Does the Deficit Matter?

Americans being irresponsible and spending when they had no money IS what put the economy into an economic death spiral. :roll:

Consumer spending is how we went from a bad little recession in 2002 to a few artificially good years to the disaster we face now.

I still remember the government telling us all to go out and shop in 2002.

The Catch-22 is that if all Americans saved in a responsible manner, it would be bad for the overall economy.

The basic question seem to be
should we spend ourselves out of the bad economy?
or
should we save ourselves out of the bad economy?
??????

Spending or QE (quantitative easing) our way out leads to inflation which saves real estate prices from the dreaded free market. Status quo keepers and Keynesian economists want this as it keeps all indebted.

Saving our way out means deflation. Soup lines and crashing housing prices, but a natural free market where the chips fall where they may.

As someone who believes in Natural Law, the end result will be the same IMO. We can have a crash now or a bigger crash later. I think they're hoping to delay it long enough for 21st century attrition to slow our demand for natural resources.

G'luck out there ;-)

I think we should all be very deliberate with our spending to make sure that the dollars we are spending/what we can afford to spend do the most good..................as we let the house of cards tumble a bit so we can rebuild it.

I make a conscious effort to spend my money in certain places - try to eat at different local restaurants 3x a week, buy things locally and spread purchases around the different stores.

Local business purchases and cash transactions add up fast between the multiplier effects, local tax base, and the CC fees.

As Shopper says, it is a consumer driven economy, but almost all of what we buy comes from somewhere else...our manufacturing jobs will never come back the way they were post WWII IMO; so, who is working on producing innovative "stuff"?

Work forces change over time, we've reached that point where the industrial sector goes into decline. (That's normal IMHO, we're not 3rd world anymore.) We are moving into a new, service oriented economy where we sell our smarts rather than our brawn. That's not such a bad thing, but it does tend to leave folks behind as manufacturing moves to more raw labor freindly countries. Such is life.

Work forces change over time, we've reached that point where the industrial sector goes into decline. (That's normal IMHO, we're not 3rd world anymore.) We are moving into a new, service oriented economy where we sell our smarts rather than our brawn. That's not such a bad thing, but it does tend to leave folks behind as manufacturing moves to more raw labor freindly countries. Such is life.

The problem with moving all manufacturing off shore is that over time you lose the technological skill sets to innovate in basic research and to create new and better products to manufacture.

In a simple example, how many new plumbing fixtures are created by plumbers (the guys in the service industry) and how many are created by the manufacturers. Since the plumber isn't creating products, he doesn't need to do research on better metals, better finishes, etc... That will all move offshore to the manufacturer who needs such things.

In another vein, most medical device innovations come from manufacturers. In some cases a Doctor (the service industry guy) will think up a new idea, but the doc doesn't know how to take an idea from inception to market. Without a base of technological people to draw from, a new startup can't be formed and the new product can't be brought to market.

Manufacturing is about a whole lot more than raw labor.

Extending Tax Cuts adds to the Deficit?

Most Republican candidates support extending the Bush tax cuts of 2001 & 2003, including cuts to the wealthiest Americans.

This will add to the deficit.

Does it matter?

Most Republican candidates support extending the Bush tax cuts of 2001 & 2003, including cuts to the wealthiest Americans.

This will add to the deficit.

Does it matter?

And all the Republicans are holding up the extension of the unemployment benefits...

This will stimulate the economy and in the process help some people feed their children.

Does it matter?

Well, a couple points. First, Obama is extending a number of the Bush tax cuts except of the top two tax brackets and capital gains. Most of the cuts of 2001 and 2003 are being kept. Tax cuts generally have a positive effect on the economy. The question is should we extend the top two brackets and drop the capital gains rate down further? I'd say yes but that's just my opinion. Will it increase deficits over the short term, yes.

