and Ireland did not appear to have a debt problem and now they have one disturbingly like that of Greece so it does appear to be possible for countries that appear to be managing their affairs sensibly to get into trouble.
***Ummm … isn’t Denmark not a Euro country?***
Unlike a lot of languages, English double negatives are ambiguous so I’m not sure if the answer is Yes or No. Anyway, Denmark is still on the Kroner. Rejected the Euro in 2000. Another vote on the Euro scheduled next year. http://en.wikipedia.org/wiki/Denmark_and_the_euro
Its not really playing games with SS, in my view. Its giving a tax break to the WORKER, increasing aggregate demand, rebuilding the economy form below and NOT threatening anyones pension. People would still only be compensated based on what they worked for during their career.
Besides theres no reason the SS payment cuts would have to be permanent.
Its important that people start to realize that the govts “ability” to pay their poverty insurance is not dependent on taking money from their paycheck.
“What if the spoiled and rich are forcing the gov’t to become interest rate constrained?”
That can only happen if the govt allows them. The govt stands above the bond traders. The bond traders need the currency the govt issues
***Try out these other sites. I think you might see that there are people with ideas about whats happening in Greece and Japan.***
No, in fact, there are not. I meant it when I accused the economists of being intellectually bankrupt wrt to Greece and Japan.
At least economists have a name for Japan’s condition. A liquidity trap. Economists have some ideas on how to avoid liquidity traps. None whatsoever on how to escape one. The Japanese have tried to escape theirs a lot of ways. None of which have worked.
Greece’s condition — a sovereign debt crisis I guess. There actually are three known ways out. Somehow increase exports. Revalue the debt into a local currency which can then devalued. Simply default. You will note that none of those is being implemented. I’ve read dozens of economists re this situation. A few — e.g. Krugman — at least seem to understand it. None have anything useful to suggest.
The US however is not in one of these black hole situations. Our problems are due to greed and stupidity and can be solved by moderating our greed and stupidity.
Close but no cigar, Marshall. The reason the US can’t default and restructure, is that .gov has enormous and ongoing funding NEEDS. Defaulting on US bonds would cause the next auction to fail.
The U.S. most certainly has a Greece problem–one of an intractable debt and the limits of foreigners to finance that debt at low interest rates.
***Aren’t they running a trade surplus instead of a trade deficit?***
Yes. As I understand it, the concern in Japan is that someday Mrs Watanabe, who has been saving like mad since about 1870, is going to want some of her money back and the government/industrial complex is going to be in more than a bit of a bind since they no longer have Mrs Watanabe’s money.
Marshall,
I thought California had a Greece Problem. The US had (among many) a EU problem…
Islam will change
Greg
setting aside your theories of government finance for the moment, it is critically important that people see the connection between their “tax” and their benefit. call it psychological. call it legal. call it bookkeeping, it is the core principle that separates Social Security from welfare. Turn SS into welfare and it will go the way of welfare as we knew it.
Marshall,
You state that sovereign debt in “sovereign nations” cannot cause their insolvency. You apparently believe that such debt is as beneficial as it is harmless, and that it is critical for “priming the pump” in economic downturns.
I wonder what, in your opinion, are the deleterious effects of such debt, if any.
coberly, “setting aside your theories of government finance for the moment”
The T_Reserve has many mysterious powers, and we can only hope that Toto pulls back the curtain and Dorothy, and the rest of us, can catch a glimpse of it’s machinations and glean some understanding of how things really work.
Coberly
I would argue that its more important that people see that it is not their taxes that ‘fund” the govt.
I agree there is nothing wrong with having a connection with their tax and a benefit………….until they are told that without that tax there CAN BE NO benefit. Which is where we are now.
And its really not “my theories” of govt finance. I wish it were but I just read and regurgitate what other smart people like Mr Auerbach, Randall Wray, Warren Mosler and Bill Mitchell say. Honestly theres not much theorizing going on. Just description of how a floating exchange rate currency system operates.
“Yes. As I understand it, the concern in Japan is that someday Mrs Watanabe, who has been saving like mad since about 1870, is going to want some of her money back and the government/industrial complex is going to be in more than a bit of a bind since they no longer have Mrs Watanabe’s money.”
Codger! If this is how you’ve understood the Japan problem you need to go visit that site of real economists.
“Japan up against the neoliberal machine” – http://bilbo.economicoutlook.net/blog/?p=4679
Like the US, Japan can never “no longer have Mrs Watanabes money”. Thats an incorrect representation of the issue. Come the time Mrs Watan…. wants her money (its in a savings account now at the Japan Fed) there might not be anything left to buy that she wants…….but thats not a money problem its a production problem. They will NEVER be unable to pay her in YEN
“I thought California had a Greece Problem. The US had (among many) a EU problem… “
California could have a Greece problem but there is nothing stopping the Fed/Treas from making “injections” into Californias budgets. The EU has no such legal arrangement, although Warren Mosler has said the ECB could do it (it would just violate the Maastricht Treaty). So really the US has no EU problem.
