Friday Night Open Thread/Reading Assignment: Take it Away MG/nt Bruce Webb | December 3, 2010 8:06 pm Well no there isn’t more under the fold. Let the creativity fly! Hmm proactive commenting! First Amendment bonanza! Comments (77) | Digg Facebook Twitter |
This thought has been nagging at me for quite some time. Except for a few isolated years, the U.S Govt. has always run a deficit for decades (or centuries – didn’t check back that far.)
the nationl debt increases year over year, but the sky has not fallen. Well, not until now – but that is for an entirely different set of reasons.
I hate to sound even a little like Cheney – but – do deficits matter? There seem to be no real world bad effects from running continuous defictis, basically forever.
Somebody help out an old trombonist. I really do not get it.
Absolute debt is meaningless. Debt service is everything. What working people call being enslaved by the bank is the billionaires leverage. The massive debt piled up during WWII was paid down in terms of debt service by every post-war President not named Reagan or Bush. And for now Obama. But nominal debt figures are not the issue anymore than your typical middle class person figures the combination of their mortgage and car payment puts them far under water. Until of course you lose your ability to service either. Trust me on that one.
Economists tell us that a 3% of GDP deficit is sustainable. But they assume real GDP growth when they say that. If there is sufficient growth, debt to GDP does not get to alarming levels, and in the case of the US after WW2, very high debt to GDP was reduced over the next few decades.
But you do have to pay interest on the debt, and the market has to believe you will pay, and also believe that the currency isn’t converted to Monopoly money.
Then if the central bank has a inflation target of 2%, they are slowly monetizing the debt. That “helps”, but the key word is “slowly”.
Of course Nixon did go off the gold standard for external payments, so we have done the Monopoly money thing too.
But getting yourself in the position of being the global reserve, trade and finance currency is a powerful thing. It makes Monopoly money work, at least so far.
Jazzbumpa has the same problem I do understanding the current debt hysteria. You’d think that the same bankers and other financial interests that got bailed out to the tune of how ever many trillion bucks would have a postitive view of the government that saved their sorry butts. All of a sudden Peterson, the Koch’s and the guys that gave us derivatives are worried to death the US govt’s not good for it.
Meanwhile, corporations are hoarding their cash, laying people off, moving more operations offshore, and acting as if it’s business as usual. It doesn’t make sense. If they fear ginormous inflation, then money will be worthless to them. If they fear deflation, you’d never know it from the indifference they show to unemployment and Keynesian strategies to pump up consumption.
As Bruce points out, there is no sign that the US is in danger of default. So, what’s the deal here? The debt itself can’t be it. No way to pay it off fast, so clearly the country needs to straighten up and get going again. Why do I have the feeling that the plan here is to shake the tree hard and see what new advantages can be extracted from the govt and ordinary people who are in debt up to their eyebrows? The whole thing feels like a scam. NancyO
JzB, the last time we had zero national debt was prior to the Civil War. So, we are still paying off the Civil War costs.
As Bruce points out the issue is the ability to service the debt, pay the annual interest. In this we are losing flexibility as our annual interest costs are rising close to a tipping point.
Deficit spending is a minor issue when the rate it increases is lower than the rate of revenue increase. As you said in another thread that is based upon economic growth.
So, when Cheney made his statement, we were already starting out of the recession and revenues were starting to rise as we started to increase war spending. The charts below tell us the story of Bush spending and deficits. Compare the two charts to see how after 2004 Bush spending rates were maintained below revenue gain rates.
As I have said many times here, if Bush had been nearly as lucky as Clinton his budget would have been balanced just as he left office. At this point most liberals begins sputtering about his (fill in your own subject here.)
BTW, charts are form here: http://www.usgovernmentspending.com/downchart_gs.php?year=2000_2010&view=1&expand=&units=b&fy=fy11&chart=G0-total&bar=1&stack=1&size=l&title=&state=US&color=c&local=s
If you blow up the entire economy to balance the Federal Budget, it doesn’t count. At least Clinton only blew up the stock market.
“JzB, the last time we had zero national debt was prior to the Civil War. So, we are still paying off the Civil War costs.”
Only if you pay total debt off backwards. You really want to say paying down the Cold War, WWII,WWI, the Spanish American War still leaves us in debt to the Civil War? Why not backdate it to the Mexican War of 1848? Or maybe blame it on General Jackson of the Battle of New Orleans? Or Jefferson’s Louisiana Purchase? Oh Wait! We Dems still hold Jefferson-Jackson Dinners so that probably makes perfect sense to you. Wasn’t Lincoln YOUR GUY?
No I am a foul mouthed DFH. Commenting here would in the words of the elder Pres. Bush “not be prudent”.
Apropos of nothing I spent some time last night trying to track down the origin of the catch phrase “Buck Fush” and secondarily “Bush Lied, GI’s Died”. Of course none of that had the ring of ‘Cakewalk’.
Same Serious People now opining on FRA and disability claims. Why I should listen to the same people who were lapping up the spiel of Dan Senor of the CPA and various ’embeds’ as opposed to say people who actually reported the new is beyond me.
Bruce-Do I recall a comment from you saying that the biggest threat to Intermediate Cost assumptions was extended high unemployment? My memory is pretty poor. I am interested in your thoughts on our current employment scenario in relation to IC assumptions.
Bruce, reread what I said. The last time we had zero national debt …. Debts prior to 1861 were already fully paid! Debts since have never been fully paid.
OK. Let’s look at debt service.
I downloaded the data table. With my visul acuty, trying to pick numbers off a graph is futile.
