Quote: Original post by trzy

Quote: Original post by LessBread
Cutting taxes like that sounds great if your goal is to bankrupt the nation. Even if the two wars were ended today and all the troops brought home tomorrow, the bill for those wars still has to be paid. At any rate, I think that's a dumb idea, the kind of thing that Grover Norquist, Stephen Moore or a host of other troglodytes would advocate. Where did you come up with those proposals?

The bill for the Iraq war will be dwarfed by the Obama administration's thoroughly non-stimulating spending. If we don't have to worry about paying that off, we might as well write off the war as well. The government may as well have just given people the stimulus money as a direct cash handout. The effect could not have been worse than what actually happened, and may actually have helped, given that what has hurt a lot of people is the wipe out in asset values and job losses that have deprived people of income.

Stiglitz estimated the cost of the Iraq war to between $2 and $3 trillion. Obama has a long way to go to reach that, but given his approach to Afghanistan, he might get there eventually. Meanwhile, the stimulus spending is just now beginning to kick in, so calling it "thoroughly non-stimulating" is premature. Perhaps giving the money directly to the people would have been better, but that would never have gotten past the misers in the Senate, who you might recall cut $40 billion of the most stimulating spending from the stimulus bill. At any rate, in attacking Obama, you've missed the point I was making entirely.

Quote: Original post by RedDrake
And of course the standard of the citizens would fall dramatically in very small period of time but it's going to anyway, and falling gradually just means it will take longer to hit the bottom and start going up again.

It's not the descent that kills, it's the final impact. Falling gradually is far superior to falling dramatically. Falling gradually provides time to adapt and adjust.

Quote: Original post by RedDrake
Of course it cause could chaos inside the country, or at least a shock period and I'm certainly missing on large issues, not to mention that I doubt other worlds large powers will stand by idly watching their debt getting erased, but with so much money printed and debts, inflation is bound to happen, currency will be deprecated, taxes rise and the longer you keep the currency artificially high (eg. not backed by the production, but financial sector) the longer you prevent industry from recovering. Other world powers are already calling for a new reserve currency, how long till they dump USD by a really significant amount, especially if it looses it's status as oil trading currency?

Check out Naomi Klein's book "The Shock Doctrine" for an idea of what might happen. How does "The Christian Republic of America" sound to you? A militant Christian authoritarian America armed with nuclear weapons, the most advanced aircraft and weapons, a greedy thirst for oil and an apocalyptic vision of the second coming of Christ. Sure the Army and Marines may not be the best at occupation and nation building, but they excel at nation destruction. Armageddon anyone?

If the other world powers were serious about finding a new reserve currency, they would have done so by now. It seems to me that such calls are more about kicking the US when it's down than much else. They are taking revenge for Bushian unilateralism, threatening to curtail American imperialism if America doesn't curtail it's excesses itself. As long as China holds a $800 billion of US debt, it won't follow through on talk about replacing the dollar as reserve currency.

Quote: Original post by LessBread

Quote: Original post by RedDrake
And of course the standard of the citizens would fall dramatically in very small period of time but it's going to anyway, and falling gradually just means it will take longer to hit the bottom and start going up again.

It's not the descent that kills, it's the final impact. Falling gradually is far superior to falling dramatically. Falling gradually provides time to adapt and adjust.

If the adaptation is possible. I guess I use too much of my country experience when the situation is not very similar, but keeping the status quo isn't really going to drive the economy back, at best it will prolong the life of the things that brought it to this state (and make the fall even deeper) IMHO. But I'm oversimplifying thing of course, there are many other factors, so we will just have to wait and see :)

Quote: Original post by LessBread

Quote: Original post by RedDrake
Of course it cause could chaos inside the country, or at least a shock period and I'm certainly missing on large issues, not to mention that I doubt other worlds large powers will stand by idly watching their debt getting erased, but with so much money printed and debts, inflation is bound to happen, currency will be deprecated, taxes rise and the longer you keep the currency artificially high (eg. not backed by the production, but financial sector) the longer you prevent industry from recovering. Other world powers are already calling for a new reserve currency, how long till they dump USD by a really significant amount, especially if it looses it's status as oil trading currency?

