Economics has been called the dismal science. Depending on the political leanings of the economist, it can be bright and happy too. Although Paul Krugman had a dismal assessment of deficits in 2004, he’s now repeating his recent “deficits saved the world” mantra.
So 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.
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.
According to the White House projections, by 2019, net federal debt will be around 70 percent of G.D.P. 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 G.D.P., while Italy — which is, well, Italy — had a net debt of 114 percent of G.D.P. Neither faced a financial crisis.
So don’t fret about this year’s deficit; we actually need to run up federal debt right now and need to keep doing it until the economy is on a solid path to recovery. And the extra debt should be manageable. If we face a potential problem, it’s not because the economy can’t handle the extra debt. Instead, it’s the politics, stupid..
Here’s what he had to say five years ago about Bush’s deficits.
The government is reportedly ready to engineer GM’s bankruptcy next week if bondholders don’t agree to accept 10-cents on the dollar. In that case, the feds will make another large infusion of tax money, around $30 billion, into GM, taking at least 50% ownership and four of the nine seats on the board. Yesterday the UAW announced an agreement reportedly similar to the Chrysler agreement, maneuvering to be in a better position vis-a-vis the bondholders in the event of bankruptcy. The UAW would own 39% of the restructured company. Canada is considering investing $3.5 billion for another one of the board seats if GM promises to maintain GM’s production level in Canada and the Canadian union makes concessions.
Details of the UAW concessions are being withheld until the rank and file have a chance to vote on it. The UAW Chrysler concessions included a reduction in break time from 46 to 40 minutes and two-year elimination of Christmas bonuses and cost of living increases. The major part of the deal involves the health care trust fund. GM anticipates 14,000 additional job cuts by 2010.
The Obama administration is preparing to send General Motors into bankruptcy next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and re-emerge as a global competitor, sources familiar with the discussions said.
The move comes as the administration prepares to lift the nation’s other faltering car company, Chrysler, from bankruptcy as soon as next week, industry sources said.
The shifts into and out of bankruptcy are landmarks in the Obama administration’s attempt to broker a historic restructuring of the U.S. auto industry in the space of months.
The legal tactic is viewed by some as the best means of reviving the companies. But the speed of the government-led transformation has triggered complaints that the rights of investors and dealers are being trampled. Meanwhile, fears that a bankruptcy could lead to cascading business failures are spreading throughout GM’s vast chain of suppliers.
William J. Holstein, the author of Why GM Matters: Inside the Race to Transform an American Icon thinks the government is wrong to force GM into bankruptcy. GM is not the same as Chrysler, he argues, because of its size, its impact on the economy and their investment in new technologies. GM, with its suppliers, represents 1% of the economy. He thinks the government should continue granting loans for a few more months and let management execute its plan.
The President is miffed at private companies with senior debt ownership in Chrysler Corporation and let his irritation be known. They didn’t take the deal the White House offered. Obama chastised them and said “I don’t stand with them”. What’s that supposed to mean?
When they assumed the debt, the companies had the audacity to hope the longstanding bankruptcy laws of America would apply to their investment. The deal the government tried to foist on these companies would have given 30 cents on the dollar and a diminished ownership percentage. These companies are not TARP recipients. They have a fiduciary responsibility to protect their investors’ funds. The UAW which has not made great sacrifices will wind up with a 55% ownership of Chrysler. The federal government will have 10% ownership, Fiat 20%.
Today, an anonymous group of 20 Chrysler lenders calling itself the “Committee of Chrysler Non-Tarp Lenders†said in a statement they’d been treated worse than junior creditors during negotiations in violation of “long-recognized legal and business principles.†They said they were owed $1 billion. [...]
“Our holdings in secured Chrysler debt are entitled to priority in long-established U.S. bankruptcy law, and we are obligated to our fund shareholders to support agreements that respect these laws,†the company said in an e-mail.
Chrysler’s dissident lenders have on their side the “absolute priority†bankruptcy rule, which holds that value must be distributed according to the legal priorities of the stakeholders. What riled the group that put out the statement today was the fact that junior creditors, consisting of a workers healthcare trust, would get equity in a new Chrysler entity while they would not. [...]
By lashing out at the dissident investors, Obama is tapping into the public’s anger to make clear who’s to blame for Chrysler’s bankruptcy and to ratchet up pressure on hedge funds and financial firms likely to object to the plan in court, said Stuart Rothenberg, a Washington-based political analyst.
Yesterday the President laughed off the idea he wanted to expand government. How he wished he didn’t have to get involved with the auto companies. Well, he could have given more than 30 days for Chrysler to work out a deal with creditors or just step aside and let the bankruptcy laws work normally. Instead he tried to strong arm creditors to take the deal the White House wanted. I don’t know, maybe the hedge funds are being greedy. Business is business. The White House has the attitude it can make offers private companies can’t refuse.
Aren’t you glad you have to put off your summer vacation plans knowing the Obamas are partying virtually every night while Barkey’s cronies at AIG are getting their $1 million bonuses? I thought so.
