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How much debt can the U.S. handle? A new paper quantifies an 80% public debt to GDP ratio -...

How much debt can the U.S. handle? A new paper quantifies an 80% public debt to GDP ratio - where the U.S. is right now - as the point at which a nation reaches a potential tipping point; once a nation has debt above that level, it becomes vulnerable to the kind of self-reinforcing vicious cycles that have crippled others. Two responses from Fed officials see the analysis as simplistic and eurocentric.
Comments (128)
  • "Two responses from Fed officials see the analysis as simplistic and eurocentric" The hubris in that response from the Fed is astounding and frightening.
    23 Feb 2013, 08:37 AM Reply Like
  • Essentially the Fed is saying: "The USA is too big to fail". When Japan, which is big and prints its own currency like the USA does, fails, then the geniuses in the Fed will start manning the lifeboats in the Titanic. Got gold? BTW Rogoff et al in their book "Too Big to Fail" (the title is meant to be sarcastic) point out that size does not seem to matter in default or hyperinflation. Spain defaulted their debt several times at their peak power the 16th and 17th centuries. So size does not matter, contrary to what the Fed says.
    23 Feb 2013, 08:58 AM Reply Like
  • Just tell my ex that size doesn't matter.
    23 Feb 2013, 09:39 AM Reply Like
  • robgra
    Hubris is a very apt word to describe Ben. I might add arrogance as well.
    23 Feb 2013, 12:18 PM Reply Like
  • Geoffster

     

    Hilarious!

     

    My ex never lived so large. Pun intended.
    23 Feb 2013, 01:28 PM Reply Like
  • Geoffster, I just blew beer out of my nose and mouth!!!!
    23 Feb 2013, 03:49 PM Reply Like
  • Household and Government debt service to GDP 3rd qtr 2012 10.53%

     

    All time high 1st qtr 1991 14.04%
    All time low 3rd qtr 2012 10.53%

     

    1st qtr 1980 10.95%
    1st qtr 1990 13.68%
    1st qtr 2000 12.56%
    1st qtr 2010 12.14%
    23 Feb 2013, 08:38 AM Reply Like
  • Translation...

     

    If you can stand being screwed 80% of the time, then anything less than that is just fine. Never mind asking if you should be screwed at all.

     

    If people could only understand Bastiat's "seen and unseen".
    23 Feb 2013, 09:04 AM Reply Like
  • Thanks Polianna. What happens when interest rates rise?
    23 Feb 2013, 09:42 AM Reply Like
  • But bbro, if you artificially set the interest rate, then of course the debt service will be low. If the Fed wanted to set a negative rate, then the government would be seen to be making money, but would it be meaningful? The question is what would the debt service ratio be if the Fed wasn't facilitating the mass purchase of US Treasuries at non-market rates? More importantly, what will that ratio be when the markets normalize and how fast will it escalate?
    23 Feb 2013, 10:30 AM Reply Like
  • bbro,

     

    What about under normalized interest rates?

     

    Are the current rates sustainable.

     

    Have we stopped adding to the principal balance yet?
    24 Feb 2013, 09:37 AM Reply Like
  • bbor, are you a ride operator at Disneyland ?
    24 Feb 2013, 10:11 AM Reply Like
  • Bernanke did not buy the premise of a housing bubble in 2006. Why should he have gained any intellegence since then?
    23 Feb 2013, 08:39 AM Reply Like
  • ...and Bernanke just stated this week that we're not in any danger of being in a bubble. Famous last words! Uh-oh, look out below...
    23 Feb 2013, 09:53 AM Reply Like
  • my observations are: 1. add in state/local debt and were just over 100% of GDP, which means were eventually "toast". Adding F/S/L debt makes the US comparable to Europe/other countries. Thus were in worse shape than just using Federal debt, as we all know, the US govt will eventually bail out any state or city. 2. Rinehart and Rogoff's excellent book outlined this fact several years ago, so these papers are not new news.
    23 Feb 2013, 08:43 AM Reply Like
  • Speaking of states...great little website showing wealth migration. There's also an app.

     

    http://bit.ly/YKTfQb
    23 Feb 2013, 08:56 AM Reply Like
  • Interesting map Hoop, and state income tax rates show a correlation, but not an absolute one. The red states pop up on my "overly generous to the point of corruption" state and local employee benefits radar as well. CA, IL, etc. If we combine the two (in a pea pod), do we have a winner?
    23 Feb 2013, 10:31 AM Reply Like
  • Also found a presentation by these folks. Its the first few minutes of the video.

     

    http://bit.ly/131y3Lr
    23 Feb 2013, 10:35 AM Reply Like
  • This "wealth migration" doesn't seem to be a useful metric.

     

    What has this migration done for the people of those green states? Yes, rich people will migrate to wherever they get the most disproportionately positive treatment -- but do they bring many benefits with them?

