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I agree with OstiaAntica. This Economist article is a thinly veiled call for more debt and more inflationary spending. Who stands in the way of "recovery" ? T

by dmfdmf 15y ago

I agree with OstiaAntica. This Economist article is a thinly veiled call for more debt and more inflationary spending. Who stands in the way of "recovery" ? The obstinate Germans (who learned the lesson of hyperinflation last century) with the only sound Euro economy, i.e. they will be paying for the bailouts. In the USA its the Tea Party and the few Republicans with a spine who recognize that the problem is the massive debt and adding to it is only going to delay the inevitable and make it worse. The bold action (that will never happen) is to let the zombie banks and businesses fail, then pickup the pieces and start over. It won't happen and everyone had better prepare for high, if not, hyper-inflation because politically that is the road we are on.

yequalsx 15y ago
The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. In the U.S. taxes are around 24% GDP which is quite low relative to the rest of the industrialized world and quite low relative to our recent past (50 years). Raising taxes will counteract any hyper inflationary forces. Increasing the debt for the U.S., given that the borrowing rate is ridiculously low and tax rates are similarly low, will not lead to hyper inflation. Inflation is a not a problem in the U.S. right now.
- TomOfTTB 15y ago
  With all due respect raising taxes that high is a straw man. I'd be all for raising taxes if it worked but it doesn't. Nation states are competitive entities and they compete for the world's resources. If the U.S. dramatically raises taxes on the rich then emerging countries like Hong Kong see an opportunity and lower their tax rates. Then you start to see capital flee the U.S. for overseas. That's why per capita tax receipts have stayed fairly consistent over time even though the tax rate has fluctuated: http://www.angrybearblog.com/2007/09/comparing-presidents-real-tax-receipts.html http://www.angrybearblog.com/2007/09/comparing-presidents-re... Don't get me wrong. We could and should raise taxes to the highest levels we can. But there's a threshold where it becomes cheaper for rich people to hide their money than it is for them to pay higher tax rates. When we cross that threshold we see tax revenue start to drop. So while I'm in favor of raising taxes I don't think we can raise taxes to the point where it would get us out of this mess.
  - jamesaguilar 15y ago
    > With all due respect raising taxes that high is a straw man. How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here. (Except maybe in your post. You're making it seem like the person you're responding to is in favor of doubling or tripling the tax rate or something, when in reality he probably supports a moderate increase.) > That's why per capita tax receipts have stayed fairly consistent over time . . . Your link shows the opposite. Per capita tax receipts have grown 250% over the last sixty years according to that chart. > I don't think we can raise taxes to the point where it would get us out of this mess How high do you think that is? Right now receipts are well south of 20% of GDP. Currently revenue would have to be doubled, but outlays typically increase and revenues decrease during a recession. If you look at the non-recession tax rates that would be needed to close that gap in, e.g., the Bush years, it would have only taken a 5-10% increase, which hardly seems as outrageous as you're making it out to be.
    - TomOfTTB 15y ago
      > How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here. I suspect it's around where they were during the Clinton presidency. But I honestly don't know. And if we were making policy rationally instead of trying to demonize one side or the other what we'd be doing is trying to find that out. As for the term Straw Man what you're saying when you says "raise taxes" is "The answer is simple". You're giving the impression that the other person just doesn't want to look at the obvious answer. My point was the tax argument is false (because we can't realistically raise taxes that high) and hence the argument that our debt is a serious problem is not a weak one. > Your link shows the opposite. Per capita tax receipts have grown 250% over the last sixty years according to that chart. Consistent is relative I'll grant you that. But the point is when the top tax rate was around 90% tax receipts were lower. So in comparison to our wildly fluctuating tax policy the receipts have been relatively consistent. > How high do you think that is? Right now receipts are well south of 20% of GDP. Currently revenue would have to be doubled, but outlays typically increase and revenues decrease during a recession. If you look at the non-recession tax rates that would be needed to close that gap in, e.g., the Bush years, it would have only taken a 5-10% increase, which hardly seems as outrageous as you're making it out to be Right now you're just making up numbers so I can't really debate your point. 5-10% of what? Income tax? Capital Gains? If you combine National + Average State debt for each American the number comes out to around $150,000 per tax payer with interest. That is not something that is going to be solved with a 5-10% increase on anyone.