First Fed only, currently 1.28%, projected to be growing up to 2.8% of GDP in 2014. Starting in 1984, it was higher than that for 14 straight years, and above 3.0% in 8 of those years.
Next, for total of State, Local and Fed we have 2.08%, increasing to 3.66% of GDP in 2014. Starting in 1985, this total was above that level for 12 of 13 years, and below by 0.03% in 1994. Also, It poped up over 4.0% in the ’90 to ’92 recession.
If this were anything like a tipping point, we would have fallen and sunk before Clinton ever had a chance to get lucky.
I’ll say it again in this thread. Clearly, what we need to do is grow the denominator. Alas, I see no reason to belive that anyone in government is seriously interested in making that happen, and I am in despair.
CoRev–It’s the wars, silly. Cheer up. When we get out of Iraq/AFPak, we’ll be doing a lot better. As Ilsm says, the DOD is an entitlement system as big or bigger than SS/Medicare. NO
The projection is what scares everyone. By 2020 the federal debt is projected to go from 13T to 20T. At the moment, the duration on treasury debt is four years. The good news is they pay 1% for the debt that is being rolled over and new debt from the deficit. The bad news is the duration is only 4 years, so rising interest rates in the future will quickly translate into much higher debt service cost.
Clinton only had a 5T debt and interest rates were around 6%. That was the peak on your charts. 20T at 6%, if we can hold it that low, will make quite an impressive blip.
Rapid Growth cures all, or so Bush thought. His idea, with the support of Greenspan, was to grow the deficit shut. The method was induce consumer credit growth, have a housing bubble, turn off the regulators, put the bankers on crack, and get the economy moving!
It blew up.
NanO, the wars have had some negative effect, but not nearly as much as the recession.
A nation with a sovereign fiat currency is never “in danger of default”, it can always continue to print and pay until hyperinflation causes a paper shortage. The US has vast forests, so not to worry.
And “absolute debt is” not “meaningless”. Japan’s ability to carry a hefty debt to GDP ratio (200%) is due to very little of its debt being owed to foreigners. So the inefficiency comes as a result of interest payments leaving the country. And in a nation that has become heavily dependent on foreign creditors like the US has, “absolute debt” at some point makes t-bills less attractive to foreigners due to the potential for a currency devaluation. Then too, this could drive up interest-rates once the demand for capital rises in relation to supply.
As for Cheney saying that “debts don’t matter anymore”, I can only speculate on this but I am 101% certain that Cheney is not an MMTer or a Keynesian. What he most likely meant was that foreign inflows had reached a point where the volume was large enough to keep interest-rates low enough that deficit costs could be offset by gains allowed by the increase in capital formation that comes from dollar hegemony. The Bush tax cuts for instance were made possible by the foreign inflows in regards to how public costs were met, and the tax cuts themselves allowed the private sector to buy-up more global market share. The deficits being funded by foreigners essentially ties up their money while allowing more US money to seek higher returns.
But, as we now know, these same foreign inflows were integral in the overwhelming of the US economy with liquidity. Bubbles galore. Don’t be a Dick.
CR, couldn’t resist the baited trap, Eh? 🙂
I do follow a few emerging market bond funds, so I do know that although they have there own pretty pieces of paper that they swear up and down to the local little peoples it is in fact money, many can only borrow in government debt denominated in dollars.
Also, the Japanese private sector can buy the entire Japanese government, but they too sometimes choose to go outside the country for better returns. They like whatever Aussie debt there is to buy, and they also own almost as many Treasuries as the chinese government.
MMT is BS, unless the governments impound our money and then inflate the hell out of the economy, or tell us we can’t have our money back.
See my comment below for more detail.
I don’t remember where this came from, but I read somewhere that the Japanese buy JGBs as a matter of patriotism in a large way even though they could do much better otherwise. This plays a fairly significant role IIRC. But all the patriotism in the world will not be enough if things get panicky. Their debt leaves them vulnerable.
MMT is BS, yes. They have confused a good many people due to their self-assured zeal.
U.S. Govt debt owned by foreigeners is about 30% of the total, up from about 5% in 1970.
What this tells me is they think it’s a good investment. The whole bond vigilante argument is looking pretty weak and shallow.
I think what Cheney meant by “deficts don’t matter” is that he wasn’t personally going to be effected, so he didn’t give a shit.
I think a lot of the money is captive due to a very large national pension fund that is all in JGBs. Some think “culture” plays a part, but if your government is going to tell older retired people that your life savings will be used for free, or worse yet, the currency will collapse and you are wiped out, that’s the same as saying “drop dead”. Those that aren’t that patriotic will try a different way.
Many thanks for the open thread. I just got back home, and this was a pleasant surprise.
I enjoyed the blog a lot today. Great participation by all.
Whether t-bills are a good investment for foreigners is one of the most controversial topics on this planet, Stiglitz for example argues that poor nations loaning money to rich nations is about as ludicrous as it sounds. And, of course, the Chinese claim to be stuck in a situation that forces them to buy t-bills or their currency appreciates, of course this argument is complicated but one thing is for sure. Those dollars being recycled this past decade or so, had they been spent more-so outside of the US, there would not have been bubbles, or at least the bubbles would have been less severe, and there would most likely not be a shortfall in global AD now, counter-factually speaking of course.
President Obama’s unannounced trip to Afghanistan was covered by CSPAN today. The networks cut away after the President’s brief excellent speech to the troops at Bagram Air Base. CSPAN stayed with the President and aired his shaking of hands with the troops until he left the building.