     

    Have the business friendly environments of Nevada or Delaware turned them into powerhouses of employment or other metrics of the overall well-being of the population? (Hint: no.)

     

    What about Ireland or the Cayman Islands, which literally has more registered businesses than people? (Hint: again, no.)

     

    These governments fall for the trap every time. They pamper businesses and the rich in the hope (and that's all it is) of reaping benefits by bringing them to their state/country, but time and time again, those benefits never materialize.

     

    You can't just get blinded by the numbers, you have to consider the actual benefits to real societies.
    23 Feb 2013, 11:07 AM Reply Like
  • DV

     

    OK the converse of your thesis is that if we get rid of all the rich people and companies then we can be prosperous. Does that lack of capital and capital flight work? (Hint: no.)

     

    You are also cherry picking a few examples and then extrapolating that to a general rule. Go back to Stats 101.

     

    Never mind Ireland did tremendously well for a long time until the housing sector was blown up in a bubble which brings us back to government and banking Frankenstein policies.

     

    Net of all this is that you are peeing into the wind and trying to create your own narrative on pure force of willpower. You are just blinding yourself.
    23 Feb 2013, 11:16 AM Reply Like
  • There is a similarity in this map as well.

     

    http://bit.ly/131Hg6D
    23 Feb 2013, 11:23 AM Reply Like
  • > OK the converse of your thesis is that if we get rid of all the
    > rich people and companies then we can be prosperous.

     

    That is not in fact the converse of my thesis, it is actually a strawman that you kids love to put up when you can't defend your arguments logically.

     

    And since you like stats:
    http://bit.ly/131JC5x
    http://bit.ly/XSDZhY
    http://bit.ly/131JC5B

     

    That's not peeing into the wind, that's peeing all over your misinformation. :-)
    23 Feb 2013, 11:36 AM Reply Like
  • Those links are discussing Federal tax policies. The maps above are discussing state tax policies. What you have to understand is that there is a HUGE difference between the Fed gov and state govs. The Fed gov has a monopolized money medium. As such "income" taxes, which are just a form of expropriation taxes, do not "fund" the Fed gov. As such, studying income taxes is not considering the entire taxing universe at the Fed level.

     

    What would be interesting to see is a study that shows the states with the highest taxes and regulations are the states that have had the fastest growing economies over the last 20 years and the greatest job creation.
    23 Feb 2013, 11:43 AM Reply Like
  • I agree that would be an interesting study -- though I still think your metric is wrong, for example, "job creation" only does so much "good" for society if all the jobs are low-wage, low-benefit jobs. Similarly, "growth" only does so much good if most of that growth in concentrated in top the few % of the population.

     

    Good governance policy should ask, "what's good for everyone" (that's not an unfunded handout), and not "what's good for my biggest campaign donors". :-)
    23 Feb 2013, 11:54 AM Reply Like
  • d-v
    "you have to consider the actual benefits to real societies."

     

    By whom and for whom?
    23 Feb 2013, 12:07 PM Reply Like
  • One of your metrics was a powerhouse of employment. You had no stipulations.
    23 Feb 2013, 12:13 PM Reply Like
  • DV

     

    You said "They pamper businesses and the rich in the hope (and that's all it is) of reaping benefits by bringing them to their state/country"

     

    I nailed the converse of your argument dead on. And then you give me stats on federal taxes to obfuscate I guess.

     

    Your problem is that you don't believe in markets.
    23 Feb 2013, 01:31 PM Reply Like
  • DV, interesting choice of 'references'. It is difficult to consider 'counterpunch' a credible source for facts or unbiased statistics. Why not use Pravda as another source? Clearly, DV, you are a strong advocate for much higher taxes on anyone but yourself while advocating bigger government. Your choice of references, counterpunch, is sadly lacking in a balanced perspective. It does provide a wonderful insight into what you consider a 'source' however.
    23 Feb 2013, 01:58 PM Reply Like
  • Wow, you almost sound like a Republican. Clearly, you can't be an advocate for the current administration and have written the last paragraph. The fundamental policy of the current administration is to reward your donors and to punish your adversaries. There are numerous quotes from the President on this specific topic. I challenge you to provide one example where consideration for the "'good for everyone' (that's not an unfunded handout)" has been demonstrated by the current administration.
    23 Feb 2013, 02:03 PM Reply Like
  • Good government policy should ask " What can we do to reduce the size and scope of government in the next ten years without having to call out the military to quell the ensuing riots?"
    ( Hint: nothing.)
    23 Feb 2013, 02:07 PM Reply Like
  • It would also be interesting to see the states that are receiving the wealth relocations to establish new state agencies that research the welfare benefits of the other states. They would need to become experts in how to sign up for these services and how to maximize the benefits. Then demonstrate to their current recipients how much better off they would be in these other states, and then pay for their relocation to those states. Help them obtain residency, and then get them enrolled in all of the programs possible. They could call these new state agencies "Compassion Journeys".