This begs the question, why do some see tax increases as the only solution to deficits? We'd have plenty of money to spend on tax cuts and unemployment if we weren't fighting an endless war in Afghanistan, positioning hundreds of thousands of troops all over the world, funding TARP and long term stimulus, spending billion on various international initiatives, and general waste. Consider this, last year Obama increased descretionary budget spending substantially. This may have helped the economy a little, but also siphoned money away from more critical programs like unemployment. For example:

Non mandatory spending in Obama's 2010 budget:
$663.7 billion (+12.7%) ? Department of Defense (including Overseas Contingency Operations)
$78.7 billion (?1.7%) ? Department of Health and Human Services
$72.5 billion (+2.8%) ? Department of Transportation
$52.5 billion (+10.3%) ? Department of Veterans Affairs
$51.7 billion (+40.9%) ? Department of State and Other International Programs
$47.5 billion (+18.5%) ? Department of Housing and Urban Development
$46.7 billion (+12.8%) ? Department of Education
$42.7 billion (+1.2%) ? Department of Homeland Security
$26.3 billion (?0.4%) ? Department of Energy
$26.0 billion (+8.8%) ? Department of Agriculture
$23.9 billion (?6.3%) ? Department of Justice
$18.7 billion (+5.1%) ? National Aeronautics and Space Administration
$13.8 billion (+48.4%) ? Department of Commerce
$13.3 billion (+4.7%) ? Department of Labor
$13.3 billion (+4.7%) ? Department of the Treasury
$12.0 billion (+6.2%) ? Department of the Interior
$10.5 billion (+34.6%) ? Environmental Protection Agency
$9.7 billion (+10.2%) ? Social Security Administration
$7.0 billion (+1.4%) ? National Science Foundation
$5.1 billion (?3.8%) ? Corps of Engineers
$5.0 billion (+100%) ? National Infrastructure Bank
$1.1 billion (+22.2%) ? Corporation for National and Community Service
$0.7 billion (0.0%) ? Small Business Administration
$0.6 billion (?14.3%) ? General Services Administration
$19.8 billion (+3.7%) ? Other Agencies

We'd have plenty of money to spend on tax cuts and unemployment if we weren't fighting an endless war in Afghanistan, positioning hundreds of thousands of troops all over the world,

I agree. Stop the wars, bring the troops home, not only from Afganistan & Iraq, but from Germany/Europe, Japan.

As a 27 yr veteran of the Defense Dept., I won't let anyone question my patriotism when I say that IMO the Defense Budget is Way too high. We're still stuck in an old paradigm. We don't need more tanks, planes, bombs or missiles. We need to divert $ to Military Intelligence (if that's not a contradiction in terms). We're not fighting Nazi Germany or Imperial Japan or the Warsaw Pact--we're fighting guys who live in Caves (!) for God's sake!

Stop the Wars. Bring the Troops Home.

O yeah, and extend unemployment benefits.

O yeah, and God Bless America.

This article looks at both sides of the issue.

learn-to-love-our-massive-deficit: Personal Finance News from Yahoo! Finance

This article looks at both sides of the issue.

learn-to-love-our-massive-deficit: Personal Finance News from Yahoo! Finance

Its undoubtedly a complicated issue.

Of course he points out at the beginning that balancing the budget by spending cuts didn't work for Hoover.

Should we be fixing our huge budget deficits right now, so that we're not swamped by the mounting debt (e.g. Greece)? Or is that exactly the wrong thing to do when the global economy is operating so far beneath its capacity -- a Herbert Hoover approach. Hoover sought to balance the budget during the Great Depression, which by most conventional accounts made a desperately bad situation even worse.

He never mentions that the opposite approach (ie: Roosevelt's New Deal) failed to make things any better....The only thing that got us out of the Depression was WWII.

That's the depressing (pardon the pun) thing. We know that reigning in spending didn't work and we know that increasing spending and debt didn't work.

He recommends an approach of delayed spending cuts (push the hard decisions out to the future.) He also recommends tax increases (Carbon Taxes, closing loopholes, etc.) At the same time though there's no mention of doing anything to reduce wasteful government spending or to stimulate growth and investment in small-to-midsize business where most new jobs are created. (I question that omission.) There's certainly no mention of freezing or reducing wages for government employees.