Check out Naomi Klein's book "The Shock Doctrine" for an idea of what might happen. How does "The Christian Republic of America" sound to you? A militant Christian authoritarian America armed with nuclear weapons, the most advanced aircraft and weapons, a greedy thirst for oil and an apocalyptic vision of the second coming of Christ. Sure the Army and Marines may not be the best at occupation and nation building, but they excel at nation destruction. Armageddon anyone?

Excellent point, and again the problem as above, since we don't have nuclear weapons (we do have religious fanaticism tough :) ) I didn't really consider that. Truly scary idea.

Quote: Original post by LessBread
If the other world powers were serious about finding a new reserve currency, they would have done so by now. It seems to me that such calls are more about kicking the US when it's down than much else. They are taking revenge for Bushian unilateralism, threatening to curtail American imperialism if America doesn't curtail it's excesses itself. As long as China holds a $800 billion of US debt, it won't follow through on talk about replacing the dollar as reserve currency.

Not necessary, China is buying a lot of resources and turning it's money reserves in to property and goods (OK "a lot" is a relative term here), also buying gold and other precious metals, even if their US reserves went to dust they wouldn't have a hard time adjusting, there is plenty of space to expand internal market, and there are markets such as Russia and oil exporters + other rising economies such as India and Brazil, IMO there is sufficient market space out side of US to keep the growth of GDP, provided they credit their markets as they credited US.
Even if they don't dump the USD they will make sure they don't 'put their eggs in one basket' in the future, so the release of USD is imminent. It's just a question of rate.

Quote: Original post by RedDrake
While we are at the naive economic questions, one thing I don't really understand, what would actually happen if the US declared bankruptcy, ie. stop returning foreign debt ?

I hope someone more knowledgeable on economics and finance than me chimes in but my limited understanding is that defaulting on our debt would ensure that investors and other nations would stop purchasing US Treasuries, which is how the government raises money. The government cannot spend within its means and would be faced with a deficit that it could not finance, perhaps resulting in a collapse of government services and programs. Bank lending and interest rates are tied into this as well, so consumers and private businesses would find it difficult to obtain money for operations and capital investment. There would be a strong impact on the value of the dollar and bankruptcy could very well set into permanent motion a drive to eliminate the dollar as the world reserve currency (something already slowly occurring.) The result would be fairly disastrous for an economy of our size, I think.

Quote: Original post by RedDrake

Quote: Original post by LessBread

Quote: Original post by RedDrake
And of course the standard of the citizens would fall dramatically in very small period of time but it's going to anyway, and falling gradually just means it will take longer to hit the bottom and start going up again.

It's not the descent that kills, it's the final impact. Falling gradually is far superior to falling dramatically. Falling gradually provides time to adapt and adjust.

If the adaptation is possible. I guess I use too much of my country experience when the situation is not very similar, but keeping the status quo isn't really going to drive the economy back, at best it will prolong the life of the things that brought it to this state (and make the fall even deeper) IMHO. But I'm oversimplifying thing of course, there are many other factors, so we will just have to wait and see :)

I'm not talking about recovery, I'm applying physics as a metaphor. When crashing, it's better to slam on the brakes to slow down as much as possible before the impact. Recovery is what happens afterward.

Quote: Original post by RedDrake

Quote: Original post by LessBread
If the other world powers were serious about finding a new reserve currency, they would have done so by now. It seems to me that such calls are more about kicking the US when it's down than much else. They are taking revenge for Bushian unilateralism, threatening to curtail American imperialism if America doesn't curtail it's excesses itself. As long as China holds a $800 billion of US debt, it won't follow through on talk about replacing the dollar as reserve currency.

Not necessary, China is buying a lot of resources and turning it's money reserves in to property and goods (OK "a lot" is a relative term here), also buying gold and other precious metals, even if their US reserves went to dust they wouldn't have a hard time adjusting, there is plenty of space to expand internal market, and there are markets such as Russia and oil exporters + other rising economies such as India and Brazil, IMO there is sufficient market space out side of US to keep the growth of GDP, provided they credit their markets as they credited US. Even if they don't dump the USD they will make sure they don't 'put their eggs in one basket' in the future, so the release of USD is imminent. It's just a question of rate.

