Keith McCullough believes the government should dramatically cut back on spending. But Barry Ritholtz warns that we could face another recession.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Overall household indebtedness is up from $7 trillion to almost $10 trillion since 2000. On this sum, we estimate, the American consumer has an annual interest bill of more than $500 billion; a sum, by the way, that vastly exceeds his current income growth." —Kurt Richebacher
Knowing that the vote over the weekend in Greece was really a referendum on Euro membership, a majority of the Greek Parliament said yes to staying. European Finance Ministers meet again on Wednesday to solidify the 2nd bailout package for Greece at the same time hopefully a deal is consummated between Greece and its creditors this week. The Greek 14.5b euro bond that matures on March 20th is up by 2 pts. The optimism that all will be completed and contained AGAIN to Greece has yields lower in Portugal, Spain and Italy. The iTraxx Financial Index is also narrower by...
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July 20th, 2010 at 10:45 am
[...] Disclosures « Stimulus Battle: How to Fix the Economy [...]
July 20th, 2010 at 11:41 am
So he argues in favor of reducing the deficit as a % of GDP and the way to do that immediately is by cutting taxes. Oooooooooookay. Can we get some honesty around here please? At least Barry says it outright; The deficit is going to be large no matter what.
July 20th, 2010 at 11:46 am
Speaking about tax holidays, how about a tax holiday on self-employment taxes? If none of the buggy-whip manufacturers are going to hire all these unemployed people, help them make their own employment!
July 20th, 2010 at 12:17 pm
I hate seeing you in this debate btw. Why don’t they bring in Krugman?
What you are proposing is exactly what Japan has done for the past 15 years and it has gotten them absolutely nothing except a mountain of debt, which they could kind of deal with because they have a mercantilist economic policy and they started off with trillions of dollars in savings – most of which is now gone.
It’s not going to end like that for the U.S. as we have zero savings and a manufacturing base around 10% of total employment. As soon as China stops buying Treasuries the game is up and people will see the fantasy of trillion dollar structural deficits. There isn’t enough money to support this borrowing. Sure the Fed can print $1.5T and extend the game for a bit, but the reality is the wheels are going to blow off the wagon and it’s going to be ugly. The timing of the event is uncertain, but the outcome is not.
~~~
BR: You are going to laugh, I but get tagged sometimes when Krugman is unavailable (or too expensive) for speeches and the like.
I am proposing infrastructure spending, massive Manhattan-project like research by the govt for fundamental science into alt energy, and a temporary FICA tax holiday.
July 20th, 2010 at 12:42 pm
With your last comment in regards to a Manhatten project for renewables, you just became a “God” to me. Now if only Obama would listen and implement…Now thats the way out of a recession and onto new economic highs after a peak creadit event!
July 20th, 2010 at 12:51 pm
The Peak Oil People I roll with have been insisting this is not a typical recession but rather an epochal change marked by the end of cheap oil. Now China has just overtaken us as the worlds leading voracious energy glutton.
The Peak Oil crew suggests that the future turns of intelligently managing contraction. Forget the growth models we so love. Part of that implies a nimble shift to clean tech and vast improvements of a decrepit infrastructure so we can be profitable with less and with the changing landscape.
This would also be the likely jobs engine for the constituency of semi skilled people most severely impacted by this recession, which is also about the decline of many ways of earning a living, particularly in the new construction sector.
Obama has been chosen by fate to be the bagholder for the end of good times rolling and no one wants to just up and admit it or work with it. Happy motoring sprawl habits are very hard to unravel.
July 20th, 2010 at 2:47 pm
Keith McCullough just makes my stomach turn. He’s complaining that people who want stimulus are just scaring the public into thinking we’re on the verge of the Great Depression. Hey Keith, maybe you haven’t noticed, but other than the Great Depression, there hasn’t been a recession as hard on working people as this one. He’s just told everyone who’s struggling in this economy that their worries don’t amount to a hill of beans compared to the fact that interest rates might go up sometime in the future and affect his fixed income portfolios. And there’s no guarantee that we’re anywhere near the end of this.