Once you analyze it, this plan doesn't really sound too different from raise taxes and keep spending now with some cuts that may happen in the future (well beyond upcoming election horizons.)

Its undoubtedly a complicated issue.

Of course he points out at the beginning that balancing the budget by spending cuts didn't work for Hoover.



He never mentions that the opposite approach (ie: Roosevelt's New Deal) failed to make things any better....The only thing that got us out of the Depression was WWII.

That's the depressing (pardon the pun) thing. We know that reigning in spending didn't work and we know that increasing spending and debt didn't work.

He recommends an approach of delayed spending cuts (push the hard decisions out to the future.) He also recommends tax increases (Carbon Taxes, closing loopholes, etc.) At the same time though there's no mention of doing anything to reduce wasteful government spending or to stimulate growth and investment in small-to-midsize business where most new jobs are created. (I question that omission.) There's certainly no mention of freezing or reducing wages for government employees.

Once you analyze it, this plan doesn't really sound too different from raise taxes and keep spending now with some cuts that may happen in the future (well beyond upcoming election horizons.)

I heard on the news while I was almost asleep, that Roosevelt attempted further fiscal stimulus I think around 1936 and he was voted down. That may have been the reason for the failed recovery, until WWII. I wish I could find more information on this. Also you say increasing spending and debt didn't work. I think WWII was the epitome of spending and debt.

I heard on the news while I was almost asleep, that Roosevelt attempted further fiscal stimulus I think around 1936 and he was voted down. That may have been the reason for the failed recovery, until WWII. I wish I could find more information on this. Also you say increasing spending and debt didn't work. I think WWII was the epitome of spending and debt.

It was indeed a lot of spending and debt, but most of that spending went to create jobs in manufacturing (and the military.) It wasn't a huge amount of debt racked up to fund Wall Street bonuses, to bail out giant banks who took on risky loans, to save mismanaged auto manufacturers or to convert overpaid auto workers into government employees.

The government also didn't, for the most part didn't send money to our allies either (IMF style.) We extended credit to them so that they could purchase goods that we manufactured.

Should Sen. LeMieux vote for small-business jobs bill?

President Obama on Friday called on the Senate to pass a small-business jobs bill that would, for one, help spur greater lending to struggling business owners.

The bill would set up a $30 billion lending fund to help community banks offer small businesses "the loans they need to grow and to hire," the president said.

Last week, Federal Reserve Chairman Ben Bernanke said banks across the country are systematically denying loan requests from financially credible small businesses. He implored community banks to lend more to small businesses, saying they are "crucial to America's recovery."

Sen. Mary Landrieu, D-Louisiana, chairwoman of the Senate Small Business and Entrepreneurship Committee, said she expected the Senate to pass the legislation by the end of the week.
"We believe we have the 60 votes to get this done," she said Wednesday. "We're hoping at the end that we actually have some Republicans join us for a bill that makes so much sense."

A Republican she hopes to have on her side is Sen. George LeMieux of Florida, who has been negotiating with the Louisiana Democrat.

Obama urges Senate to pass small-business jobs bill - CNN.com

How does this government funded lending fund work exactly?

How does this government funded lending fund work exactly?

I'm not qualified to say "exactly" how, but found the following:

"The centerpiece is the new $30 billion Small Business Lending Fund, which will offer funding to small community banks. (It will be separate from a similar one housed in the Treasury?s Troubled Asset Relief Program.) Other initiatives include nixing capital-gains taxes for small-business investment and increasing the cap on certain Small Business Administration-backed loans."

Link:
Obama to Create Small Business Lending Fund ? The Washington Independent

Voters don't really care about deficit

Voters don't really care about deficit

Interesting article (link below)

Excerpts:

?Voters, no matter what they tell pollsters, really don?t care that much about the deficit. In fact, if the 30-year history of modern deficit politics, ushered in by Ronald Reagan?s budget-busting tax cuts and military build-up, demonstrates anything it?s that the electorate?s sense of urgency about the deficit ebbs and flows with the economy. When times are tough, voters will express grave concern about deficits. But when the economy improves, they stop regarding it as a pressing matter -- even if the deficit is actually worsening.?