President Obama shook hands and interacted with the troops for over half an hour. I was impressed. He had said that he wanted to keep his speech short in order to shake as many hands as possible. That’s what he did. His sincerity was very apparent.
President Obama is a good man.
Foreign central banks must hold a lot of dollars because it is the de facto world trade and finance currency. But they don’t have the same motivation as private investors. However, whenever the yen isn’t appreciating vs. the dollar, the Japanese private investor happily will take any yield north of a 1% JGB. Before emerging market currencies, and stocks, got hot, Treasuries were the safe haven for savers in those countries.
But foreign central banks don’t like buying longer maturity bonds. They stick to 3 years or less for liquidity reasons. That’s a large part of the reason our Treasury debt structure is so short term.
Cheney inherited a reserve currency, and the butthead knew he could spend it.
Pasrts of government default all the time, counties and cities, so default by government in the USA is not that rare, as someone mentioned, Nixon effectively defaulted. California was n essential nakruptcy for three month, ruled by a trail lawer arbitrating between the governor and the unions.
The problem with printing money to pay interest payment is that you have to get a legislative majority that prefers that inflation to default. There is no “social director” to enforce some rule on printing money. Our problem in Califonria is that we have a growing minority that actualy prefers default.
We forget, default can be profitable for many.
I have long been amazed that what I consider to be “basic data” can be so hard to come by. Ask your realtor for a time series of prices in a certain neighborhood, and they will look at you like you are from Mars. Why? Well because this is a good time to sell (insert vacacious reason of whim here) and this is a good time to buy (insert vacacious reason of whim here), so historical pricing makes no sense.
Try to get good data on the indices going back a hundred years….good luck.
Even getting commodity prices is a feat. Wish I still had access to the full on Bloomberg, but alas that is no more. Costs around $30,000 a year, I had it for free.
So here is the project. Search out and upload “Real Data Series” of all sorts, and post them as direct downloads on Hawaii Trading.
You got Data? Send it over, I will post it up. Knowledge can be freedom and power. Let’s create freedom and power, for free.
First chart / Excel is by me (Courtesy of the Perth Mint). This chart data is down-loadable in Excel at Hawaii Trading. Within 2 months, my goal is to have 25 spreadsheets with valuable data, available for free.
The Excel format is sloppy, it took me 30 minutes to whip it into this shape as they had odd date formatting.
The deficit in the ‘oughts’ was lower by the SS surpluses, and the fact that cash did not have to be raised for: SS interest credits, OPM retirment fund interest credits and military retirement funds interest and future commitment balances………..
09 and 10 deficts include what Barry Ritholtz reported on; trillions for the bankers to keep their necks from being stretched.
Good point, discretionary spending is something defined by the Tax Foundation blithers and obfuscators to differentiate things that had to be “authorized” in each budget cycle (like you cannot fund the war profiteers for more than 2 years) and things that do not need “authorization” because the laws setting them up come under general welfare which did not have anyone limiting them as the militarism prevention club who wrote the US constitution.
So, let us look around the world of better run countries like Deutschelandt. So well run they now hold the mortgae on Greece, Ireland and Spain and soon Italy. They got almost everything Hitler wanted except the huge farm in the east.
They have very little discretionary spending, and much of it is privatized or funded by users’ fees.
It is right and proper for the discretionary spending to be funded by borrowing and paid back by special taxes, tariffs and users’ fees.
All that said, MG and I have been roaming around the huge burden of servicing the federal debt around the time I go into a nursing home…………………….
Since it was all for discretionary spending I say a special tax on interst paid to the holders of bonds so that the tax burden of all the debt is placed on those who benefitted from the spending thirty years beofre I go to the nursing home. And their heirs and assigns.
Easier than hanging them all.
The defict commission is todt.
Could only get one blue dog dem to go with the crazies.
I am your “someone”, here is what I said:
“A nation with a sovereign fiat currency is never “in danger of default”, it can always continue to print and pay until hyperinflation causes a paper shortage. The US has vast forests, so not to worry.”
Nixon defaulted before, or as part of the switch to fiat currency.
California does not of course have a soveriegn currency.
And of course a nation with a sovereign currency also has the choice of defaulting.
Yesterday 10:22:38 PM
You’ve lost that libertarian lilt. Sorry not a singer.
War takes resources, opportunity costs burden the economy, could build bridges rather than fighter planes that cost twice and do half, etc. War profiteering had been cranking along at Vietnam levels since what 2003.
That is a lot of drag and then look at the drag accumulating since 1950.
In the UK and Deutschelandt they spent a quarter part of their economy compared to the US.
It is welfare for the militarists, war profiteers and rich coupon clippers.
Who are not so good, yesterday I consulted in a meeting with a bunch of expensive MIC suits begging the government to let them off on their contracted duites to perform, so they would make good margins on their non responsive ineptitudes.
Why I still go to these things aside from the hourly rate. Entertaining. It is gratifying to see expensive suits grovelling to GS guys in polyester.
And the generals will get their board seats making the GS guys let fraud go.
The theory is a US person holds a US security clearance as a responsibility and not a right. To keep the clearance you follow the rules.
Rule X: if you do not have need to know you do not read a document and secure the document.
Not going on the wiki site is a responsibility in not getting something you have not got a need to know.
I do not read any wiki stuff because I have responsibilities.
Mao sucked the US and Stalin into the cold war race to bankruptcy by entering North Korea sixty year ago this past few weeks.
There is a Korea War timeline.