Define intractable.
Define foreigners financing the debt.
Greg
i guess you are saying it’s not your theory it’s some guy’s theory who is smarter than me. I am not arguing about your theory. I am saying it is critically important that people see that their benefit comes from their “tax.” and NOT from “the government.”
If you need to get more money to the people, give them a government job. or give them an envelope full of cash. do not give them a payroll tax holiday. you will be breaking something you do not understand.
I don’t get the argument. I matters not what type of paper a contract is written, the assumptions behind the contract are real goods. Greece is in trouble, not because of currency issues, but because Greece has not been producting the goods for which debt holders have claim.
The poster is preaching Money Illusion, a short lived phenomena. In the final analyiss, in this particular recession, debt is denominated in barrels of oil. We can partially default via inflation, but we get partially less oil from OPEC, partially fewer Toyotas from Japan, and partially fewer consumer goods from China.
“I thought California had a Greece Problem. The US had (among many) a EU problem… “
California has a GDP of 1.8 Trillion, total debt of about 70 Billion, or less than 4% of state output. It is also an “exporter” to the other states. It also receives $.70 in federal spending for every $1.00 in taxes it sends to the central government. I guess if you were ignorant of all pertinent facts, then you could assume that California has a Greece problem.
After all, they are both political entities with a combination of vowels and consonants in their names, so they must be identical, right?
But the reason why Greece got into trouble is that it cannot compete with Germany, and cannot devalue in order to make itself competitive.
Far from Money Illusion, nominal rigidities prevent Greece from making the necessary adjustments to bring its current account –currently at 14% of GDP — back into balance. And because of this, the internal deflation is going to cause unemployment, meaning that Greece will taken an even bigger consumption hit than it needs to, due to the loss of output from wasted labor.
Currency sovereignty would allow the Greeks to pare back consumption via forex adjustment while continuing to maintain higher levels of output. In this type of deflationary situation, printing really helps to maintain demand and therefore output, and makes a “real” difference in living standards.
I still have to laugh at the sagely economic discussions about how great it is that a country has it’s own money to devalue.
The reason so many of the peripheral countries originally wanted into the eurozone so badly was because their money was no good, and they couldn’t pay for imports and loan rates were excessively high.
So lets just call a partial default a partial default, whether its thru changing the currency or a direct haircut. No reason to try and put lipstick on the PIIGS with some stuff out of a freshman year econ book. The Greek government is doing that.
P.S. Greece doesn’t “compete” with Germany. Grecian farmers sell Germans olives. High ranking Geece government officials buy Mercedes from Germany.
***Codger! If this is how you’ve understood the Japan problem you need to go visit that site of real economists. ***
Kindly quiit patronizing me. You clearly don’t know much about Japan and I can’t see much sign that you know much about anything else. Unlike Greece (or the US), Japan has no net foreign debt. (They actually have a net surplus of around $2T). But they have a very high and still increasing public debt load due their two decades of attempts to stimulate their way out of their liquidity trap. Pretty clearly, they can not continue to borrow from themselves forever without something happening. And whatever happens likely won’t be good.
Your belief that the Japanese can borrow from themselves forever with no consequences is charming. But it’s not exactly well found. Japan’s public debt hit 192% (give or take) of GDP last year and is still increasing. That’s about $10T. One likely scenario is that at some point, the Japanese are going to stop lending to the government. At that point, Japan will presumably raise interest rates in order to attract more loans (internal or external). That will dramatically increase the carrying cost of their debt which is currently quite low. Which means they will need more borrowing which will further raise interest rates which will … You can work that out … maybe … or not.
That’s not the only possible scenario. And that’s the problem. Japan’s situation is quite different from other countries. No one knows where Japan is headed. Surely there must be a historical parallel, but I’ve never seen one proposed other than the Great Depression which turns out not to provide much insight. I know you believe that Economists understand it. You are incorrect. Western economists do not understand what has been going on in Japan since 1990. Most of them seem to prefer to pretend that Japan doesn’t exist and the remainder just shake their heads. Japanese economists — at least those who publish in English — don’t really seem to understand the situation and how to fix it either. But they are prone — for obvious reasons — to think that the US is headed down their path — which could be true. That would be an enormous problem as the US is no where near as well positioned to deal with decades of economic stagnation as Japan was in 1990.