?Start with the dawn of the deficit era -- Reagan?s first term. From George Washington through Jimmy Carter, the United States had managed to rack up about $900 billion in total debt -- a total that Reagan nearly doubled in his first term. In the massive Reagan deficits, Democrats saw political gold. They made it their centerpiece issue, savaging the president for mortgaging the country?s future and -- well, basically, they said everything that the GOP is now saying about Obama and his program.?

Obama should stop worrying and learn to love deficits - 2010 Elections News | Midterm Elections: Senators, Governors - Salon.com

I think the playing field is much different today with regard to the deficit and global economics. We possibly didn't worry about the deficit when the dollar was so strong (even through the Reagan years) and GDP was strong. I am extremely concerned about the deficit today as well as out of control spending.

"His words, it immediately became clear, were part of a political strategy crafted by a White House that fears that its opponents are making headway with laments about soaring spending and exploding deficits. So, by linking the expiration of the tax cuts to the deficit, the Obama team figures it?ll demonstrate its own seriousness about tackling the debt while simultaneously highlighting the hollowness of the GOP?s rhetoric on the subject."

I haven't seen anything of this Administration tackling our deficit......they need to 'figure' something else.

I think the playing field is much different today with regard to the deficit and global economics. We possibly didn't worry about the deficit when the dollar was so strong (even through the Reagan years) and GDP was strong. I am extremely concerned about the deficit today as well as out of control spending.

Exactly, Increasing debt is less of a concern when GDP is also growing at a strong rate. Our big problem now is that we're looking at anemic GDP growth as well as growing debt. At some point this becomes unstable. Something I've been reading a lot about lately on economist blogs. The question seems to be, what's the tipping point?

Exactly, Increasing debt is less of a concern when GDP is also growing at a strong rate. Our big problem now is that we're looking at anemic GDP growth as well as growing debt. At some point this becomes unstable. Something I've been reading a lot about lately on economist blogs. The question seems to be, what's the tipping point?

I personally think we've already tipped. But, November will be a tell-all.
I do try not to think about the present state of the economy too much.....it messes with my chi. ;-)

I personally think we've already tipped. But, November will be a tell-all.
I do try not to think about the present state of the economy too much.....it messes with my chi. ;-)

After the Nov '10 election, some Reps/Senators/Governors will be voted in, some will be voted out.

In Nov '12 the Pres may be voted out or be re-elected.

To reduce the deficit we have to increase revenues (taxes) and/or reduce services (spending). I don't think ANY candidates in '10/'12 can/will increase taxes or significantly reduce services.

Obama/Krugman & others seem to think the best way out is have the gov't spend even more, a la FDR. Obama's oponents seem to think the best way is to cut services (while also cutting taxes).

It's a Hobson's choice.

Hey, I've got an idea!

Let's increase revenues by increasing taxes on gas & oil.

Decreased Deficit & Cleaner Gulf.

Win-Win.

House Approves $37B War Funding Bill

Most of the members of the House of Representatives who say they are against the deficit voted to approve $37B to fund the wars in Iraq & Afghanistan.

102 Dems & 12 Repubs voted NO.


washingtonpost.com

After the Nov '10 election, some Reps/Senators/Governors will be voted in, some will be voted out.

In Nov '12 the Pres may be voted out or be re-elected.

To reduce the deficit we have to increase revenues (taxes) and/or reduce services (spending). I don't think ANY candidates in '10/'12 can/will increase taxes or significantly reduce services.

Obama/Krugman & others seem to think the best way out is have the gov't spend even more, a la FDR. Obama's oponents seem to think the best way is to cut services (while also cutting taxes).

It's a Hobson's choice.

Let's hope they're wrong, and we don't.

Let's hope they're wrong, and we don't.

Why? We spent our way out of the great depression. Sure it took a major world war in which a lot of people were killed, but it still in involved major government expenditure and huge deficits. Think how much better off we'd have been then, and now for that matter, if government stimulated the economy in the same manner and there had been no WWII.