Barry, you rightly point out that having the reserve currency gives us special privileges. And in fact, since the US economy does still pull much of the rest of the world along with us, it is almost a special obligation to use this special privilege. Sure, a bunch of reserve assets might inflate, but other countries will benefit if the US consumer doesn’t fall down the rathole.
I think, though, that we have to be focused on targeting our spending more. Unemployment insurance needs to be continued. Small business lending needs to be encouraged or subsidized for at least two-three years, perhaps on private equity-like terms. And the US needs to target a few industries (clean energy, low-input agriculture, new materials research, biotech research, market research identifying how to meet the needs of emerging market industry and consumers) where it seeks to be a global leader.
The problem with Stimulus v. 1.0 is that it turned into a big “pork-fest.” This was the use of the Keynesian idea that as long as money gets into the hands of consumers, it doesn’t matter how it’s spent, so Congress just went hog-wild spending it. That gave Stimulus 1.0 a bad name, and even worse, because most people conflate Stimulus 1.0 (which was more-or-less good, even if not ideal) and Bailout 1.5 (which was obscene). So it looks to many like stimulus was a bad idea. Throw in the problems of Greece, and it looks like deficits are deadly, even if the US is way different from Greece (not only do we have control over our currency, it’s a reserve currency).
The Austrians do have a point that if you are going to run up debt, it might as well be debt put to the most productive uses possible, so debt created for pursuing a sensible industrial policy makes sense for Stimulus 2.0. This is the key. We need more stimulus, but let’s target it sensibly: 1) produce industries in which the US can be a global leader and employ large numbers of people, and 2) ensure that small businesses have capital to create and invest and employ, 3) ensure that the unemployed do not fall off the map, and 4) ensure that the structurally unemployed have an opportunity to a) retrain themselves for something, or b) innovate and become entrepreneurs.
July 20th, 2010 at 3:23 pm
The thing that never ceases to amaze me is having people like Keith McCullough being able to prosper and getting very comfortable by spewing total nonsense. Reminds me a Sarah Palin, one of the most moronic person to ever hit celeb status, yet, becoming wealthy and adulated by some while being that dumb.
Must be the way Empires fall; people lose their collective marbles.
July 20th, 2010 at 6:24 pm
while every one wants to get the budget under control, as BR pointed out, it won’t happen until the great recession is gone. if you cut the budget now, the deficit will get worse, as there is nothing to make up for that demand? business hasn’t done it this century. and we can’t export our way out of this (as we don’t have much to export any more. you can’t export finance). and besides every other country is doing the same thing. so that is out of the question. so unless we are expecting aliens from space to land and buy stuff, there is no replacement demand for what the government has done.
so cut the budget, and expect the deficit to get worse. much much much worse.
I do like the idea of a Manhattan type project to address the energy problem. fossil fuels are a finite resource, and it takes a few years (400M) to get more oil. so at some point some thing will have to be done. and it will cost a lot more if you have to do it in 6 months, than if you can take a few years to do it. and the private sector will never do it. they always wait till the government moves.
July 21st, 2010 at 9:05 am
willid3 says, “every one wants to get the budget under control. . . “ Specifically, what does that mean? Does it mean the federal deficit and debt should be reduced? Does it mean the economy has too much money? (The previous two sentences are identical).
insaneclownposse says, “There isn’t enough money to support this borrowing. Sure the Fed can print $1.5T and extend the game for a bit, but the reality is the wheels are going to blow off the wagon and it’s going to be ugly.” Specifically, what does that mean? Does it mean the federal government will not be able to service its debt? Does it mean the government will lose the unlimited ability to create money? (The previous two sentences are identical.)
I have a $1,000 offer for Keith McCullough or for any other debt hawk who beats him to the punch. The offer is explained at: $1,000 OFFER. So come on debt hawks. Now’s your chance not only to prove your case, but to cash in.
By the way, here’s the Chicago Tribune’s suggestion: “Here is a lesson for future apocalyptic prophets: When crying ‘doomsday,’ don’t mention specific dates. ‘At any moment’ is much more ominous and generally ambiguous.” Actually, debt hawks already are good at that sort of hedging.