Sixty years ago this week: “1st Marine Division fights through encircling CCF forces to reach our (US) 3rd (The Rock of the Marne) Infantry Division lines (11 Dec 1950). The 10 CCF divisions attacking in Chosin were so wasted they never again saw action in the KW”
Not reported in the US Marine Corps pop history is the fact the Chinese Communist Force tore through a US Army regimental combat team, Task Force Faith, to get at a well organized Marine defense with artillery and and an intact airfield.
The surrounded Marines attacked toward the 3rd Division line.
Mao got what he wanted both US bankrupt and USSR gone.
This theory that you have presented here makes little sense. The treasury can simply sell bonds to the Fed and then the Fed returns the interest to the Treasury. So how would QEII compete with that?
Here is N. Roubini:
“In principle, there is little difference between monetary easing – lower policy rates or more QE – that leads to currency weakening and direct intervention in currency markets to achieve the same goal. In fact, quantitative easing is a more effective tool to weaken a currency, as foreign exchange intervention is usually sterilized.”
ray I love,
The treasury can simply sell bonds to the Fed and then the Fed Returns the interest to the Treasury. How would QEII compete with that?
I’m not sure. But I think the answer would be that under the scenario outlined by Brown, QEII will be retiring debt and passing the savings along to the government and thereby reducing the debt service payments. Take a look at the complete article in the link. I’m not sure the theory she espouses is correct, but it seems plausible.
That has logic problems too. The trillion spent in the open market operations is more than the debt service payments which are spread out over time. Plus, debt service payments can be satisfied by printing ex nihilo dollars as well. So the only advantage would seem to lead back to QEII being about adding liquidity to a system awash in liquidity. And that, with the demand for loans in the US being very weak, leads to the conclusion that QE is about depreciating the dollar by driving up the currencies in the nations with the most demand for liquidity. Which is why Brazil’s real has risen 30% since March and why Brazil’s exports fell 2% during the month of October. And, other nations are showing the same signs and, predictably so. Carry trade activity is up about 10 times normal since QE efforts began and that doesn’t include ‘back-door’ trading.
Your links hint at the possibility that MMTers have twisted things around to make Bernanke one of their own. Wishful thinking perhaps.
I am starting to think like you do, ilsm. I noticed in some WaPO piece regarding the President’s Afghan visit that Petraeus has requested Abrams tanks for use in various types of operations. I remember reading about the Muhajadeen back when Bin Ladn was our ally and how they routinely destroyed Russian tanks and artillery emplacements with shoulder-fired rockets and smilar weapons. The Russian tanks and aircraft of that period are now rusting hulks on roadsides in the Northern provinces but live on in rugs now being made in Afghanistan. http://www.warrug.com/warrugs/styles.php?idr=1478 I don’t think that sending tanks to Afghanistan is a proven strategy for anything except rug designs. I’ll bet the guys in suits are in Bermuda right now celebrating another year of profits courtesy of Petraeus’ tank strategy. NancyO
Be careful, you’ll brand yourself a card arrying liberal socialist if word gets spread too far that you’re reading the Nation.
The Army is looking for a tent pole to hammer with the Abrams’ buzz saw.
The Army has a tool they want to “justify” a replacement for
I read, that the Marine regiment in Afghanistan wants Abrams’ tanks, yes the marines own some since they ‘needed’ them to get in on Desert Storm appropriations party.
The problem there are no front lines to smash through in Afghanistan, and the tank is not really needed for mobile artillery. The same fire missions might be done with 120mm or 81mm mortars, or 105mm artillery. But I think the Army wants a new big expensive tank, so it needs to go thewar, any war regardless how expensive compared to other solutions.
The blast from the Abrams’ cannon is huge and the infantry needs to be underground or 100 meters away when it is fired.
The 120 mm on the Abrams fires high speed, flat trajectory rounds and the use is thus line of sight. The inventory of anti personnel rounds is limited in scope.
There is not much military need in Afghanistan.
Worse the logistics tail is huge. It uses expensive ‘sweeter’ grades of fuel, gets about 3 gallons to a mile ($400 per gallon delivered). Lots of expensive parts to stock, lots of high tech repair soldiers or marines. And a set of support vehicles that haul the tanks on roads to save fuel/wear and tear as well as unique ‘tow tracks’ to bring them in when they break down.
All in all there is no economic variables which are paid by the military utility of the Abrams’ in Afghanistan.
But that is a claim to be made against the whole war.
The theory in the pentagon is “don’t argue with craziness in weapons or tactics, lest someone argue about the craziness of the war itself”.
It is Catch 22 at the highest most expensive plundering level of craziness, that only the US pentagon could achieve.
Call me Yossarian………..
This article reeks of MMT. It’s full of factual errors, unlikely assumptions, and the usual MMT twisted explanations of how things work. They even ignore Fed public explanations of what the Fed is doing, which I don’t recommend swallowing hook line and sinker, but it is a place to start when trying to figure out what is going on.
A few high points are the assertion that the USG creates jobs, like we have a command economy. At best the evidence indicates they can save or create jobs in the banking sector, military sector and perhaps send assistance to state government. But in case you haven’t noticed, we are not China.
Then the other assertion was QE1 was to save banks. Not so, the Fed did a whole bunch of special lending programs where they took questionable assets as collateral in exchange for freshly created electronic dollars. QE1 was $1.4T of high quality MBS and $300B of longer term US treasuries. The Fed stated reason was to push down interest rates using the tried and true concept of supply and demand in these markets.
The stated reason for QE2 was to push down longer term interest rates in the Treasury bond market. If the Chinese are going away, then the Fed is replacing that demand.