- jussij 15y ago
  > The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. The US debt to GDP ratio is rapidly approaching 100% http://www.usgovernmentspending.com/federal_debt_chart.html http://www.usgovernmentspending.com/federal_debt_chart.html Once it hits 100% it's only a short walk to becoming a country not a lot unlike Greece: http://www.tradingeconomics.com/greece/government-debt-to-gdp http://www.tradingeconomics.com/greece/government-debt-to-gd...
  - usaar333 15y ago
    1) 140% is a long way from 100% 2) Take a look at Japan: http://www.tradingeconomics.com/japan/government-debt-to-gdp http://www.tradingeconomics.com/japan/government-debt-to-gdp 220% of GDP and no one is worrying. Why? It's bond yield is so low: http://www.tradingeconomics.com/japan/government-bond-yield http://www.tradingeconomics.com/japan/government-bond-yield (unlike Greece: http://www.tradingeconomics.com/greece/government-bond-yield http://www.tradingeconomics.com/greece/government-bond-yield) The US incidentally has a bond yield roughly double Japan http://www.tradingeconomics.com/united-states/government-bond-yield http://www.tradingeconomics.com/united-states/government-bon... Even though it has a much lower debt to GDP, it is paying almost the same interest per GDP! And that's the funny thing about solvency. As long as investors give you low interest rates, all is well. If they decide you will be insolvent, bond rates rise, resulting in a self-fulfilling prophesy where you actually become insolvent. Solvency is of course inversely correlated to debt to GDP ratio, but there are tons of other actions at work.
yaks_hairbrush 15y ago
How is the US government debt the problem? I just don't see it. Government debt certainly didn't cause the problem, we can still borrow at a 2% rate, and there's been little evidence of inflation.
- TomOfTTB 15y ago
  I'm in the middle here. U.S. and State debt is a huge problem IMHO but I agree that private debt is a bigger problem (given it dwarfs public debt by a large margin). But the one point where I think you're clearly wrong is using interest rates or lack of inflation as measurement sticks. As long as the U.S. holds the reserve currency we have the whole world trying to prevent our currency from collapsing. That means giving us whatever interest rate we want and pegging their currency to ours. I suspect we'd see a major collapse in the dollar if the world decided to abandon it as the reserve currency.
- bd_at_rivenhill 15y ago
  The US government is able to borrow at a low rate because there are few good alternatives: the Euro and the Yen are both terrible choices, the Pound is not particularly good either, the Australian market is too small to absorb significant inflows, and the Chinese market is not open to foreign investment. As the Chinese open their currency over the next few years and present it as an alternative reserve currency to the dollar, the free ride will start coming to an end and the US will need a significant devaluation in order to keep from choking on the higher rates. It would be better to have the debt under control when that happens.
guelo 15y ago
Can you please explain your theory of how massive cuts to government and the ensuing massive layoffs of government workers, and the government buying less stuff from businesses, is going to fix the economy? Please take into account in your explanation that the US is able to borrow at record low rates right now.
- Retric 15y ago
  And also note that inflation is next to non existent right now. A few years of 3% inflation would do more to fix the housing market than all government assistance put together at this point in time. PS: I still think we should cut government spending by around 30% AND remove the home mortgage tax deduction but both of those need to be slow changes or they are going to cause a great deal of harm.
  - steve8918 15y ago
    Removing the home mortgage tax deduction will cause the price of houses to drop, because no one would be able to afford the more expensive houses anymore, and they would have to drop the price to make them affordable. The only thing that the tax deduction did was to raise the price of houses.
- dmfdmf 15y ago
  > Can you please explain your theory... I wish I could but I can't, not in context of a HN thread comment. I'd be happy to recommend some books if you are interested.
  - guelo 15y ago
    "If you can't explain it simply, you don't understand it well enough" -Albert Einstein
    - dmfdmf 15y ago
      "Make everything as simple as possible, but not simpler." -Albert Einstein