Some reading for you.
http://www.mof.go.jp/english/houkoku/e2008.htm
http://www.indexmundi.com/japan/public_debt.html
http://en.wikipedia.org/wiki/Economy_of_Japan
http://www.smh.com.au/opinion/japans-lost-decade-is-a-lesson-for-us-all-20090317-90×2.html
http://brontecapital.blogspot.com/2010/02/final-failure-of-meiji-right-wing.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BronteCapital+%28Bronte+Capital%29
http://the-diplomat.com/2010/04/06/who-controls-bank-of-japan/
All that is true. But California also has a much smaller “government revenue space” than a sovereign country because large areas of potential revenue are preoccupied by federal taxes. And they don’t believe in paying property taxes. California really does have lousy credit and may be (not is, may be) closer to Greece than we think.
I have a little trouble envisioning a central government largely dominated by obstuctionist whackos bailing California out unless there is some way to do a bail out without enabling legislation. And I’m not sure it would be bailed out in any case.
CR, I too am laughing at the pseudo-economic-dialog going on. What amazes me is the failure to recognize cause and effect.
Whan we have comments like this one from Greg: “California could have a Greece problem but there is nothing stopping the Fed/Treas from making “injections” into Californias budgets. ” So, lessee, letting the other 49 states take on the CA problem, and then adding in the next round MI, NY, OH, (Opps almost forgot) IL, need I go on? Is the solution?
NO! It is the same as the EU situation. When will you libruls understand your policies do not work for the long term? When will you realize that you eventually run out of the paying class? And, then we have Greece, Ireland, Spain, Portugal, Belgium and the UK (add the next round at your leisure.)
Sheesh!!!!
Codger
Sorry if I came across as patronizing. I’m simply trying to point you to some non conventional ways of understanding these issues. Clearly conventional has failed.
“ Unlike Greece (or the US), Japan has no net foreign debt. (They actually have a net surplus of around $2T). “
Its not WHO has your debt its what is your debt denominated in. The US “owes” (not the correct word but I’ll use it)China dollars, they owe no one in a currency they dont control. That is not trivial. Japan as far as I’ve seen owes no one in anything except in Yen. Calling it foreign debt is a misnomer. For Greece, yes they owe in currencies they dont control (like the Euro for one)
“But they have a very high and still increasing public debt load due their two decades of attempts to stimulate their way out of their liquidity trap. Pretty clearly, they can not continue to borrow from themselves forever without something happening.”
Pretty clearly?? To whom? First off its NOT “borrowing” from them selves. If you are saying there is a limit to the amount of income a Japanese citizen can make off of bond interest I’d be interested to know what that ceiling is?
Of course something will happen something always happens. The question is what? The answer is NOT default. They will NEVER be unable to make that payment.
“ And whatever happens likely won’t be good”
Pure unsubstantiated opinion. Yes lots of “not good” things will happen to lots of people but in Japan these “not good” things will never be due to their govt not being able to make an interest payment in Yen.
“Your belief that the Japanese can borrow from themselves forever with no consequences is charming. But it’s not exactly well found. “
Why do you put words in my mouth.? I never said ANYTHING would be without consequences. Only American conservatives claim to have that kind of handle on truth. What they can do is NEVER miss a payment in YEN. If you cant differentiate those two positions I cant help you.
Now you may claim that is trivial but it is not. ALL the worry of rating agencies and bond vigilantes is about US and Japan and UK becoming like Greece and DEFAULTING. Somehow being UNABLE to meet their MONETARY obligations. That is patently false. AND inflation is NOT a form of default.
It strikes me as quite odd that the harbingers of doom are worried about countries inflating away their debt and lowering the real standard of living of their people SO they recommend austerity packages to……….LOWER THE REAL STANDARD OF LIVING OF PEOPLE??!! The difference is that the inflation would be relatively equally distributed and benefit those (private) entities who owe money. The packages being forced on countries will only benefit the bond traders and end up laying off or reducing payments to many moderate wageworkers.
“One likely scenario is that at some point, the Japanese are going to stop lending to the government”
They already dont LEND to the govt. Its not a semantic word game either. Its a false construction.
“At that point, Japan will presumably raise interest rates in order to attract more loans (internal or external). That will dramatically increase the carrying cost of their debt which is currently quite low”
“EXPERTS” have been singing this song for a decade.
“Which means they will need more borrowing which will further raise interest rates which will … You can work that out … maybe … or not.”
Pure “conventional” wisdom claptrap which […]
Why is it that in all of these discussions regarding the financial crisis the several steps that might most directly help are never mentioned? Stop pissing away the Treasury’s treasure on wars of adventure and start collecting the tax money that the wealthiest Americans haven’t been paying for at least the past ten years.
“So lets just call a partial default a partial default, whether its thru changing the currency or a direct haircut. No reason to try and put lipstick on the PIIGS with some stuff out of a freshman year econ book. The Greek government is doing that.”
If we call INFLATION a partial default, must we then call DEFLATION additional usury???
See we can both play this game of naming something something else!