     

    In addition to this, these new state agencies would also pay for lobbyists to lobby the heavy welfare states to constantly increase their welfare benefits, lower residency status to 1 day, raise taxes (especially corporate and personal income taxes), eliminate sales taxes, unionize all state workers, and then constantly increase their benefits.

     

    Finally these new state agencies would contact businesses and high net worth people in these states and inform them that they qualify for a tax credit if they move to the new state away from the high welfare state.
    23 Feb 2013, 02:57 PM Reply Like
  • The spiraling increase in welfare benefits in CA suggests that recipients may not need coaching on where to go to optimize their benefits. I know of anecdotal evidence whereby St. Louis welfare recipients moved to Chicago for better 'pay-outs'.
    23 Feb 2013, 03:58 PM Reply Like
  • Kid, and from there to Milwaukee and Minneapolis laughing all the way...Work, man you a foo...
    23 Feb 2013, 04:06 PM Reply Like
  • There is some precedence for this.

     

    http://bit.ly/REqlPq
    23 Feb 2013, 04:12 PM Reply Like
  • Wrong again Tommy -- my argument is not to get rid of the rich (you strawy straw man, you!), but for their pampering to be proportional to their contribution.

     

    I think that premise is sort of hard to argue with. You and others will (rightly!) want to hold the poor to that same kind of social contract, why do you give the rich a pass?

     

    Just like the unemployed ought to have to do some kind of work to receive unemployment benefits (a concept you'd agree with, no?), the rich should have to add proportional societal value to receive their societal dispensations -- or else they should not receive them.

     

    Your problem is that you don't believe in logic. :-)
    23 Feb 2013, 05:25 PM Reply Like
  • > Clearly, DV, you are a strong advocate for much higher taxes
    > on anyone but yourself while advocating bigger government.

     

    More straw men -- do all you kids live on farms? ;-)

     

    Who said anything about higher taxes? I just don't think governments should be giving tax /breaks/ without requiring a proportional value contribution, such as good jobs created or other positive effects.
    23 Feb 2013, 05:29 PM Reply Like
  • > I challenge you to provide one example where consideration
    > for the "'good for everyone' (that's not an unfunded handout)"
    > has been demonstrated by the current administration.

     

    I said the government "should" work for the good of everyone -- I didn't say that it "does". ;-)
    23 Feb 2013, 05:30 PM Reply Like
  • > What can we do to reduce the size and scope of government
    > in the next ten years without having to call out the military to
    > quell the ensuing riots?"

     

    The size and scope of are also red herrings -- easy things to focus on for the small-minded, but not actually very meaningful in themselves.

     

    But by all means, we should certainly focus on the *efficiency* and the *effectiveness* of government, and if that results in a smaller size and scope, then so be it. But let's focus on the real causes and effects, not just the side-effects.

     

    And if nothing can be done, perhaps there is an investment opportunity in some sort of Riot Quelling ETF? ;-)
    23 Feb 2013, 05:34 PM Reply Like
  • For a fee, I'll give you a few ideas.
    23 Feb 2013, 05:42 PM Reply Like
  • DV

     

    Sometimes you are willful idiot.

     

    Rich people don't work that is why they are called rich. So they can invest their capital and pay taxes where they want. You don't want them? No problem they go where they are wanted. Basic human nature.

     

    The word you are trying to keep out of your argument is "fair."

     

    It's not fair.............go ahead and say it.
    23 Feb 2013, 06:23 PM Reply Like
  • > You don't want them? No problem they go where they are wanted.

     

    Why /should/ I want them?

     

    See, the word you keep trying to leave out is "value" -- go ahead and say it: they don't add value. At least not as much as they expect to get back...which perhaps is also why they're rich. :-)

     

    But if I'm a local government, why would I want to bend over backwards to attract someone who won't add proportional value to my locale? Typically the realistic answer is kickbacks and campaign contributions, but more philosophically, why 'should' I want to do that?

     

    If I put measures in place to ensure that those rich folks that I'm handsomely rewarding will bring with them a proportional amount of jobs, economic growth, peace, prosperity, rainbows, and unicorns, then sure, I'll happily bend over backwards.

     

    But if not...come on Tommy, you of all people ought to be opposed to banking on "hope". :-D

     

    See, historically this has been the problem with government "incentives" for businesses: the governments hope that those businesses will come to their countries/states/count... and bring prosperity with them.

     

    What more often happens in practice is that the businesses, who are not constrained by borders as the governments are, will reap the benefits but bring little of the assumed prosperity to the offeror of those benefits, resulting in a very one-sided bargain.