by dmfdmf 15y ago

yequalsx 15y ago

The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. In the U.S. taxes are around 24% GDP which is quite low relative to the rest of the industrialized world and quite low relative to our recent past (50 years). Raising taxes will counteract any hyper inflationary forces. Increasing the debt for the U.S., given that the borrowing rate is ridiculously low and tax rates are similarly low, will not lead to hyper inflation. Inflation is a not a problem in the U.S. right now.

TomOfTTB 15y ago
With all due respect raising taxes that high is a straw man. I'd be all for raising taxes if it worked but it doesn't. Nation states are competitive entities and they compete for the world's resources. If the U.S. dramatically raises taxes on the rich then emerging countries like Hong Kong see an opportunity and lower their tax rates. Then you start to see capital flee the U.S. for overseas. That's why per capita tax receipts have stayed fairly consistent over time even though the tax rate has fluctuated: http://www.angrybearblog.com/2007/09/comparing-presidents-real-tax-receipts.html http://www.angrybearblog.com/2007/09/comparing-presidents-re... Don't get me wrong. We could and should raise taxes to the highest levels we can. But there's a threshold where it becomes cheaper for rich people to hide their money than it is for them to pay higher tax rates. When we cross that threshold we see tax revenue start to drop. So while I'm in favor of raising taxes I don't think we can raise taxes to the point where it would get us out of this mess.
- jamesaguilar 15y ago
  > With all due respect raising taxes that high is a straw man. How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here. (Except maybe in your post. You're making it seem like the person you're responding to is in favor of doubling or tripling the tax rate or something, when in reality he probably supports a moderate increase.) > That's why per capita tax receipts have stayed fairly consistent over time . . . Your link shows the opposite. Per capita tax receipts have grown 250% over the last sixty years according to that chart. > I don't think we can raise taxes to the point where it would get us out of this mess How high do you think that is? Right now receipts are well south of 20% of GDP. Currently revenue would have to be doubled, but outlays typically increase and revenues decrease during a recession. If you look at the non-recession tax rates that would be needed to close that gap in, e.g., the Bush years, it would have only taken a 5-10% increase, which hardly seems as outrageous as you're making it out to be.
  - TomOfTTB 15y ago
    > How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here. I suspect it's around where they were during the Clinton presidency. But I honestly don't know. And if we were making policy rationally instead of trying to demonize one side or the other what we'd be doing is trying to find that out. As for the term Straw Man what you're saying when you says "raise taxes" is "The answer is simple". You're giving the impression that the other person just doesn't want to look at the obvious answer. My point was the tax argument is false (because we can't realistically raise taxes that high) and hence the argument that our debt is a serious problem is not a weak one. > Your link shows the opposite. Per capita tax receipts have grown 250% over the last sixty years according to that chart. Consistent is relative I'll grant you that. But the point is when the top tax rate was around 90% tax receipts were lower. So in comparison to our wildly fluctuating tax policy the receipts have been relatively consistent. > How high do you think that is? Right now receipts are well south of 20% of GDP. Currently revenue would have to be doubled, but outlays typically increase and revenues decrease during a recession. If you look at the non-recession tax rates that would be needed to close that gap in, e.g., the Bush years, it would have only taken a 5-10% increase, which hardly seems as outrageous as you're making it out to be Right now you're just making up numbers so I can't really debate your point. 5-10% of what? Income tax? Capital Gains? If you combine National + Average State debt for each American the number comes out to around $150,000 per tax payer with interest. That is not something that is going to be solved with a 5-10% increase on anyone.
jussij 15y ago
> The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. The US debt to GDP ratio is rapidly approaching 100% http://www.usgovernmentspending.com/federal_debt_chart.html http://www.usgovernmentspending.com/federal_debt_chart.html Once it hits 100% it's only a short walk to becoming a country not a lot unlike Greece: http://www.tradingeconomics.com/greece/government-debt-to-gdp http://www.tradingeconomics.com/greece/government-debt-to-gd...
- usaar333 15y ago
  1) 140% is a long way from 100% 2) Take a look at Japan: http://www.tradingeconomics.com/japan/government-debt-to-gdp http://www.tradingeconomics.com/japan/government-debt-to-gdp 220% of GDP and no one is worrying. Why? It's bond yield is so low: http://www.tradingeconomics.com/japan/government-bond-yield http://www.tradingeconomics.com/japan/government-bond-yield (unlike Greece: http://www.tradingeconomics.com/greece/government-bond-yield http://www.tradingeconomics.com/greece/government-bond-yield) The US incidentally has a bond yield roughly double Japan http://www.tradingeconomics.com/united-states/government-bond-yield http://www.tradingeconomics.com/united-states/government-bon... Even though it has a much lower debt to GDP, it is paying almost the same interest per GDP! And that's the funny thing about solvency. As long as investors give you low interest rates, all is well. If they decide you will be insolvent, bond rates rise, resulting in a self-fulfilling prophesy where you actually become insolvent. Solvency is of course inversely correlated to debt to GDP ratio, but there are tons of other actions at work.

