You cannot solve a crisis brought on by borrowing too much, by borrowing even more. You have to work your way through the debts, repaying some, and increasing your income relative to the interest costs.
You cannot magic away a load of bad debts and poor investments by transferring them all from the private sector to the public sector. That just undermines the credit standing of the government, and leaves the taxpayer lumbered with loads of losses they do not deserve. Most of the so called recovery plans the UK and US governments are looking at are just different ways to land the poor investments on the taxpayer.
I am amused to hear President Obama saying he is going to announce a halving of the running government deficit over his first term. How can he do that, when his government is busily taking on more and more obligations from banks and insurance companies, and when he is just beginning a big expansion of public spending financed by borrowing?
Controlling debt and cutting deficits has to start today if he wants to do that, not at some unspecified date in the future. Curing the banks entails working through all the investments and debts and saving as many as possible through intelligent banking – not shoving them off to someone else to pay the losses.
February 24, 2009
“I am amused to hear President Obama saying he is going to announce a halving of the running government deficit over his first term.”
The sheer size of American govt debt both now and in the next few years could precipitate a currency collapse, regardless of whether or not the dollar is a reserve currency.
To my mind Obama is simply recognising this and so is trying to present himself as prudently trying to pull back the deficit and thereby maintain the market for his govt’s bonds. It also allows him to continue the “blame Bush”propoganda that will be a hallmark of Obama’s adminsitrastion. Fair enough – Bush made serious errors but Obama’s policies are not the remedy.
It also occurs to me that Hillary has just gone, begging bowl in hand, to China to persuade them to keep buying US Govt debt. They already hold a huge chunk and so the Chinese will be in the US Govts sights when it comes to issuing more and also rolling forward pre-existing debt. If the Chinese stop buying then the US Dollar could go into free fall. So maybe the Chinese govt made it a condition of what they agreed with Hillary that the US govt show some signs of prudence.
That said I think Obama’s claims to prudence will fail to convince. He can only say he will cut the deficit if he is making over optimistic assumptions for economic growth. The stimulus package will not work. As with Hoover’s and FDR’s interventionist policies in the 30’s the impact of Obama’s much heralded stimulus package will be economic stagnation and a prolonged recession/depression. He may reduce America’s empire committments (e.g., Iraq) but the recurring impact of his recent social measures (in the stimulus package) will likely offset those savings.
February 24, 2009
JR:”Curing the banks entails working through all the investments and debts and saving as many as possible through intelligent banking – not shoving them off to someone else to pay the losses.”
I couldn’t agree more but why doesn’t this appear to have been done? Surely the banks must by now know the size of the problems they have incurred by unintelligent banking. Is it the case that they have in fact known for some time and the figures are just so bad that they and the government have connived to conceal them?
February 24, 2009
George HW Bush once called Ronald Reagan’s plan to reduce the deficit and cut taxes at the same time ”voodoo economics.” Is Obama a convert?
February 24, 2009
I thought Obama was planning to reverse the Bush tax cuts. This was mentioned on Fox News last night (Hannity I think). Yes its a struggle to watch that channel at times but it can occasionally be useful.
February 24, 2009
I am amused to hear President Obama saying he is going to announce a halving of the running government deficit over his first term. How can he do that………….
Easy.
Print loads more money. (As Gordon knows it’s very cheap particularly if you own your presses)
Any wholesale move out of the currency into gold to be treated as in 1933 viz sequestration at 57 percent of market value (for the sake of the country, of course)
Any wholesale move out of dollars to be countered with exchange controls including a ban on overseas holdings of foreign currency.
Scary, but it has all been done in the very recent past.
And by the way, if you want to know what Gordon has up his sleeve…………..
February 24, 2009
At least the US cut direct taxes rather than VAT! The US will get away with it until a currency can compete with its global reserve status and then the US will be bankrupt. Until then it can do what it wants and although a lot of our issues are home grown, the US policy has big impacts globally!
February 24, 2009
I’m an American. I’m even a black American from Chicago. I saw no “change” there when Obama was state senator and U.S. Senator. He is woefully underexperienced. I liken him to a teenager who found himself the captain of the Titanic. There is no way the U.S Government can spend and spend then quit spending. To do that would require elimination of branches of the government. He wants to cut military spending. But what if there is a conflict where the US has to defend itself? We cannot give our soldiers slingshots and peebles.
Have you noticed that when Obama said that he would not have lobbyists in his administration, he went right to lobbyists to hire them? He pledged to take public financing in his campaign. Then he broke that pledge.
So when he says one thing, believe the opposite.
February 25, 2009
If I were a Labour party member who believed in the working class, a chance to work and own my own house and to provide for my children, to live in a safe street with people of my own civilization, language and ideas on religion, and the ability to go on holiday now and then, perhaps in my own car, I would be at the end of my tether with this “Tory” government.
I would therefore be looking very carefully at the BNP.
I would also be spotting for a chance to introduce Labour ideas through my MP (if I could contact her/him).
But one thing is for sure: I would be utterly fed up with the people who are supposed to be represent me!