     

    Therefore it's a race to the bottom for the governments and the non-rich that happen to live there too. They have to offer 100 units of value in incentives in the hopes that they get 1 unit of value in return -- a great investment play for the rich, sure...but not so much for the guys on the other side of that trade. :-)
    23 Feb 2013, 06:42 PM Reply Like
  • So the rich are supposed to bring goodies to you & your state?
    23 Feb 2013, 08:44 PM Reply Like
  • DV

     

    What you are saying is that governments don't know how to negotiate or manage because they are a bunch of idiots. They cannot negotiate and they cannot create jobs. And they don't know value.

     

    No surprise to me. About time you admitted it.
    24 Feb 2013, 12:35 AM Reply Like
  • "with government "incentives" for businesses:"

     

    Subsidies are definitely something to stay away from. The same thing happens for unions with things like the Wagner act. The subsidies are basically wealth transfer (stealing) via the gov, and as such, the incentives are created to grow that stealing. This leads to a bubble in that asset class, like the auto industry, the unions need more and more subsidies to keep the asset prices up, and at some point people stop buying in the quantities necessary to support the asset price with the pv of predicted future cash flows. Then the asset is damaged, the market tries to force a reset of what the unions are receiving via their theft through gov, and then gov has to step in and engage in yet another wealth transfer via a tax to bailout the company.

     

    What happens here is that cars sales, like in the case of GM, would create profit that would transfer directly to equity. So what happens is the gov taxes the populace to transfer the equity directly into the capital accounts of GM by taking the food out of the mouths of children to do so. Its as if the public had said, "we can't afford to buy these cars any more, the unions need to lower the price" and the gov said, "too bad, the unions pay for our campaigns, thus we are going to force you to buy their cars and thus save our sugar daddies". Of course the public doesn't even get the car. Their wealth is transferred directly to GM's equity account. Eventually, there will be no GM and gov guns will be used transfer wealth from the general populace directly to the bank accounts of union members.

     

    So what you want to do to avoid all this stealing via gov, is to have a sales tax and no gov subsidy (stealing) programs. This makes your state capital friendly. And since capital is a force of nature, it will flow, like water, to the place of least resistance. The benefit of capital is that it makes labor more efficient. More efficient labor means more productivity. More productivity means more consumption, and more consumption means a higher standard of living.
    24 Feb 2013, 07:01 AM Reply Like
  • > More productivity means more consumption, and
    > more consumption means a higher standard of living.

     

    Almost. You missed a step.

     

    More productivity only means more consumption if actual higher wages (or actual lower prices) come with that increased productivity. Over the past few decades, this has not generally been the case.

     

    Switching back to our general topic of government incentives for businesses and the paltry real value that they typically add, NYT had a pretty good article on this very subject just a few months ago:
    http://nyti.ms/XUpmLl

     

    Be careful that it doesn't burn your eyes with all of its facts and figures and research -- I know how much that bothers some people -- but there is also a lot of well-deserved GM bashing which I'm sure you will find soothing. :-)
    24 Feb 2013, 09:34 AM Reply Like
  • "More productivity only means more consumption if actual higher wages (or actual lower prices) come with that increased productivity. "

     

    Yes, productivity is about making things better and faster. That's what price sensitivity is all about.

     

    "Over the past few decades, this has not generally been the case."

     

    Exactly, because we have been attempting to use gov to regulate prices. This gives business exactly what it wants - the economic incentives that allow them to capture gov so they can use its grant of force to give them what a free market never could - a cartel.

     

    So where a free market that allows for maximum price sensitivity prevents the restriction of supply and the increase of prices (or lower wages), businesses then use gov coercion to create a cartel where they can restrict supply and increase price. Its the gov coercion causing the rich to get richer and the poor to get poorer. That's why thieves use coercion, becuase the theft transaction is all about making one person richer and the other person poorer.

     

    If you want to have lower price and higher wages or whatever combination thereof our technology will allow to raise living standards, then get the gov and its grant of force out of regulating prices.

     

    So if you apply this to our general discussion of states, the ones with the least price regulations (the least welfare, least labor rules, least corporate and income taxes, etc) will be the ones where the standard of living will be the highest via the lack of the ability for businesses to cartelize the system.

     

    Its a myth that businesses want free markets. Only consumers want free markets. That means lots of supply and lower prices. Businesses hate free markets. They want cartels, so they can restrict supply and raise prices.

     

    Don't let all that logic burn your eyes. I'm sure want plenty of opportunity to cartelize the system so you can steal from your neighbors.
    24 Feb 2013, 10:13 AM Reply Like
  • The article is a good example of how gov subsidies fail. Again gov subsidies are just price fixing. What you want overall is a gov that is neutral to business, but biased for property rights. Protecting property rights means protecting people and you do that by keeping them free of coercion. Doing so creates a free market, and a free market is a market with maximum price sensitivity. The result of that is lots of supply and lower prices via gains in technology and competition.
    24 Feb 2013, 10:15 AM Reply Like
  • Another interesting map.

     

    http://bit.ly/X5QcTf
    24 Feb 2013, 10:33 AM Reply Like
  • This map is interest too.