They'll only dump the dollar if they can afford to write off their dollar holdings, because once the dollar isn't the reserve currency, it'll lose it's value quickly and they'll be stuck holding paper. At present they peg their currency to the dollar, so they might talk like they're ready for a new currency, but they continue to behave like they aren't.

China’s Foreign-Exchange Reserves Surge, Exceeding $2 Trillion

Quote:
July 15 (Bloomberg) -- China’s foreign-exchange reserves, the world’s biggest, topped $2 trillion for the first time as the nation’s economic recovery prompted overseas investors to pump money into stocks and property.

The reserves rose a record $178 billion in the second quarter to $2.132 trillion, the People’s Bank of China said today on its Web site. That dwarfs a $7.7 billion gain in the previous three months.
...

BRIC Reserve Currency Plans Won’t Undermine Dollar, RBC Says

Quote:
July 9 (Bloomberg) -- BRIC nation calls to reduce the role of the dollar will have “little material implications” for the next five years because a weakened U.S. currency isn’t in their “best interest,” according to RBC Capital Markets.

For China to raise concern about the dollar while holding almost $2 trillion of assets in the U.S. currency would be like “shooting yourself in the foot” because it would put downward pressure on the value of those assets, Nick Chamie, Toronto- based global head of emerging markets research at RBC Capital, wrote in a report today.

Leaders from Brazil, Russia, India and China are demanding a greater stake in the management of the global economy and challenging the dollar as the primary denomination for world reserves as the worst U.S. financial crisis since the 1930s weakens the dollar. The BRICs, which account for 15 percent of the world economy, hold about 42 percent of foreign reserves, according to Bloomberg data.
...

Chinese Reserves: Boiling Over Again? (July 15, 2009)

Quote:
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In the short term this means China’s reserve diversification may have stalled. By putting pressure on the U.S. dollar, Chinese rhetoric about moving away from the U.S. dollar as a reserve currency earlier this year might have added to the pressure on the renminbi and actually delayed the Chinese diversification path. China doesn’t release the currency composition of its reserves, but the dollar is thought to make up around 65% of the portfolio. That share could actually have increased slightly in Q2.

Euro assets make up most of the rest, along with a small amount of pound sterling, yen, and likely even a small amount of Canadian and Australian dollars. China has also increased its gold holdings. Despite the increase, gold makes up a less-than 2% share in Chinese reserves, much smaller than its share in U.S. or European reserves.

The U.S. data reflects the fact that China has yet to diversify much from the dollar. In fact as Brad Setser has noted, in Q1, China’s holdings of U.S. dollar assets as reported by the U.S. Treasury rose more than China’s reserves. One explanation - China was shifting within its dollar assets and asset managers, with the net result that more of its assets were captured in the U.S. data. But the data suggests China is still adding to dollar assets. Overall, China increased its short-term holdings immensely at the end of 2008 and early 2009. However, as of March and April it was paring back on its holdings of T-bills and increasing its holdings of U.S. treasuries.
...
So reserve accumulation is back. China is not the only country that added to its reserves again last quarter. Setting China and its estimated $140 billion in reserve growth aside, a group of over 30 countries that RGE tracks reported a valuation adjusted a net increase in reserves of about $40 billion. While not all of the countries have yet reported their June statistics, Q2 2009 is on track to be the first quarter in a year with reserve accumulation. The stocks of global reserves, are rising back towards $7 trillion again.

The pace of accumulation has slowed but the accumulators are the usual suspects --emerging economy exporters wary of currency appreciation. Many experienced sharp inflows into equity, bond and FX markets in the liquidity-fuelled rally in April, May, and early June. Russia, South Korea, Hong Kong and Taiwan account for much of the accumulation.

While some countries - like Russia - may have managed to slightly pare their dollar share in the face of capital outflows last year, the dollar still dominates reserve portfolios, particularly in Asia and the GCC. The amount of dollar liabilities in some emerging markets contributes to the need for U.S. dollars. Europe’s near abroad is similarly more partial to the euro. However, there continue to be obstacles to the euro as a reserve asset, including a fragmentation of the bond market -- and the last thing European officials want is a stronger euro.

