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View Full Version : Deficits actually helping, not hurting the economy



stephanie
08-30-2009, 12:18 AM
wtf..

By PAUL KRUGMAN
New York Times
Aug. 28, 2009, 7:27PM
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Print Share Del.icio.usDiggTwitterYahoo! BuzzFacebookStumbleUponSo new budget projections show a cumulative deficit of $9 trillion over the next decade. According to many commentators, that's a terrifying number, requiring drastic action — in particular, of course, canceling efforts to boost the economy and calling off health care reform.

The truth is more complicated and less frightening. Right now deficits are actually helping the economy. In fact, deficits here and in other major economies saved the world from a much deeper slump. The longer-term outlook is worrying, but it's not catastrophic.

The only real reason for concern is political. The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity. Need I say more?

Let's start with the effects of this year's deficit. There are two main reasons for the surge in red ink. First, the recession has led both to a sharp drop in tax receipts and to increased spending on unemployment insurance and other safety-net programs. Second, there have been large outlays on financial rescues. These are counted as part of the deficit, although the government is acquiring assets in the process and will eventually get at least part of its money back. What this tells us is that right now it's good to run a deficit. Consider what would have happened if the U.S. government and its counterparts around the world had tried to balance their budgets as they did in the early 1930s. It's a scary thought. If governments had raised taxes or slashed spending in the face of the slump, if they had refused to rescue distressed financial institutions, we could all too easily have seen a full replay of the Great Depression.

As I said, deficits saved the world.

In fact, we would be better off if governments were willing to run even larger deficits over the next year or two. The official White House forecast shows a nation stuck in purgatory for a prolonged period, with high unemployment persisting for years. If that's at all correct — and I fear that it will be — we should be doing more, not less, to support the economy.

But what about all that debt we're incurring? That's a bad thing, but it's important to have some perspective. Economists normally assess the sustainability of debt by looking at the ratio of debt to gross domestic product. And while $9 trillion is a huge sum, we also have a huge economy, which means that things aren't as scary as you might think.

Here's one way to look at it: We're looking at a rise in the debt/GDP ratio of about 40 percentage points. The real interest on that additional debt (you want to subtract off inflation) will probably be around 1 percent of GDP, or 5 percent of federal revenue. That doesn't sound like an overwhelming burden.

Now, this assumes that the U.S. government's credit will remain good so that it's able to borrow at low interest rates. So far, that's still true. Despite the prospect of big deficits, the government is able to borrow money long-term at an interest rate of less than 3.5 percent, which is low by historical standards. People making bets with real money don't seem to be worried about U.S. solvency.

The numbers tell you why. According to the White House projections, by 2019, net federal debt will be around 70 percent of GDP. That's not good, but it's within a range that has historically proved manageable for advanced countries, even those with relatively weak governments. In the early 1990s, Belgium — which is deeply divided along linguistic lines — had a net debt of 118 percent of GDP, while Italy — which is, well, Italy — had a net debt of 114 percent of GDP. Neither faced a financial crisis.

So is there anything to worry about? Yes, but the dangers are political, not economic.

As I've said, those 10-year projections aren't as bad as you may have heard. Over the long term, however, the U.S. government will have big problems unless it makes some major changes. In particular, it has to rein in the growth of Medicare and Medicaid spending.

That shouldn't be hard in the context of overall health care reform. After all, America spends far more on health care than other advanced countries, without better results, so we should be able to make our system more cost-efficient.

But that won't happen, of course, if even the most modest attempts to improve the system are successfully demagogued — by conservatives! — as efforts to “pull the plug on grandma.”

If we face a potential problem, it's not because the economy can't handle the extra debt. Instead, it's the politics, stupid.

from and lots of comments at..
http://www.chron.com/disp/story.mpl/editorial/outlook/6591983.html

5stringJeff
08-30-2009, 07:36 AM
Krugman is a Keynesian tool, and is dead wrong.

Silver
08-30-2009, 03:51 PM
Deficits actually helping the economy !!!

It is freekin' astounding how the logic of decades gets turned upside down because the Democrats are in power and own the White House....

Deficits now helping the economy....

What a load of shit.....only the Koolade crown could believe this...

Monkeybone
08-31-2009, 06:18 AM
Oh they make it better....well it all makes sense now.


I also like how in the end it came back to health care.

5stringJeff
09-01-2009, 07:20 AM
What we need to do is drastically reduce government spending and start paying down the debt.

Noir
09-01-2009, 07:36 AM
Deflicts and Debts are a false economy (excuse the pun) History has proven it before and will no doubt prove it again.

As is explored in the followig article

Why the deficit hysteria? I only wish we'd borrow more | Robert Reich


Projections of national debt*in the US and UK have*triggered panic – yet investment in the future is*crucial to recovery
'At every stage in the growth of the debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt went on growing, and still bankruptcy and ruin were as remote as ever." So wrote Lord Thomas Macaulay, the great 19th-century British historian. He was alluding to the English public debt, but he might as well have been referring to the United States in the 21st century.
Last week the White House announced that deficits over the next 10 years are likely to be worse than it had thought – and, as expected, the same old group of deficit hysterics went ballistic. "A 10-year deficit of $9tn is $30,000 for each man, woman and child in the United States!" Kabaam. "Public debt will total a whopping $17.5tn by 2019 – three-quarters of the nation's entire economy!" Kaboom. "The number would send Reagan's stack of $1,000 bills into satellite orbit!" Zowee.
Can we please relax? Ten-year budget projections are notoriously wrong. Remember Ross Perot? He ran against Bill Clinton and the first George Bush in 1992, garnering enough votes to deny Clinton a majority. Perot based his campaign on deficit hysteria. He argued that the federal budget deficit was on track to end the world as we knew it. In fact, the rapid growth of the economy during the years from 1993 to 1998 reduced the budget deficit to zero. Neither Clinton's famous deficit-cutting nor Republican insistence on a balanced budget was primarily responsible; the deficit reached zero before most fiscal changes kicked in.
The numbers attached to deficits and debts take on meaning only in relation to something else. And the most important something else, in terms of what the nation can afford, is the size of the national economy. Pay close attention, in particular, to the debt-to-GDP ratio. True, that ratio is heading in the wrong direction right now – it's likely to reach 80% by the end of 2010. That's high, but not compared with the 119% it reached in 1945, after the ravages of depression and war.
Yet by the mid-1950s, the debt as a proportion of GDP had been tamed. How did that happen? Not mainly because of cuts in government spending. Yes, wartime spending had ended. But the most important change occurred in the denominator of the equation. Economic growth kicked in big time after the war, and reduced the debt as a proportion of the US economy to manageable levels.
The basic way America has always reduced the debt to GDP ratio is by expanding the economy. As Macaulay noted, that's also the way Britain has done it. GDP growth makes even large debts manageable. When the economy is cooking, more people have jobs and better wages. So they pay more taxes. And they require less unemployment assistance and other ...

Read the rest here - http://m.guardian.co.uk/ms/p/gmg/op/suL5BZCyYRjQPSkOd_cicLg/view.m?id=164701&tid=120787&cat=United_States

avatar4321
09-01-2009, 07:46 AM
helping huh? so whn i start living off debt. i will just tell my creditors that my debt is actually helping me gain wealth. im sure they will accept that as an excuse for non-payment and lend me much more.