     

    http://bit.ly/XUvuD8
    24 Feb 2013, 10:37 AM Reply Like
  • Nice map! Surprise about the state of Washington...
    24 Feb 2013, 10:58 AM Reply Like
  • Yeah, I thought the same thing. What this may mean is that the divide between rural and urban is much more so than in places like Illinois or California. You see this at the Fed level. The house tends to be more Republican and the Senate and Executive tend to be Democrat. Throughout history there has been this divide between urban and rural. You also saw this in the Soviet Union. Stalin managed to starve millions of people, because in Marxian doctrine there is the hatred of landed owners. You can understand this from a European perspective, because the aristocracy was all about controlling the land and thus resources. So Stalin following this hatred decides to employ price fixing on the grain producers because they were the landed gentry to make food cheaper in the urban areas. We are seeing shades of this in our system as well via this divide between urban and rural voter and their representations in legislative bodies.
    24 Feb 2013, 11:49 AM Reply Like
  • I might add that new immigrants tend to head for big cities, and by and large they tend to vote Democratic too.
    24 Feb 2013, 11:52 AM Reply Like
  • I believe it can be a useful metric; regardless of what one state may gain, another state loses.

     

    Voting with your feet seems to be the only alternative left to people trying to keep more of the money they earn. I voted with my feet 2 years ago and moved from Maryland to Florida. I save $18,000 a year in state income tax alone and I have 20 years until I retire. You can legitimately argue how much Florida will gain from my move but there is no doubt Maryland lost $18,000 a year. For me, those savings could turn into $900,000 if my investments see the average returns on the stock market before I retire. I definitely prefer that my money be used to support me, rather than the parasites the State of Maryland believed deserved my money more than I did. I moved for ‘me’ but Florida will see at least some money from my residency; Maryland loses 100%.

     

    I am not wealthy, but I have money in the bank and I live within my means. My house and car are paid for and outside my normal monthly bills, I don’t owe anyone anything. I take issue with any government entity telling me that they know what is best for my financial future when that same government entity has been broke for my entire life and borrows or prints 33 cents of every dollar it spends. That isn’t even remotely logical, but I am the one being labeled as insane. I want my government to eliminate wasteful spending before they talk about increasing taxes. I will agree I must be insane if I expect that to happen.

     

    D_Virginia – if nothing else, although the green states on Hoop’s map may not be flush with cash, they aren’t in dire financial straits like many of those red states are. If nothing else, the additional taxpayers may be the only thing keeping them afloat right now.

     

    One more ‘metric’ to throw into this discussion; the number of Americans renouncing their US Citizenship has increased almost 8 fold since 2008. Although it is illegal for someone to renounce citizenship to avoid paying US taxes, I think everyone is well aware of the reason these people are doing so. Government is repelling wealth rather than attracting it. The real trap is that higher taxes don’t always translate into more revenue.
    24 Feb 2013, 11:57 AM Reply Like
  • JH- here is another interactive map you may like, you pick a destination city and click it and it will show where people are migrating from
    http://onforb.es/I6pRPX

     

    Now the why is anybodies guess but for sure lower taxes, lower cost of living, weather, job opportunities etc I would consider are the main drivers for migration. This map al;ong with the others will help provide a clearer picture of why the migrations
    24 Feb 2013, 12:19 PM Reply Like
  • > we have been attempting to use gov to regulate prices.

     

    Care to elaborate on this?

     

    I would say that the biggest problems have occurred where the opposite has been the case: too much deregulation has led to uncontrolled price increases via lack of competition, wage decreases for all but the top tier, and general market instability. For example, compare the relatively unregulated financial industry with the relatively regulated power utility industry.

     

    Certainly, government should not regulate everything to N-th degree (no straw man for you!), but some reasonable bounds need to be established and enforced. Not that govt currently does a good job of either, but it probably 'should'. :-)

     

    > to give them what a free market never could - a cartel.

     

    I would say a completely free market ALWAYS results in a cartel, unless there are guaranteed low barriers to entry (we see this in some tech startups, for example, where a smart idea doesn't necessarily take a fortune to build a business from).

     

    See, in competition, eventually someone wins. :-) Sure, that someone might be unseated at some point, but it will take a long time, and it will simply be unseated by a different cartel.

     

    > standard of living will be the highest via the lack of the ability
    > for businesses to cartelize the system

     

    Again, I challenge this assumption, and I claim to have history on my side, including the monopolies of the late 1800s and early 1900s.

     

    I agree with the lament that government is often used as tool by business to create cartels, but blindly removing government from the equation isn't going to magically fix that. Absent some reasonable regulation, business would simply use its own tools, as it has in the past, and the people would have less recourse to fall back on.