The article goes on to imply this is free money for all of us to enjoy. Not so, the Fed expects to be paid back by the Treasury when the longer term bonds mature (or by mortgagees in the case of MBS). Or they may sell the bonds early if they need to drain the massive liquidity presently in the system if we ever emerge from our “liquidity trap” and inflation does begin to tick up. No mention was made in the article of all the public talk by the Fed to assure markets they had an “exit strategy” and could still perform their duty of effective monetary policy.
Part of that policy is paying interest to banks on reserves. The idea is if inflation increases too much, the Fed would pay higher interest to banks and induce them to limit lending and just keep the money at the Fed and out of circulation. At the moment the Fed has a very large portfolio of interest bearing Treasuries and MBS. At the end of the year if the Fed runs a surplus over it’s operating costs, which now include paying interest to banks for reserves, the Fed gives the money back to the Treasury. If they ever need to start increasing interest rates (by paying higher interest rates on bank reserves or taking the capital loss they will have selling longer term bonds before maturity in the market) then their surplus will be reduced and could go negative.
Then the article ends with the usual rant about “debt peonage”. So I guess the economic model we are to subscribe to is some like Peron’s Argentina, and we, the Little Peoples, live happily ever after.
It’s too much work to straighten out all the other twisted BS in the article and I won’t bother.
Thanks for the deconstruction. I’ll admit this is perhaps above my pay grade. I’m just trying to get more information to make sense of what the hell is going on. I don’t question the intent of the Fed on QEI. The question that arises in my mind, is what has been the effect of the intent? Most of the large institutions took the cash and did what exactly? They certainly didn’t lend it to borrowers. They primarily borrowed at close to zero, took the carry trade, or made excess reserve deposits at Federal Reserve Banks. Right? If this isn’t a mechanism to repair balance sheets tied to questionable assets being carried at face value as a result of the suspension of mark to market, what is it? There is no risk associated with this strategy in the short term. And what has the impact been on the M1 Multiplier? The M1M is below 1 last I checked. Does this mean the velocity of money is negative? As I say, I’m above my pay grade, and just looking for some help. I appreciate your insight.
jazzbumpa: “This thought has been nagging at me for quite some time. Except for a few isolated years, the U.S Govt. has always run a deficit for decades (or centuries – didn’t check back that far.)
the nationl debt increases year over year, but the sky has not fallen. Well, not until now – but that is for an entirely different set of reasons.
“I hate to sound even a little like Cheney – but – do deficits matter? There seem to be no real world bad effects from running continuous defictis, basically forever.”
The U. S. gov’t has run deficits during most years since 1837. Andrew Jackson paid off the debt in 1835, and we have not repeated that mistake. Paying off the debt drained money from the economy, which was instrumental in bringing on the depression of 1837-1843.
The way we have things set up, its is debt for dollars. The U. S. gov’t pumps dollars into the economy by deficit spending, and increases its debt by the amount of the deficit. (We do not have to do it that way, but that’s how we do it. :)) Banks also create money for debt, by making loans. Bank loans have to be repaid with interest (assuming no default). OC, there are going to be defaults, loan losses for the banks, and bankruptcies for the borrowers.
Bank lending, by requiring more money than it creates, bears a similarity to a Ponzi scheme. There are those who believe that gov’t deficits are also like a Ponzi scheme. (And, in the past, gov’ts have, indeed, defaulted. Ireland may do so in the near future.) However, the U. S. gov’t has never defaulted, and will never have the need to do so. (Not that crazies in Congress cannot engineer a default. 🙁 ) The reason is that we now have a fiat currency. We do not require any gold in Fort Knox to redeem any dollars. Dollars are only redeemable for dollars. The gov’t can always meet its dollar obligations.
Do deficits matter? The political Starve the Beast strategy is based upon the idea that deficits do matter, and that, like households or state gov’ts, the Federal gov’t can run out of money. That is silly, of course, with a fiat currency. As Cheney remarked, believers in Starve the Beast were proved wrong by the Reagan deficits. Starve the Beast does not work, financially. Deficits do not matter in that way.
But deficits do matter. Right now, the U. S. deficit is too low. Consumers cannot afford to buy at the level of the recent past, and so jobs are lost or fail to be created. The gov’t should be pumping money into the economy, since we live in a free society and the gov’t cannot force banks to lend or corporations to invest. Banks and businesses would take on risk by lending or hiring or investing, but financial risk for the gov’t does not exist. The risk is the waste of human and economic potential for ourselves and our children.
However, we are seeing the working out of the Starve the Beast strategy, for example, with the attacks on Social Security. Despite the lack of real fiscal constraints on the gov’t, Starve the Beast can work if people and politicians believe that the gov’t can run out of money, if they believe that deficits do matter in that way.
To be more precise the deficit was paid off during the Jackson admin. Even before there the civil war there was some deficit, due to both the mexican war and the 1837 and 1857 financial panics. Jackson was most proud of paying off the debt. But then Jackson thought were evil beings and deserved what they got. Paying off the debt was his way of sticking it to the bankers.
Cedric Regula: “But getting yourself in the position of being the global reserve, trade and finance currency is a powerful thing. It makes Monopoly money work, at least so far. “
What about all those other countries that have “Monopoly money”? I. e., virtually the whole world. (The Euro is a funny beast, not backed by gold, but acting like gold.) They do not all have the world’s reserve currency, yet their currency works fine. Sure, there are countries that mess themselves up, like Zimbabwe, but most countries enjoy the benefits of fiat currency, as the American colonies did in the 18th century. 🙂
It’s time for a Global Warming update.