Again, you want to claim that inflating away the currency will simply result in real economic losses, so your answer is……forced austerity AKA REAL economic hardship!! Gee you guys are so briliant . Yes lets fight low growth with LOW GROWTH. But only on the people you choose (those nasty public servants)
Each state printing its own money is why they had to build thefederal government in the US.
In 1786 there were 13 monetary authorities and the trade between states became difficult.
Thus A Hamilton etc in the US constitution.
The innovation which is pointed out is that the US spent 50 or 60 years ironing out the central bank idea.
Unfortunately, it has not been run for the common good in the past 100 years.
The fiscal and monetary integration is fine to the extent it is not for the few.
Cedric
“I still have to laugh at the sagely economic discussions about how great it is that a country has it’s own money to devalue. “
Yes and by getting you to fight this we are another step closer to our ultimate big govt dream…..
………………… A ONE WORLD CURRENCY!!!!
A main difference between the US and Japan and Greece: US has an anchor of 7 to 10% of GDP wasted on militarism. Diverted from investment in productivity.
Greece’s % is less than 1 and Japan’s less than 3.
Maybe if they pillaged their countries for a war machine instead of social programs they both would do better.
“NO! It is the same as the EU situation.”
And you claim WE dont understand something……………………..
“And, then we have Greece, Ireland, Spain, Portugal, Belgium and the UK (add the next round at your leisure.) “
The UK?? You mean the UK which isnt on the Euro? Which has its OWN currency?
Your ignorance is beyond words.
Greg, yes I must be ignorant because I don’t agree with your definition of the problem(s) and solution(s). Clearly I am the fault of the EU (and soon to be US) conundrum!
NO your ignorant not because you disagree with MY definition but because you dismissively place a sovereign currency issuer UK in the same pickle as Greece or ANY Euro country.
Note, this is not a denial that there are issues which UK must work out but to blithely suggest that they are on Greeces path (high borrowing rates when they DONT NEED to borrow) is pure drivel and expose the fact that you have NO CLUE what the true meaning of monetary sovereignty is nor what options it opens up for you.
Greg, restating your solution “…you dismissively place a sovereign currency issuer UK in the same pickle as Greece or ANY Euro country. ” in answer to my comment is just denial of that comment. OK, you’re married to your view of the economic world. Simple solutions for simple problems?
Solution?? I offered no solution here. I simply want to get past first base which is DESCRIBING THE PROBLEM as accurately as possible. You CHOSE to simply say UK and then others like us would have to suffer the same fate. I think you are simplifying.
There are different solutions for different set ups of currency unions. Greek is hamstrung in ways that are in NO WAY SHAPE OR FORM applicable to the US or UK. I’m not saying nor have I ever said that we,because of our monetary system, have a guaranteed road to prosperity next week. Again, I leave those kind of proclamations to my conservative brethren (who are always fabulously wrong but DARN sure of themselves)
There can be no answer until the question is asked correctly.
Shame on you CoRev. Don’t you know that Britain has the Pound Sterling and it sells for a buck 45? Get you facts straight before making stuff up!!!
You are quite confused. Fortunately it is not contagious.
“Shame on you CoRev. Don’t you know that Britain has the Pound Sterling and it sells for a buck 45?”
And your POINT??
***&Pretty clearly?? To whom? First off its NOT “borrowing” from them selves.***
You certainly have that wrong. Just as with the US, Japanese debt is NOT just an accounting entry on the national books. It takes the form of bonds. Who owns those bonds? Primarily Japanese individuals, banks (including the Postal savings bank), the government pension fund, and corporations. It it were not owed to specific entities, it would not show up on the national books as “public debt”. Debt, pretty much by definition, is owed to someone.
Why hasn’t the Japanese government simply been printing money rather than borrowing it? That’d fix their deflation problem very quickly one would think. Wouldn’t they do that if they reasonably could? It’s pretty clear that they can’t print 7T dollars worth of yen now without wrecking the economy. I’m a bit hazy why they couldn’t have printed much smaller amounts in the 1990s in order to cause some inflation and get interest rates off zero. But apparently they couldn’t because they didn’t.
======
I’ll give you the point that a country is far better off with debt denominated in their own currency since they do have many more options. But you seem to believe that somehow immunizes them from all possible problems. Iceland had its own currency, and that didn’t save them from disaster. It’s possible that the Kroner is/was interlocked with the Euro and Pound in ways that severely limited the Icelanders freedom of action but I’ve never seen that called out as a significant issue in the debacle.
***It strikes me as quite odd that the harbingers of doom are worried about countries inflating away their debt and lowering the real standard of living of their people SO they recommend austerity packages …***
Austerity as a one size fits all solution ala the WMF (Hey, there’s a bad situation here, let’s see what we can do to make things worse)? You’re probably correct. Specific corrections to sustained problems such as Greece’s persistent budget deficit or the US’s unending current account/balance of trade problems. Some long term solutions seem appropriate — deferred until economic conditions improve if that seems necessary.