     

    Interesting side note: how does one define standard of living? It's tricky to simply use cost of living or income without a ratio of the two, and other factors as well. Here's an interesting take on it, if a bit fuzzy, that does not highly rank many of the states highly ranked on your (very insightful) maps:
    http://bit.ly/UXTERo
    24 Feb 2013, 12:33 PM Reply Like
  • This could be a script from SNL...
    24 Feb 2013, 01:12 PM Reply Like
  • > More productivity means more consumption, and
    > more consumption means a higher standard of living

     

    1/3 of the world's population is showing this is true.........China and India.

     

    We have people and industries that cannot compete. That is not even in question any longer.
    25 Feb 2013, 09:48 AM Reply Like
  • jh

     

    very well said......

     

    Its a myth that businesses want free markets. Only consumers want free markets. That means lots of supply and lower prices. Businesses hate free markets. They want cartels, so they can restrict supply and raise prices
    25 Feb 2013, 09:50 AM Reply Like
  • dv

     

    Deregulation of the airline and telco industries drove down prices so there are 2 major example that counter your thesis as stated below. Furthermore banks have heavy regulation on them rather than your characterization of them being deregulated. It would be interesting to take away the power grid from utility companies and let people buy power from any source through the grid. Prices would drop as competition is introduced. A lot of utility companies would go out of business.

     

    "I would say that the biggest problems have occurred where the opposite has been the case: too much deregulation has led to uncontrolled price increases via lack of competition, wage decreases for all but the top tier, and general market instability. For example, compare the relatively unregulated financial industry with the relatively regulated power utility industry"
    25 Feb 2013, 09:58 AM Reply Like
  • "Care to elaborate on this?"

     

    Any action by gov other than establishing property rights and protecting property rights is price fixing. There are two approaches to this. Gov can mandate that produce with 1, 2, & 3 features will cost X, or the gov can mandate that a product that currently costs Y must contain features 1, 2, & 3 which raises the price to X. Either route results in a restriction in supply and an increase in price.

     

    "For example, compare the relatively unregulated financial industry with the relatively regulated power utility industry."

     

    Unregulated? That's a laugh. From top to bottom, from stem to stern, the bank regulators run the banks in the US. They set rules for everything. Also, look at those utilities. Price is constantly being raised, and people are constantly told to reduce their lifestyle by conserving.

     

    "and I claim to have history on my side, including the monopolies of the late 1800s and early 1900s."

     

    History is not on your side. The point of a monopoly is to decrease supply and raise prices. Rockefeller constantly was lowering prices and increasing supply. This is what won him market share. This is why he finally turned to gov to have the system cartilized for him. Whenever he would get to 95% market share, he would attempt to raise prices and restrict supply. As soon as he did new market participants would enter, and drive the price back down.

     

    "but blindly removing government from the equation isn't going to magically fix that. "

     

    I'm not arguing that. I'm arguing to use logic and reason to determine how we use gov to regulate and what it actually can regulate. What you are attempting to do is to use specious reasoning that says, "Gov has a role, therefore we should let it do whatever it wants as long as the people with that power claim to have good intentions". That's a receipe for disaster.
    25 Feb 2013, 10:55 AM Reply Like
  • > Deregulation of the airline and telco industries drove down prices

     

    Well, we're talking apples and oranges now, with regard to the type of "regulation". Sorry, my mistake for not being clearer.

     

    More specifically, JH was arguing against "regulation of prices" via notions such as taxes, welfare, labor rules, and presumably other restriction on certain industries.

     

    Your airline industry example is a perfect instance of over-regulation of a different sort, where the government basically tried to manage the whole industry. I fully agree this is undesirable. Kumbaya. :-)

     

    However your telco example is a very bad one: how did that work out? From Ma Bell to the the collusive mini-monopolies of today, this is an example where a little more regulation might have gone a long way for John Q. Consumer:
    http://bit.ly/VIkfB3

     

    But back to JH's version, wherein he believes consumer welfare will flourish if companies pay little taxes and have little oversight with regard to labor, I claim this is false.

     

    History tells us this. Remember monopolies? Sweatshops? Company towns? Fulltime child labor? These are the kinds of things that companies thought was "good business" a century ago, and would still use today if they could. And you can bet this is quite the norm in your beloved China and India.

     

    Again, in competition, someone always eventually wins. And once they do, it's very hard to unseat them as they create their own barriers to entry in their industry, thoroughly harming the public consumer.

     

    Also noteworthy: in a race to the bottom, do you really want to be the winner? :-)
    25 Feb 2013, 11:02 AM Reply Like
  • "History tells us this. Remember monopolies? Sweatshops? Company towns? Fulltime child labor? These are the kinds of things that companies thought was "good business" a century ago, and would still use today if they could. And you can bet this is quite the norm in your beloved China and India."

     

    This is completely wrong. There is no evidence to support any of these claims.

     

    First the only monopoly that can exist are those that are granted by gov. The reason is that a monopoly ultimately needs force to keep it going. This is why govs granted monopolies, because competition always destroyed them.