Just so you know, here’s the huge list of people at the White House tonight partying on our dime.
In addition to withholding state tax refunds, California Governator Schwarzenegger has finally received court approval for his plan to have state workers take two unpaid days off each month. But even during what is an economic crisis of epic proportions the union vampires did everything they could to fight the order. Forget what it costs, forget the disaster we’re in thanks to liberals and their union constituencies; all they want is more, more, more. Pathetic. Just a little reminder for all of us that liberals and their kool-aid drinking gestapos think only of themselves at the expense of everyone else.
Reporting from Sacramento — A state court has ordered government officials to immediately implement Gov. Arnold Schwarzenegger’s executive order requiring state employees take two days off without pay each month, denying claims by unions and the state controller that the order is illegal.
The decision by Sacramento Superior Court Patrick Marlette clears the way for 238,000 state employees to be furloughed on the first and third Fridays of each month starting Feb. 6. Marlette said in his ruling that the governor has the authority to implement such cuts during an emergency.
The state is in the midst of a financial crisis, with an immediate cash shortage and a projected deficit of nearly $42 billion by the middle of next year. Refunds to taxpayers and other payments will be suspended Feb. 1 because the state does not have the money for them…
Public employees unions had argued that furloughs must be approved by the Legislature. State Controller John Chiang agreed and sided in court with the Service Employees International Union, Local 1000, the Professional Engineers in California Government and the California Assn. of Professional Scientists.
They’re part of the problem that created this mess, now let them suck it up.
Truly, the system is now so corrupt an obvious liar and tax-cheat gets nothing more than a raised eyebrow as he’s promoted to oversee all of our taxes. 60-34 in the senate. 10 Repubs vote “Yes.” And the race for the bottom speeds up.
As oil plunges not only do gas prices go down, but so will prices for the 1,000+ items made from petroleum. The other major benefit of this is pits like Iran, Russia and Venezuela, which rely on high oil prices, won;t do well at all with this lower price. The only thing that made Russia’s invasion of Georgia possible, as an example, was the profit from the oil boom.
Retail gasoline prices dipped for a 17th week since July 4, falling below $2 a gallon in a number of states and approaching $1.50 at some service stations…Oil prices hit a 20-month low Tuesday as Wall Street offered yet more evidence that consumers have gone into hiding.
Retail gasoline prices fell overnight to a national average of $2.22 a gallon, dragged down by the falling price of crude, which now costs 60 percent less per barrel than it did in mid-July. The average price for regular unleaded gasoline has fallen nearly 32 percent in the last month.
The insane price of oil, and the ridiculous fast pace of its rise, should have been the biggest warning sign in the world that the economy was false and ready to tumble. Now we know.
People, always keep in mind the ebb and flow of history. In our panic, we tend to extrapolate every trend as if it never ends. That sort of thinking leads to mistakes. In dealing with the immediate crisis, try not to entirely lose sight of the big picture.
The crash in oil prices is a great relief; however the issues of our energy supply for the long term remain highly relevant.
And warns about the scandal that comes from the amount of money Obama is raising. And who is it that can absolutely make sure the Soros-Obama axis doesn’t purchase this election. Us and only us. Are you for sale? I didn’t think so, and John Kerry knows so. The Dems outspent Repubs in 2004 by $121 million dollars and that didn’t work, either.
This is the distinction between the two men and is the heart of what becomes of a country. Another sign that McCain gets it, and will push this thing to victory.
Republican presidential candidate John McCain on Saturday accused Democratic rival Barack Obama of favoring a socialistic economic approach by supporting tax cuts and tax credits McCain says would merely shuffle wealth rather than creating it.
“At least in Europe, the Socialist leaders who so admire my opponent are upfront about their objectives,” McCain said in a radio address. “They use real numbers and honest language. And we should demand equal candor from Sen. Obama. Raising taxes on some in order to give checks to others is not a tax cut; it’s just another government giveaway.”
There’s also a note in the story that McCain may appear with Joe the Plumber tomorrow win Ohio, and finally explains that Barky’s tax plan is actually a redistribution of wealth.
On Sunday, McCain was to travel to Ohio, where he might appear with “Joe the Plumber,” the Holland, Ohio, plumber Joe Wurzelbacher whom the senator has been portraying as emblematic of people with concerns about Obama’s tax plans.
Wurzelbacher became the focal point of the final presidential debate after he met Obama earlier in the week and said the Democrat’s tax proposal could keep him from buying the two-man plumbing company where he works. However, reports of Wurzelbacher’s annual earnings suggest he would receive a tax cut rather than an increase under Obama’s plan.
Obama has said his tax policies would cut payments for 95 percent of working Americans, while increasing them only for families making more than $250,000 a year. McCain has argued that 40 percent of Americans don’t pay income taxes, either because they are seniors or don’t meet minimum earnings thresholds, so the only way to cut their taxes is to give them various credits.
“In other words, Barack Obama’s tax plan would convert the IRS into a giant welfare agency, redistributing massive amounts of wealth at the direction of politicians in Washington,” McCain said in the radio address.