All this means Chinese reserve diversification is likely to be happening only at the margin and China (and other central banks) is likely buying U.S. assets.

Quote: Original post by LessBread
Stiglitz estimated the cost of the Iraq war to between $2 and $3 trillion.

My understanding is that Stiglitz's estimate is based on attempting to assess losses to economic productivity that resources tied up in the Iraq war are responsible for. This is highly speculative and politically motivated. It is worthless as a factoid. The cost of the Iraq war can only be said for certain to be what the government has actually spent on it.

If you believe Stiglitz, you would also have to assume that Obama's stimulus plan, labor union favoritism, and bailout shenanigans have also taken us down a path that will generate more losses than an alternative may have. If Stiglitz weren't an Obama supporter, perhaps he could write a book about the "real" economic cost of this administration's actions as well.

Quote: Meanwhile, the stimulus spending is just now beginning to kick in, so calling it "thoroughly non-stimulating" is premature.

The small fraction of the stimulus money that is "shovel-ready", so to speak, will do little to help long-term economic recovery and will probably fizzle in the short-term as well. The rest is just a bunch of ridiculous government spending designed to continue growing the government. Already the DC area is one of the wealthiest places in the United States.

The only thing that will save us from complete economic ruin is the fact that our nearest competition is still far, far behind us and won't catch up for 50-100 years. That doesn't mean our standards of living are going to keep improving as they should. The last several administrations have set us down a path of decay. Any correction -- if it occurs at all -- is going to be extremely painful and unpleasant. Americans will become poorer and poorer. More of the middle class will slowly slide into poverty. They will do everything in their power to vote themselves more benefits.

Quote: Original post by trzy

Quote: Original post by LessBread
Stiglitz estimated the cost of the Iraq war to between $2 and $3 trillion.

My understanding is that Stiglitz's estimate is based on attempting to assess losses to economic productivity that resources tied up in the Iraq war are responsible for. This is highly speculative and politically motivated. It is worthless as a factoid. The cost of the Iraq war can only be said for certain to be what the government has actually spent on it.

The government has already spent more than $600 billion on the war, so if you're going to go with that you ought to at least update your figures. There's a lot more to his argument than you account for. Here is Stiglitz' latest update on his thesis: The U.S. in Iraq: An economics lesson (July 2, 2009)

Quote:
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Moreover, the U.S. has barely begun to face the enormous financial bill for the war. By our accounting, the U.S. has already spent $1 trillion on operations and related defense spending, with more to come -- and it will cost perhaps $2 trillion more to repay the war debt, replenish military equipment and provide care and treatment for U.S. veterans back home. Many of the wounded will require indefinite care for brain and spinal injuries. Disability payments are ramping up and will grow higher for decades. The stress of extended, multiple tours to Iraq means that a whole generation of U.S. military men and women may now be suffering from long-term mental health issues. The suicide rate in the Army is at its highest level since record-keeping began.
...

Here's his accounting from last year: The three trillion dollar war (February 23, 2008)

Quote:
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As the fifth year of the war draws to a close, operating costs (spending on the war itself, what you might call “running expenses”) for 2008 are projected to exceed $12.5 billion a month for Iraq alone, up from $4.4 billion in 2003, and with Afghanistan the total is $16 billion a month. Sixteen billion dollars is equal to the annual budget of the United Nations, or of all but 13 of the US states. Even so, it does not include the $500 billion we already spend per year on the regular expenses of the Defence Department. Nor does it include other hidden expenditures, such as intelligence gathering, or funds mixed in with the budgets of other departments.

Because there are so many costs that the Administration does not count, the total cost of the war is higher than the official number. For example, government officials frequently talk about the lives of our soldiers as priceless. But from a cost perspective, these “priceless” lives show up on the Pentagon ledger simply as $500,000 - the amount paid out to survivors in death benefits and life insurance. After the war began, these were increased from $12,240 to $100,000 (death benefit) and from $250,000 to $400,000 (life insurance). Even these increased amounts are a fraction of what the survivors might have received had these individuals lost their lives in a senseless automobile accident. In areas such as health and safety regulation, the US Government values a life of a young man at the peak of his future earnings capacity in excess of $7 million - far greater than the amount that the military pays in death benefits. Using this figure, the cost of the nearly 4,000 American troops killed in Iraq adds up to some $28 billion.
...