     

    Secondly, the conditions we live under today will seem primitive to conditions 100 yrs from now. All economies evolve as their technology evolves. So our working conditions today will seem like sweat shops 100 years from now. People will always demand better compensation (including work environments), and as technology allows it, the compensation will improve. Gov price fixing in this area will retard grow because it will set arbitrary fix costs that will result in less productivity and thus lower wages.

     

    All you need gov to do is to make stealing expensive, and the human instinct to improve the standard of living will do the rest.

     

    "Again, in competition, someone always eventually wins. And once they do, it's very hard to unseat them as they create their own barriers to entry in their industry, thoroughly harming the public consumer."

     

    And this is way wrong too. History is littered with the carcasses of businesses that were once on top and are no more. Price sensitive private market regulation is far tougher than the politically driven regulations. Private market regulations quickly get rid of poor performers, whereas gov bails them out and guarantees they will be around a lot longer than price sensitive markets would allow.

     

    Again, the role of gov is simple. Make stealing expensive and then people can only interact on a voluntary basis. That's when they are the most price sensitive, and that's when they are the most productive, and that's when their standard of living will go up. If gov could mandate an improved standard of living, why no just have it mandate no one has to work for unlimited consumption. What your are arguing is just not logical.
    25 Feb 2013, 11:50 AM Reply Like
  • DV
    we need to tax consumption and don't tax savings and investment income to get this country moving again to create jobs
    25 Feb 2013, 12:08 PM Reply Like
  • Value is derived from obtaining a return from ones investment. Why else would anyone lend someone else $? provide their labor ? The government distributes capital all the time in order to be fair, but is this really creating any value? Realistically, the only reason one would allocate capital (whether $, labor etc) is to add value or in the case of $, a return. Capital allocation, whether at a company, city, state level is focused towards the placing $ where the greatest opportunity (aka Value) is, hence why education and first responders garnish the largest parts of local budgets! It is called, return on investment. There are a number of tools to evaluate an investment such as pay-back period, net present value or internal rate of return. It is the process of seeking value while mitigating risk that is what capital allocation is all about. So why would you want to restrict the free flow of capital? If a person of wealth can obtain greater value for their investment, why should we restrict it? Should we force the Gates Foundation to invest their endowment in the US? They do not, because Africa provides greater value, but using your line of thinking, maybe we should restrict where they provide services. Should we allocate all government resources to pay for medicaid? What is the value in that? Does it add jobs, keep people from poverty? No, but it is fair!
    25 Feb 2013, 03:53 PM Reply Like
  • DV

     

    I was considering the deregulation of the 1980's with AT&T being broken up and long distance rates fell dramatically. There are more shoes to drop in this industry as consumers have more choices and will gravitate towards mobile devices and voice over IP. At some point we can get rid of some of the wires in the ground and on telephone poles.

     

    That is a good story.
    25 Feb 2013, 06:39 PM Reply Like
  • The love of gov regulation is nothing new, and the arguments don't change either.

     

    http://bit.ly/T1X40W
    25 Feb 2013, 07:23 PM Reply Like
  • Not real complicated: when total debt is equal in size to GDP, and interest rates rise ABOVE GDP growth rate, the death spiral begins.
    23 Feb 2013, 08:52 AM Reply Like
  • Smith, If that's true then why has Japan not collapsed? Their debt is over twice the GDP.
    23 Feb 2013, 08:18 PM Reply Like
  • Give Japan time Hendershott. They will default. Already, with their new dovish central bank, they are trying to devalue their currency and inflate away their debt. We'll see how badly that ends in a few years.
    24 Feb 2013, 10:10 AM Reply Like
  • Ray, the Japanese have been trying to produce some inflation for 15 years, so far with no success.
    24 Feb 2013, 11:40 AM Reply Like
  • If they really wanted to get some inflation going, all they would have to do is let the average person pledge assets at their CB and then get a deposit account at the CB. The gov could also just eliminate any expropriation taxes they have (income, sales, tariff, etc). The gov could also institute a reverse income tax, and just give people CB notes by issuing debt and forcing their banks to buy the gov bonds.
    24 Feb 2013, 11:52 AM Reply Like
  • "...why has Japan not collapsed?"

     

    It takes time. Debt compounds faster than GDP until lenders recognize that it can't work any more. Hemingway said it best when asked how bankruptcy happens:

     

    "Slowly...then all at once."
    25 Feb 2013, 10:21 AM Reply Like
  • Also worth noting if the economy net of the government sector is growing or stagnant or declining. In the latter two cases it is big trouble.
    23 Feb 2013, 09:02 AM Reply Like
  • TVP
    Yes the economy is growing for the bankers because they got their bailout money and the CEOs got the performance bonus for their superb work; are we getting our bonus?
    23 Feb 2013, 03:05 PM Reply Like
  • Bankers are not growing.