It’s now just past a year since the release of the Climategate emails. I said when I first reported on it, it was a game changer. Many true believers disagreed. Well, unless you’ve been like those in the picture below, it’s been a bigger game changer than I expected.
Since Climategate we’ve seen held two climate talk conferences, Copenhagen last year and now Cancun ongoing. Copenhagen, held just after the Climategate emails were released was a total bust. The Cancun conference now looks as though it may actually collapse.
The Chicago Climate Exchange has closed its doors probably leaving the poor little guys holding the bag of useless credits. The European Exchange has been rife with corruption and is teetering. The US Cap & Trade effort is dead and trhe Oz ETS (same as C&T) may also be dead, if someone can find the stake to put in its heart, as it has now cost two Govts to be disbanded.
There still is no scientific evidence that CO2 actually has any more than the most minor affect on temps. We have over ten years of stagnant (no statistically significance) temperatures even though CO2 concentrations have continued to accelerate in the atmosphere. Sea levels continue to lower. Arctic Sea Ice continues to recover since the 2007 lows. And, finally, we are starting to see more “peer reviewed” articles from skeptical climatologists.
Yup! Climategate was a game changer.
Do you know if Mullin is an Airdale, a surface warfare guy or a sub guy, or maybe supply corps???
And Petraeus is he any more than a snake eater?
Do you know about ordnance and ammunition? Logistics support for either/both?
The Taliban has no armor.
What is the use of the Abrams with marines in Afghanistan? The 120 mm cannon is problematic, particuarly in support of counterinsurgent operations.
Armor protection? Against RPG 7’s? Shoot and scoot? Why are they there?
I know the logistics tail, and it is huge. What do you think Petraeus and Mullin were thinking?
Mobille fires? Huh? Lots of better choices. A track vehicle with recoiless rifles as the marines had in Korea. Better choice for mobile fires if you think indirect fire TOT won’t work. Why won’t TOT fire missions work?
Do you suppose they can justify the logistics tail and cost with the usefulness.
I said ordance mission was doable with 120/81mm mortars, the mobility mission all they got is mountains and terrain. armor protection??
What is the mission and when aside from getting into the game did the USMC want heavy armor?
I have to add a dimension, because the Danes and Canadians are doing dumb things the USMC needs to do it too?
Canadians, Danes; how many units have they got in country, what supports? Do either even know what a combat team is?
As an FMS customer I once worked with would say, “How come?”
I do not know the Canadian or Danes’ TO&E. Suppose they sent armor because they had no other formations to rotate in? No indirect fire support? Did not want to rely on US batteries?
I am not sure why Denmark and Canada are in Afghanistan but I am pretty sure the US is paying the freight. You can link to them?
Do you think they are better at conserving resources than the US military? Maybe the unit has no indirect fire support????
Why they have tanks there is as crazy as the USMC wanting their new since 1992 toy there.
The Mi multiplier has been sagging since the Reagan admin, and fell off a cliff in fall of ’08. It’s been below 1 for over two years. It’s oretty much falen and can’t get up.
Beckworth shows velocity in the third graph here, also slumped badly in in ’08.
I read somwhere recently that the number of people with security access is north of 3 million.
Good luck keeping security with a crowd thst size.
I enjoy reading The Nation. Some of my friends already think I’m a wild-eyed liberal. I keep explaining that I’m a centrist and an Independent voter. Maybe it’s because I supported Obama.
Ok, I’m up for being the Answer Man. Ask me a question. Any question.
The Dollar, Euro, Yen, Franc and Pound are all considered reserve currencies (meaning central banks stock them because they may need to provide these currencies to their local banking system for international transactions, either in goods and services or financial transactions.)
The buck is of course the biggest because oil transactions are in dollars, other trade too like China accepts dollars in trade for goods, Uruguay will buy beans from Paraguay in dollars, and banks anywhere like to make loans in dollars because historically the Fed had a “responsible” monetary policy (not so true lately). And we shouldn’t forget the US does export a significant percent of global GDP, so foreigners do need dollars to buy our stuff.
The Euro was an attempt to become a reserve currency by backing it with an economy of 500M some population. It did succeed, but now internal problems are emerging.
The yen is because the Japanese export so much. And they have run a trade surplus for many years which means “wealth” flows into the country.
The pound is because London is a very large financial center (Arabs and Chinese hide there money there), but that is a two edged sword as things are turning out.
The Swiss Franc is for the same reason, but they have faired better than Britain.
If any other fiat currency in the world, including those above, would be subjected to the long running fiscal and trade deficits we have had with the US economy, they would be toast. This is what makes the dollar so special. We haven’t been able to kill it yet. It’s partly due to the strength of the US economy, the willingness of foreign investment to buy dollar denominated assets (anything from Treasuries to stocks to CDOs to Budweiser….the whole thing…not a 6 pack at a time). We just need to keep up the good work. Let’s keep our fingers crossed.
Since we did suffer some decline in the above “positives”, it has been a boon to other emerging economies or newer export powerhouses like Korea since there has been capital leaving the US and being invested in these foreign lands. This has driven up their fiat currencies. Too much some are now complaining.
Then there are many lesser backwaters that can only borrow or do external trade in one of the major currencies and their “sovereign currency” is just used by locals, probably in circumstances where they can’t barter instead.