Rodger Malcolm Mitchell
July 21st, 2010 at 2:09 pm
Why not do what works best?
Nearly everybody who has commented at one time or another about this latest economic debacle at some point has agreed that “small business is the backbone of the economy,” or some such.
It is a fact that most new jobs are generated by SMALL RAPIDLY GROWTH COMPANIES (and certain types of large companies, although I believe that may be a discrepancy of some kind.)
Some time ago I posted a little thought experiment at my realjobcreation site, http://www.realjobcreation.com/action.html, indicating that $100B could generate as many as 14MM jobs fairly quickly, if used to harness and support the power of entrepreneurship.
So far haven’t come across of any major flaws in that plan.
July 22nd, 2010 at 10:08 pm
@RodgerMitchell:
What I mean by “there isn’t enough money to support this borrowing” is that we have a stagnant $14T dollar economy that already is servicing approximately $50T in debt. With a monetary base of $2T, we will eventually run out of the number of dollars needed to purchase $1.5T worth of Treasuries every year. Now, the Fed can obviously create an infinite number of dollars, so investors can always count on getting dollars back. But the difference between my opinion and yours is that I believe once the Fed starts creating dollars specifically for the purpose of government debt monetization, the jump to hyperinflation is very quick.
During the first iteration of QE, the yield on the 10 year blew out to 4% in a matter of a few months. The bond market reacted very negatively to the purchase of Treasuries via printing press. It was only after the Fed decided not to extend the program (Wall Street wanted more btw!) that the bond market settled down. The Treasury monetization portion of QE was an experiment and because the dollar is the reserve currency, folks cut the idea a little slack. I doubt it will be as well received the second time around.
My thesis is that money is partly about trust – there is an emotional component. When that contract is abused repeatedly, eventually people lose faith (it could take years though!) When trust is broken, there is very little that can be done to regain it and in a country with $1.5T in structural deficits, that is a recipe for problems. But if monetization and hyperinflation is the only route to debt restructuring, so be it. Something has to be done to get rid of the $50T in debt or the U.S. economy will be stagnant for decades.
July 23rd, 2010 at 8:43 am
Insaneclown . . .
I see that by using “very quick,” “second time around,” “eventually,” “for decades,” you are following the Chicago Tribune recommendation for apocalyptic prophets (see the last paragraph of my previous response.)
People have been predicting the economic end of the world for at least 70 years, that I can document (DEBT BOMB). The reason: They don’t understand the difference between personal debt and federal debt, which more properly should be called “money created,” and which is necessary for economic growth.
If you want a better understanding of federal debt, read what Randall Wray says. It’s short, simple and revealing.
Rodger Malcolm Mitchell
July 23rd, 2010 at 8:57 am
Mr. Mitchell:
You would be taken a lot more seriously if you would cut out the personal attacks.
I think that by your logic, it’s hard to believe that any sovereign with control of their own currency has ever defaulted at any time in the history of the world. That is clearly not the case so there has to be a compelling reason that the U.S. can pull it off where others in similar situations have failed.
I’m not talking about the economic end of the world. I’m talking about a debt restructuring via very high rates of inflation. There’s no doom here. If one has significant amounts of money in cash then one should protect themselves from the possibility of a hyper-inflationary outcome, but just buy TIPS and you’re good to go.
July 23rd, 2010 at 9:45 am
Mr. Insaneclown . . .
“There’s no doom here . . . a hyper-inflationary outcome.”
.
Hmm . . . I don’t know about you, but I would consider hyperinflation to be pretty close to doom. As for “personal attacks, ” I don’t know to what you refer. What I did do is give you two good references. Let me know if and when you take advantage of them.
Rodger Malcolm Mitchell
July 23rd, 2010 at 9:37 pm
if you don’t think that referring to me as an “apocalyptic prophet” is demeaning then I don’t have anything further to say to you.
July 24th, 2010 at 10:13 am
Sorry insaneclown . . .
I misinterpreted your prediction that “Something has to be done to get rid of the $50T in debt or the U.S. economy will be stagnant for decades.” as being apocalyptic. No insult intended.
Rodger Malcolm Mitchell