***Your claim can only be true if you have read what ALL western economists have written about Japan since 1990***
That’s bullshit and you know it. May I suggest that you reserve that crap with for someone with some one with more tolerance for fools than I? It may have been a winning technique in your high school debating club. You should have left it there.
I’ll also give you that some economists — notably Paul Krugman — understand Japan better than others. My point is that PK has never, ever, to my knowledge proposed a solution to Japan’s problems other than that in retrospect they might have done better to throw more money at their problems in the 1990s. He has instead told us repeatedly that we do not want to get into the same situation because no one has much idea how to break out of a liquidity trap.
***I agree it would be an enormous problem for us to stagnate, for various reasons, but I’m not sure how Japan was positioned better***
Balance of trade surplus. High savings rate. No significant external debt. Japan was/is pretty well insulated from the rest of the world. Not clear that the US is anywhere near as well isolated from external forces.
Denmark isn’t part of the european monetary union.
“You certainly have that wrong. Just as with the US, Japanese debt is NOT just an accounting entry on the national books. It takes the form of bonds.
Who owns those bonds? Primarily Japanese individuals, banks (including the Postal savings bank), the government pension fund, and corporations. It it were not owed to specific entities, it would not show up on the national books as “public debt”. Debt, pretty much by definition, is owed to someone.”
The distinction to be made here Vt is that when people think of “borrowing” they think of an entity that doesnt have enough money, going to someone else and asking to use their money. This is how currency users borrow, you, me and businesses. When this kind of borrowing takes place the sum of money in the system doesnt change it just changes places.
The US govt (or Japan) does not “borrow” this way. They actually spend first , by crediting reserve accounts, and then offer bonds to people who want a low risk financial asset. This operation actually increases the money in the system (which is why the deficit terrorists scream about inflation). If you could actually follow the money (and there are those who have) you would see; spending first bond issuance second. This is why I say its not BORROWING in the sense of the word that most people mean.
I dont believe I’ve ever said that the debt is not owed to someone what Ive said is there is never an issue with not being able to make the payment, as long as its in Yen for Japan or $ for the US.
I have said that WE the people dont owe it. In aggregate, its owed TO US. This why Randall Wray is so quick to point out to the deficit terrorists who talk about how much each American owes of the national debt, that in fact it is how much each American OWNS of the national debt.
Now granted that debt is owed to a very small group of people and the average guys interest is not watched by them but the fact remains it is not a debt OF ours but TO us.
“But you seem to believe that somehow immunizes them from all possible problems.”
WHOA!! I’ve never made such outlandish claims. I have said it means they will never have a problem of being able to make a payment in their own currency, which is the specific charge being made by the people comparing us, japan or the UK to Greece.
Why do you insist on “knowing”what all economists know or have said on Japan or any other subject? This strikes me as quite odd for you. I’ve read your comments for years here and I cannot figure why you insist on taking such an extreme position? I would expect this from Jimi or CoRev but not you.
Have you ever read anything Bill Mitchell has written? How about Randall Wray? How about Marshall Auerbach outside of what has been presented here? Warren Mosler?
These may be guys not “in the mainstream”. Not “quoted on TV”. Or not considered relevant by certain people but you’ve never before struck me as someone who wouldnt simply listen to an argument and examine it on its merits alone. I’m perplexed by your tone on this.
“Balance of trade surplus”
Pretty much what I said about exporting
“High savings rate”
Pretty much what I said regarding culture, a lot like the Germans ( I guess we beat them both into submissive producers for us id the 1940s eh?)
“No significant external debt”
Neither do we, thats not dollar denominated
“Japan was/is pretty well insulated from the rest of the world. Not clear that the US is anywhere near as well isolated from […]
“That can only happen if the govt allows them.”
What if the spoiled and rich have “captured” the gov’t?
“The govt stands above the bond traders. The bond traders need the currency the govt issues”
Can you expand on that one? Specifically, whether the bond traders get all the interest and/or principle due to them?
“Can you expand on that one? Specifically, whether the bond traders get all the interest and/or principle due to them?”
Its the currency user vs currency issuer idea. Contrary to popular belief the govt doesnt run to the bond market and say ” Hey guys I need some money can you loan it to me?” This would simply result in a reshifting of financial assets and no growth or increase of the money in the system. What in fact happens is the govt spends x amount of dollars on something. This spending increases the money in the system, next x amount of dollars worth of bonds are offered at an interest rate that is determined by the issuer.
Carmen M. Reinhart and Kenneth S. Rogoff “Domestic Debt: The Forgotten History,” NBER Working Paper 13946, April 2008b
http://www.economics.harvard.edu/files/faculty/51_This_Time_Is_Different.pdf
We also find that high inflation, currency crashes, and debasements often go handin-
hand with default.