yaks_hairbrush 15y ago

How is the US government debt the problem? I just don't see it. Government debt certainly didn't cause the problem, we can still borrow at a 2% rate, and there's been little evidence of inflation.

TomOfTTB 15y ago
I'm in the middle here. U.S. and State debt is a huge problem IMHO but I agree that private debt is a bigger problem (given it dwarfs public debt by a large margin). But the one point where I think you're clearly wrong is using interest rates or lack of inflation as measurement sticks. As long as the U.S. holds the reserve currency we have the whole world trying to prevent our currency from collapsing. That means giving us whatever interest rate we want and pegging their currency to ours. I suspect we'd see a major collapse in the dollar if the world decided to abandon it as the reserve currency.
bd_at_rivenhill 15y ago
The US government is able to borrow at a low rate because there are few good alternatives: the Euro and the Yen are both terrible choices, the Pound is not particularly good either, the Australian market is too small to absorb significant inflows, and the Chinese market is not open to foreign investment. As the Chinese open their currency over the next few years and present it as an alternative reserve currency to the dollar, the free ride will start coming to an end and the US will need a significant devaluation in order to keep from choking on the higher rates. It would be better to have the debt under control when that happens.

guelo 15y ago

Can you please explain your theory of how massive cuts to government and the ensuing massive layoffs of government workers, and the government buying less stuff from businesses, is going to fix the economy? Please take into account in your explanation that the US is able to borrow at record low rates right now.

Retric 15y ago
And also note that inflation is next to non existent right now. A few years of 3% inflation would do more to fix the housing market than all government assistance put together at this point in time. PS: I still think we should cut government spending by around 30% AND remove the home mortgage tax deduction but both of those need to be slow changes or they are going to cause a great deal of harm.
- steve8918 15y ago
  Removing the home mortgage tax deduction will cause the price of houses to drop, because no one would be able to afford the more expensive houses anymore, and they would have to drop the price to make them affordable. The only thing that the tax deduction did was to raise the price of houses.
dmfdmf 15y ago
> Can you please explain your theory... I wish I could but I can't, not in context of a HN thread comment. I'd be happy to recommend some books if you are interested.
- guelo 15y ago
  "If you can't explain it simply, you don't understand it well enough" -Albert Einstein
  - dmfdmf 15y ago
    "Make everything as simple as possible, but not simpler." -Albert Einstein