Quote: Original post by trzy
If you believe Stiglitz, you would also have to assume that Obama's stimulus plan, labor union favoritism, and bailout shenanigans have also taken us down a path that will generate more losses than an alternative may have. If Stiglitz weren't an Obama supporter, perhaps he could write a book about the "real" economic cost of this administration's actions as well.

How so? Investment in infrastructure and the higher wages that come with unions sounds like a path that will generate far greater revenue than the failed strategies of the Bush years that you seem to favor.

Quote: Original post by trzy

Quote: Meanwhile, the stimulus spending is just now beginning to kick in, so calling it "thoroughly non-stimulating" is premature.

The small fraction of the stimulus money that is "shovel-ready", so to speak, will do little to help long-term economic recovery and will probably fizzle in the short-term as well. The rest is just a bunch of ridiculous government spending designed to continue growing the government. Already the DC area is one of the wealthiest places in the United States.

The rest is actually tax cuts for people making less than $250k/year. I realize the details of the stimulus package are no longer discussed in the media, but have you forgotten them already?

Quote: Original post by trzy
The only thing that will save us from complete economic ruin is the fact that our nearest competition is still far, far behind us and won't catch up for 50-100 years. That doesn't mean our standards of living are going to keep improving as they should. The last several administrations have set us down a path of decay. Any correction -- if it occurs at all -- is going to be extremely painful and unpleasant. Americans will become poorer and poorer. More of the middle class will slowly slide into poverty. They will do everything in their power to vote themselves more benefits.

It's more like 20 years. What's going to catch up with us in 100 years is climate change at which point global economics won't matter.

Quote: Original post by LessBread
...Meanwhile, the stimulus spending is just now beginning to kick in, so calling it "thoroughly non-stimulating" is premature.

Jumping-to-conclusions based on zero relevant facts seems to be the preferred tactic employed by those who loathe the Democrats. While that may appeal to some of the hardcore partisans out there, these guys fail to realize that the illogical hyperbole just reduces the credibility of their opinions for more moderate thinkers.

Quote: Original post by LessBread
Here's his accounting from last year: The three trillion dollar war (February 23, 2008)

In an essay Stiglitz wrote on this subject ca. 2006, it appeared that he was factoring in operations and future equipment procurement costs which could be covered by the defense budget. He also tried to attribute oil cost increases to the Iraq war, which struck a few people as ridiculous.

Quote: How so? Investment in infrastructure and the higher wages that come with unions sounds like a path that will generate far greater revenue than the failed strategies of the Bush years that you seem to favor.

Union jobs? Like factory workers for the Big 3? Spare us. I wonder what the cost of jobs being moved offshore is?

Quote: The rest is actually tax cuts for people making less than $250k/year. I realize the details of the stimulus package are no longer discussed in the media, but have you forgotten them already?

Here is a breakdown. The two largest categories of spending are assistance to bloated, inefficient state governments, and "health, labor, and education." Transportation gets $46.1 billion. Will any of this be for the construction of the new highway capacity we desperately need?

Quote: It's more like 20 years. What's going to catch up with us in 100 years is climate change at which point global economics won't matter.

China and India won't catch up with us in 20 years. But they'll have made a lot of progress. Worldwide GDP per capita will be quite large within 100 years. What little impact climate change will have, if any at all, will be irrelevant. If it happens, economics will be all the more relevant. At any rate, a nation of federally-subsidized government-educated dunces is going to do precious little to deal with any ecological crises that might manifest themselves.

Quote: Original post by HostileExpanse

Quote: Original post by LessBread
...Meanwhile, the stimulus spending is just now beginning to kick in, so calling it "thoroughly non-stimulating" is premature.

Jumping-to-conclusions based on zero relevant facts seems to be the preferred tactic employed by those who loathe the Democrats. While that may appeal to some of the hardcore partisans out there, these guys fail to realize that the illogical hyperbole just reduces the credibility of their opinions for more moderate thinkers.

I hate both Democrats and Republicans. They're two sides of the same coin. And neither of them give two shits about you or the future of the country.