Of course, the problems of external default, domestic default and inflation are all
integrally related. A government that chooses to default on its debts can hardly be relied on
to preserve the value of its country’s currency. Money creation and interest costs on debt
all enter the government’s budget constraint and, in a funding crisis, a sovereign will
typically grab from any and all sources.
They need DEMAND for loans coming through the door and more specifically demand for loans that will be repaid. Now you’ll never hear anyone with training in classical economics point this out.
many economists, neoclassical and classical, pointed out the ‘push/pull’ credit money relation during/immediately after petrodollar recycling of the 1970s. some went further and iterated a bit of what marshall wrote — not new territory but today requires some qualitative reassessment such as begun by loren goldner in his 1998 ‘international liquidity’ article.
We see these fictions– ficticious capital– today in the vast “non-operating assets” of the Japanese banks, the unpayable external debts of Thailand, Indonesia, Russia, South Korea, Mexico, and Brazil; in the suddenly insolvent “hedge funds” such as Long Term Capital Management, whose liquidation would have reverberated through more than $1 trillion in assets; in still unliquidated real estate assets in Japan, China, Hong Kong, the U.S. and Europe; in the multi-trillion dollar holdings of U.S. Treasury bills, to a large extent by foreigners; and the servicing of the U.S. government debt, Third World debt, corporate debt, and consumer debt at every level of society. We see them, finally, (and perhaps in the long run most importantly) in fixed capital plant rendered worthless by technical innovation or by vast overcapacity in its sector. All these claims on wealth must be valorized through available surplus value or destroyed (and trillions have already been destroyed). But devalorization is not merely a brutal, anarchic and wasteful accounting procedure: capitalists attempt in every possible way to foist the costs of maintaining threatened existing values onto the working class in an attack on the total social wage. Keynes long ago remarked that workers would more willingly accept an erosion of pay through inflation and taxation than a direct pay cut from their employer, and from the 1960’s onward the system applied this insight with a vengeance. When, for example, the U.S. government “nationalizes” bad bank loans to Brazil and Mexico (as it did in 1982), or the tens of billions of losses of the savings and loan debacle (as it did in 1991), all working people are taxed to pay off these new additions to the national debt, as they are taxed to pay the 15% of government expenditure which now goes merely to servicing that debt. When the IMF “rescue” team tells Indonesia to engage in a national fire sale, its only concern is that Indonesia keep up payments on its debts, not what will happen to ordinary Indonesians in the process.
http://home.earthlink.net/~lrgoldner/liquidity.html
Anyone who studied marx and had begun to grasp objective relations between real and financial could see ‘it’ coming well in advance…
If you need to get more money to the people, give them a government job. or give them an envelope full of cash.
the late robert eisner would have agreed.
http://findarticles.com/p/articles/mi_m1093/is_3_42/ai_54682630/
They don’t even need approximate rationality on their side because they have discovered the people and the press don’t understand anything.
looks like the greek working class has some understanding… it will deepen and expand as imf austerity is imposed — there are social limits to state power
Vt Codger: “As I understand it, the concern in Japan is that someday Mrs Watanabe, who has been saving like mad since about 1870, is going to want some of her money back and the government/industrial complex is going to be in more than a bit of a bind since they no longer have Mrs Watanabe’s money.”
I’m sorry. Who does have it?
But anyway, why are they worried? The gov’t/industrial/yakuza complex can just issue money, if they have to.
weenus: “.gov has enormous and ongoing funding NEEDS.”
I assume that you mean that the U. S. gov’t has needs for U. S. dollars. Where do those dollars come from? Trace it back.
Vt Codger: “ Japan’s situation is quite different from other countries. No one knows where Japan is headed. Surely there must be a historical parallel, but I’ve never seen one proposed other than the Great Depression which turns out not to provide much insight”
I don’t know. Japan did quite well by comparison with Europe and the U. S. during the Great Depression. And going off the Gold Standard early played a part in that, no? Isn’t being on the Euro like being on the Gold Standard in many ways?
coberly: “If you need to get more money to the people, give them a government job. or give them an envelope full of cash. do not give them a payroll tax holiday. you will be breaking something you do not understand.”
Good point. Let’s bring back the tax rates of the 1950s. By cutting taxes cuts and lowering rates we broke something we did not understand.
Sorry, bad edit: Delete “cuts”.
Cedric Regula: “I don’t know why they don’t just let everyone print their own money.”
They do: IOUs, promissory notes, bearer bonds, coupons, etc. 😉
CoRev: “When will you libruls understand your policies do not work for the long term? When will you realize that you eventually run out of the paying class?”
??? I thought it was the conservative policies that took money away from the paying class.