So everything is relative in a world full of floating currencies. Of course they don’t all float either. Sometimes central banks peg to dollar, which in periods of dollar weakness means they must buy them. One more reason we have the incredible levitating dollar whether it is desired USG official policy or not. Of course then the BRICs and to a lesser extent the Middle East says they are getting tired of doing that. But then their currencies would rise and they would lose export business and they don’t want that either.
No one ever said this works WELL.
Take a look at budget history.
Wars were the only causes of big deficits until Reagan. WW’s I and II were expensive. The New Deal was cheap. The great society was cheap. Even the Viet Nam War (in $$) was cheap compared to Reagan’s Star Wars.
The debt has balloned since ’08. Reciepts have fallen, and spending has gone up above trend. But we have, at this point, spent trillions on the wars in Iraq and Afghanistan.
Both military spending and the effects of the recession are important oiver the last 2 years. You can’t gainsay the loss of reciepts and increased soending the recession has caused. But the effects of the wars, especially over an expanse of years is at least as important. Cumulatively, quite a bit more.
Obama’s 2011 budget has military spending >$700 million. Round numbers, that’s about half the deficit. And it’s money pissed away on destruction.
General Dave Petraeus is not a snake eater. He was never in the Special Forces. His pre-GO assignments were in airborne, mechanized, and air assault infantry units after graduating from West Point. One thing is certain, he’s smarter and more experienced than you or I in conducting combat or counterinsurgency operations.
Admiral Mike Mullen, a ’68 Naval Academy grad, is a surface ship guy; commanded three ships, a cruiser-destroyer group, and a battle group before moving on to higher commands.
I have an Ordnance Corps tank automotive background among a few other skill sets. I was behind the fence at Aberdeen Proving Ground when the M1 competition was originally conducted. It’s an exceptional platform, though I would have selected the GM prototype with its diesel engine.
The handful of Abrams tanks will be used by the Marine Corps in the uptempo campaign in southern Afghanistan. You’re overlooking the key elements that the Abrams bring to that region. Exceptional optics, 2.5 mile target strike range, pinpoint accuracy, and fear. The Canadians have reported that the Taliban run like hell when they see the Canadian Leos coming. Let’s not overlook the M1028 120mm anti-personnel canister cartridge filled with tungsten balls, producing a shotgun blast out to about 2,000 feet. And there is the XM1111 round which is a very long range guided projectile.
I don’t see a problem with the Abrams logistical tail or the 120mm smooth bore cannon. It’s manageable in light of how these tanks will be employed. The presence of the Abrams will enhance the operations in that particular region. Don’t overlook the role of the exceptional optics for multipurpose use.
I fully support the presence of 14 Abrams tanks in the southern region of Afghanistan if the effort will save the lives of any allied soldiers, local civilians, and help stabilize the changes being attempted in Afghanistan.
It’s clear that the employment of tanks by Denmark and Canada have accomplished those goals in their area of operations. See the second group of links provided to ilsm.
The presence of a small group of Abrams tanks in support of U.S. operations will not be a waste of time. They will not be deployed in mass as that is not their operational purpose in the theater area. It’s an unreasonable position to condemn their usage without having reviewed the tank supported operations conducted by the Canadian and Danish military forces on the ground.
ilsm’s views on maintaining on replacing weapon systems offer, at best, a narrow focus. If you want to believe that he is correct down the line, fine. He’s a very smart individual, but his focus ignores other considerations that need to be included when undertaking a review of weapon systems and support equipment needs.
There is no plan underway nor is one anticipated to replace the Abrams tank with another main battle tank. The Abrams fleet is more than sufficient to support DoD plans and projections. Upgrades will occur as the tanks are rebuilt, but the limited procurement monies going forward will be devoted rather sparingly to other weapon systems, other equipment, and DoD resource needs. Replacing the Abrams tank is far down the list. Supplementing the Abrams with a smaller tank capable platform might happen, though.
DoD’s overall budget is in for a whipping eventually, perhaps similar to that inflicted by Auburn University on the University of South Carolina in the SEC championship game, 56-17.
I saw a small iceberg and two penguins floating down the creek this afternoon. What the hell is up with that?
They’re going to ban you from blogging. Oops, there’s a knock at the door. Gotta go.
OK, I was still remembering the 2010 CBO estimate. So much for estimates.
Right you are Jazzbumpa. And you were the one that brought the issue to my attention. Credit where credit is due.
JzB, your GPO data ends in FY05.
BTW, military spending is not necessarily war spending.
The Future Combat System which has been renamed and mostly terminated was going to replace the 60 T class with a 30T class clanker.
Odd where the Army is going now that the light infantry marines want 60T clankers to run off Taliban.
What I lack is seeing any effects from employing those Abrams’
Perhaps you can link tactics to operations with the Abrams.
There is no effect worth the cost.
MG, didn’t realize you were so far south. Must be that Antarctic Sea Ice creep is already reaching your area?!? Better watch out for the Polar Bear invasion as they are dispersed due to Arctic Sea Ice losses. 🙂
Narrow? From an Auburn guy!!!
The FCS see above was going to replace Abrams, the industry failed to design in time in cost enduring huge ‘over offerings’ and trying to make a MBT air mobile. I am an AF guy who is intimate with that fiasco, rare huh?
I have a much broader base than you think.
And it ain’t reviewing equipment that is needed it is round up the crooks in the JCS requirements process who are making needs’ decisions on a size rather than an economic sense of the impacts of phony “strategy”.
Gotta talk empire, not whose plant loses orders with the cuts.
From an Auburn guy.