Min, obviously, you thought wrong. What part of ~50% of the wage earners do not pay income tax in the US. Don’t go off on a tangent re: income versus the other taxes. Or do we need to pack out the percentages of income tax is paid by what income level?
If you think the Income tax is not important, then look at the graph below.
If workers do not pay income tax, it is because of conservative policies that took money away from them.
Min, Huh!!!! It’s the tax laws that exempts them. You drank so deeply of the KoolAid you can not look at simple charts and interpret them.
Here’s the chart that makes your comment silly:
Who Pays Income Taxes and how much?
Tax Year 2007
Percentiles Ranked by AGI
AGI Threshold on Percentiles
Percentage of Federal Personal Income Tax Paid
Top 1% —- $410,096 —- 40.42
Top 5% —- $160,041 —- 60.63
Top 10% — $113,018 —- 71.22
Top 25% — $66,532 —- 86.59
Top 50% — $32,879 —- 97.11
Bottom 50% –<$32,879 ------- 2.89
Note: AGI is Adjusted Gross Income
Source: Internal Revenue Service
From here: http://www.ntu.org/tax-basics/who-pays-income-taxes.html
This information is well know and been presented here several times over the past few years. You are so far from reality in your views its positively scary. And you vote with that mind?
juan
don’t know who eisner was.
Min
there is a difference between breaking something “we” don’t understand, and breaking something “you” don’t understand. I understand why Social Security is not and should not be welfare.
And whatever the merit of Greg’s theory may be, it is not a good idea to pay for social security “as if” it were welfare. I don’t know how far Greg means to go, but if there is to be ANY relation between work and money and money and what you buy with it, Social Security is the last place to break that relationship.
thanks juan
i think you need to keep pointing this out. but just saying “marx” anymore stops the important part of the public from listening to you.
juan
not sure about this, but i think european working classes understand these things better than americans.
CoRev
if you listened to the rhetoric of your own side, the reason the corps and the rich pay taxes is because they took the money from the workers and their customers. try to understand that money is pretty slippery stuff. it does NOT in general “come from” the last person to handle it.
Juan:
Good to see you back. A nice quotation.
“ But devalorization is not merely a brutal, anarchic and wasteful accounting procedure: capitalists attempt in every possible way to foist the costs of maintaining threatened existing values onto the working class in an attack on the total social wage. Keynes long ago remarked that workers would more willingly accept an erosion of pay through inflation and taxation than a direct pay cut from their employer, and from the 1960’s onward the system applied this insight with a vengeance.”
Spencer has a similar take in Labor’s Share in this chart: http://2.bp.blogspot.com/_Zh1bveXc8rA/SuddUhLWUaI/AAAAAAAAA7M/iU2gefk317M/s1600-h/Clipboard01.jpg NonFarm Business Labor’s Share as taken from here: http://www.angrybearblog.com/2009/10/labors-share.html and then with this statement:
“If this chart gets a lot of attention it will be interesting to see how the libertarian and/or conservative analysts who keep coming up with all types of excuses to explain away the weakness in real labor compensation in recent years explain this away. If you really want to raise a stink you could look at this as a great example of the Marxist immiseration of labor that Marx believed was one of the internal contradictions of capitalism that would eventually lead to its self destruction.”
and a continuation of your quote:
“When, for example, the U.S. government “nationalizes” bad bank loans to Brazil and Mexico (as it did in 1982), or the tens of billions of losses of the savings and loan debacle (as it did in 1991), all working people are taxed to pay off these new additions to the national debt, as they are taxed to pay the 15% of government expenditure which now goes merely to servicing that debt. When the IMF “rescue” team tells Indonesia to engage in a national fire sale, its only concern is that Indonesia keep up payments on its debts, not what will happen to ordinary Indonesians in the process.”
When does Wall Street, TBTF, or Capital begin to pay for its arrogance? The same is happening in Greece. Where is Goldman-Sachs now, off conjuring up another deal?
CoRev:
I guess you could look at it in a manner that would only look at Federal Income Taxes; but, it skews the argument in that SS Payroll Withholding taxes and the Federal Employee Taxes and any surplus has been used to justify a higher expenditure based upon receipts. In which case when we look at all Federal Taxes collected upon total Income (not just AGI), the following percentages are true:
top 1%: > $500M = 16.0%
next 1.8%: $250M – $500M = 12.1%
Tax Policy Center: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=2419&topic2ID=40&topic3ID=41&DocTypeID=1
CoRev, taxpayers making > $250M pays 28.1% of all Federal Taxes as calculated against total income. This also includes SS Withholding because these taxes are used to justify the budget expenditures. The wealthy have greater and more deductions than the middle class and much of their income can escape taxation which is why total income should be looked at in calculating percentages.
CoRev
You pay no taxes on the first 32000 (or whatever the cut off is) of your income either!
You like their tax bracket? I’ll bet they’d switch with you. You take their salary and their tax bracket and they ll take yours……..deal!!??
This whining about who does or doent pay taxes is bullshit. NO ONE PAYS TAXES ON THAT FIRST 32000 OF INCOME. Its called a graduated tax and its been in affect for decades.
CoRev
I pay taxes on my first 10,000 of income. Don’t know your tax man. Maybe I should.
Run, this has been a weekend oif Libs redirecting the discussion when confronted. I made a simple point! Accept it or refute it, but don’t change the subject by expanding the subject from Fed Revenue, Income tax revenue, and who pays those taxes. Adding expansions as: “…all Federal Taxes collected upon total Income (not just AGI),…” gets us into an apples and oranges discussion. I’m just not going to bite.
Much of total income is not taxed for a variety of good reasons.
Greg, you have wrong too often. Study the tax codes, please.
Coberly makes this statement right after yours: “I pay taxes on my first 10,000 of income. Don’t know your tax man. Maybe I should.“
So, Greg, who is cirrect? You or Dale?
The point is whatever amount is paid on the first 10,000 is paid by everyone at the same rate. I think Dale is simply pointing out that he pays SS on the first 10,000. Not federal taxes.
No matter though because all the people squawking about those that make 45,000 and pay no taxes would GET THE EXACT SAME TREATMENT. If you want to make only 45,000 you’ll pay the same as they do. You are only paying tax on what you make over and above whatever is determined as the minimum salary that isnt taxed.
SO ……..we’re both correct and your chart is meaningless
Greg, sigh! You are working hard to not make a point. You do realize that you just corroborated my prior chart shown even again below.
Tax Year 2007
Percentiles Ranked by AGI
AGI Threshold on Percentiles
Percentage of Federal Personal Income Tax Paid
Top 1% —- $410,096 —- 40.42
Top 5% —- $160,041 —- 60.63
Top 10% — $113,018 —- 71.22
Top 25% — $66,532 —- 86.59
Top 50% — $32,879 —- 97.11
Bottom 50% –<$32,879 ------- 2.89
Note: AGI is Adjusted Gross Income
Source: Internal Revenue Service
Let me get this straight. You want every dollar we make to be taxed? In your zeal to make those “do nothings” escape taxation on their princely sums of 35,000 or whatever, you are going to raise your OWN taxes!! WOW!! We’ll add that to the increase to those over 250000………deficit reduction here we come !!!!!!
Jack,
Your second point first: The Bush tax cuts will sunset soon. This will raise tax rates and according to the people at AB raising taxes will increase GDP growth. So that will quickly make a difference.
As for your second point, it is mentioned here, but rarely since the war is and has been a highly supported bi-partisan affair from the start. the fact that the all-Dem government is fully behind it means its now a taboo subject to bring up. See Dem support for Gitmo, FISA, etc as other examples.
Islam will change
Greg, you do realize that the VAT and Cap & Trade do that, “You want every dollar we make to be taxed? In your zeal to make those “do nothings” escape taxation on their princely sums of 35,000 or whatever…“
Sheesh!
“Greg, you do realize that the VAT and Cap & Trade do that”
YES…………… I do.
We were talking about current federal income tax policies not proposals that are on the table, and this is one reason I’m not a huge fan of VAT.
Why do you change the target?
The Vatican has NEVER been part of a State called Italy. It is the remnant of an independent state that came about with the breakup of actual political dominion of the Holy Roman (meaning German) Emperor over it’s components back in the High Middle Ages. In any event the Papal States are hundreds of years older than Italy which is a product of the 19th Century nationalism movement.
buff,
Sad to say that on your point about my second point I have to agree with you. I see the problem as one of shared interests and ideologies. However, it is not a shring between political representatives and the people. It is more a sharing within the political class whhich portrays itself as heterogenus, but is in fact a group of one mind and one intention. That intention being the service of the financial elite and the hope of becoming, if not already one of, that group.
Buff
I dont think this…” according to the people at AB raising taxes will increase GDP growth”……. is accurate at all.
What the people at AB (rdan specifically) have posited is that raising taxes alone especially on the upper brackets WILL NOT impede growth. Thats a far diffferent contention than you are making. Targeted tax increases , targeted at folks who are consuming at maximal rate and saving at high rates will not affect GDP negatively.
Does anyone out there remember that in the 1960’s you could go to your bank (Boston, MA ) and if you were a customer of the bank, you could order newly minted one dollar bills in increments of $100 or $50…and they would put them in a booklet the size of the bill and print on the front cover…the name of the receipents, and you gave them as gifts. They used a rubber style glue and you could just pull them out of the booklet and use them to buy things with…the kids loved having them…I cannot find anyone who remembers the banks doing that for their customers…