Ya know, ilsm, I suspect we are wasting our extremely valuable breath and time trying to convince MG that tanks are the military equivalent of dinosaurs in Afghanistan. Rugs won’t convince him. Your explanation of the logistics involved can’t convince him. We should abandon our effort. Meanwhile, when you have time, I wish you would post a comment explaining what it costs the Taliban to inflict the high number of NATO casualties it has achieved using pickups and fighters with semi-automatic weapons. Or, better yet, fighters on mules with RPG’s and small mortars. Happy Sunday, y’all. NancyO
The real test of your personal ideological inclination is whether you now think of Obama as a die hard liberal (socialist, commie pinko etc) or a shill for the financial industry and their corporate serfs.
CR, there’s too much relaiance on biased estimates to make dubious points. Yes, CBO is biased by the constraints/baseline definitions contained in the originating request for scoring.
I could throw my military bio up here, but that would involve playing your game of self-important and unjustified arrogance. You’re not smarter than Dave Petraeus. My brother was with him at West Point. My brother says he is one of the brightest guys he ever encountered. That is quite a statement coming from my brother who is well known globally for his knowledge not only in his commercial field but his general knowledge.
You have asked too many simple questions for which you could have found the answers. You don’t appear to understand the counterinsurgency plan being employed in Afghanistan nor the geographic differences of operating in southern Afghanistan. You’re well behind the curve on knowing the history of limited COIN employment of tanks in Afghanistan. You fail to grasp the advantage of the optics in the tanks as opposed to relying on less accurate mortar fire.
Your condemnation of the Canadians and Danes over the deployment of a limited number of tanks shows that you have no grasp of on-the-ground conditions by which their deployment has been highly successful.
It’s absurd to think that people with your mentality would willingly sacrifice the lives of allied soldiers, local civilians, and the overall COIN operation in the southern Afghanistan region because you are illogically opposed to a proven tool that has been employed in Afghanistan for a number of years.
The goal is press forward with the ongoing uptemp campaign that Petreaus is employing which is generating a string of successes in that region of Afghanistan. That you don’t support that campaign says a lot about your supposed level of intelligence. Petraeus didn’t invent the historical conditions in Afghanistan nor did he create the operational theater, but he will get the allied forces to the exit strategy just as he did in Iraq. If anyone can do it, it’s Dave.
Catch up, ilsm.
ilsm and Nancy,
I stated my opinion correctly the first time. You two are something else.
Neither of you have a good grasp of the facts regarding the uptempo operations in southern Afghanistan nor the record of limited employment of tanks in that geographic region. That is obvious from your statements.
I find it very disturbing that both of you would willingly sacrifice the lives of allied soldiers in combat because of your ignorance of ongoing operations in that area of operations. Thank god neither of you are in a position to make the decisions of the combat leadership in Afghanistan.
I won’t waste my time providing information in the future on this issue that refutes your arrogance and overall lack of knowledge. There wouldn’t be any point. You think you know everything and that certainly isn’t the case.
Obama is very much a liberal. He is facing the challenges that every U.S. President faces once the individual assumes the office. Obama is not a corporate guy. He is having to deal with the realities of understanding what makes the U.S. economy function.
That is something that liberals, leftists, rightists, and independents don’t have to deal with out in the general public. So we can say anything and pretend that it is reality-based thinking. That, of course, isn’t always the case, not close in many instances.
My personal opposition to President Obama at this stage has nothing to do with the decisions that he made nor his recommendations. I feel that the U.S. needs a better President and Administration. This President has surrounded himself with average thinkers and that’s not good enough in my judgement. We need a sharper action-oriented team.
I wouldn’t want you serving in a capacity of support for ground or air operations in Afghanistan. You’re an arrogant self-centered fool.
I am pretty well finished with this conversation. I am familiar with FCS. The mistakes have cost DoD and Army about 8-10 years on the replacement development cycle. I believe that they have missed their funding window.
You don’t have a good working knowledge of the operations in southern Afghanistan. Arguing further is pointless.
I’ll drink a DB tonight!
You are going to get that wish.
I have been retired from log planning more than 20 years.
I suspect you are answering the 5 items I numbered less than an hour ago.
4 of the 5 of the quotes were ad hominems.
This one is one for one ad hominem.
Too bad you were not on a NATO TPFDDL, I did a lot of that.
I suspect you are used to firing truth tellers in the highly esteemed position you had in the puzzle palance, so ad hominem are your tool and trade.
They are also how Rome collapsed.
Do they teach debating with ad hominems at C&GSC?
When did it start to be accepted?
I’ll drink two DBs tonight!
I never served in the Pentagon. Stayed in the field whenever possible.
” I am familiar with FCS.”
If promises were ponies there would be cavalry stables at Ft Knox. If you were around prior to EMD maybe we saw eachother. I was contractor.
Only in DoD contracts which are supposed to be “duties to perform” become negotiable long after the deal is made.
“You don’t have a good working knowledge of the operations in southern Afghanistan.”
That is for historians. The guys on the ground usually don’t get it when it is going down. See Mac Arthur and the Home By Christmas drive into 300,000 PVA.
Good working knowledge, hell DoD cannot audit its books because no one knows if any of the equipment peets any specification, so cannot value the stuff.
Sixty years ago this week.
Because I disagree with you………………….
ilsm, it’s because you haven’t availed yourself of the information that is publicly available regarding operations in southern Afghanistan.
Why should I waste my time, which has personal value, pulling up files or googling the net if you don’t bother to gain an ounce of knowledge? It’s pointless.
Your arguments are not based on basic knowledge of ongoing ground operations in southern Afghanistan.