     

    Move along now.
    23 Feb 2013, 06:24 PM Reply Like
  • The Fed IS the problem. Did anyone at the Fed say that there were problems ahead in 2008?
    23 Feb 2013, 09:02 AM Reply Like
  • wy
    what problems?? we can print our way out of any problem
    23 Feb 2013, 03:09 PM Reply Like
  • According to Niall Ferguson...

     

    "History suggests that once you are spending as much as a fifth of your revenues on debt service, you have a problem. It’s all too easy to find yourself in a vicious circle of diminishing credibility. The investors don’t believe you can afford your debts, so they charge higher interest, which makes your position even worse."

     

    Anybody know the debt service to revenue number??
    23 Feb 2013, 09:24 AM Reply Like
  • bbro, how DARE you try to bring FACTS and worse, POTENTIALLY RELEVANT FIGURES into this otherwise purely emotional and political ranting!! You should be ashamed! :-)

     

    But while we're at it....

     

    Interest in 2012 was ~$360B: http://1.usa.gov/qvYMRZ

     

    And this 2011 article estimates debt service to GDP ratio at less than 2%: http://ti.me/131nDvm

     

    Note, of course, that these figures do not account for any attempt to actually begin to *reduce* the debt, which is at least slightly problematic in the long- long- long-term.
    23 Feb 2013, 09:42 AM Reply Like
  • In that case why not:
    1. Set interest rate to zero or
    2. Print enough money to pay off all previous debts.

     

    Either one of those would result in interest cost of zero. You can't have it both ways. Greece was fine too at the beginning of 2010 but in 2 weeks it's over.
    23 Feb 2013, 09:51 AM Reply Like
  • From the research I have done, the net interest pay on the debt in 2011 was around $227B, which in that year was around 6% of the budget. A few years ago the interest payment was higher as a percentage of budget but interest rates in general were higher, around 10%.

     

    To me it's a no win situation. Feds need to keep interest rates low to help jump start the economy. If the economy did happen to take off, interest rates would likely have to rise in order to keep inflation down.

     

    Eventually we will hit critical mass, this 20% number. Who knows when that will be.
    23 Feb 2013, 10:41 AM Reply Like
  • It's 10 to 13% depending on your source. In Japan its 23%-25% and they will likely go down first before we do. And this is with near all time low rates. If rates go up back to historical averages of 5% on the 10 year treasury, than we're in trouble.
    23 Feb 2013, 02:20 PM Reply Like
  • Destructo
    Feds need to keep interests low to help jump start the economy.

     

    You still believe that line because green shoots went out of style; the economy to take off? they have been saying this since 08-09; the Fed needs to keep the interest rates low because if rates go high all the mortgages bonds, T bonds, and derivatives will go down in smoke and everything has to be marked to market; imagine the $ trillions of losses? the Fed keeps interest rates low by using interest rates swaps
    23 Feb 2013, 02:56 PM Reply Like
  • Nicholas
    I don't understand your logic; we are in trouble due to low interest rates, real rates below inflation, so that the consumer can spend freely and you say that if rates go to 5% we'll be in trouble; don't you agree we are in trouble with low rates? higher rates are the solution and a step in the right direction... we got bite the bullet and move in the right direction or follow Japan in their third decade
    23 Feb 2013, 03:40 PM Reply Like
  • "...If rates go up back to historical averages of 5% on the 10 year treasury, then we're in trouble."

     

    I'm betting that it won't, anytime soon enough to worry, and willing to accept the risk that I'm wrong. I could perhaps try and explain why if anyone is really interested, but for the record I've heard the tired old contrary-majority argument and I'm just not convinced by the evidence. But I'm still listening, because when the majority comes around to my way of thinking, that's a sign the game may have changed and the party might be coming to an end in the foreseeable future. So far, I'm still just not worried. I'm gonna party like its 1919.Or 1991.
    23 Feb 2013, 03:53 PM Reply Like
  • Sure thing, Chucky Cheese Schumer and The Time....

     

    In the last budget, the 400 billion in interest was about 12% of government revenue...

     

    The debt interest payment of GNP is not germane...
    23 Feb 2013, 11:08 PM Reply Like
  • Well said, Nicholas. We get to watch Japan go through the end game well before we do in the U.S.. Grab your popcorn.
    24 Feb 2013, 07:58 AM Reply Like
  • >"they will likely go down first"

     

    Is that in one year, or 100? Because one is relevant to me and the other isn't.
    25 Feb 2013, 09:45 PM Reply Like
  • >" I could perhaps try and explain why if anyone is really interested"

     

    Please do. I'm here to learn!
    25 Feb 2013, 09:47 PM Reply Like
  • I used to be a team player and supportive of our country.It is no longer the country I loved. We have reverted to the late stages of the Roman Empire.

     

    It's every man for himself now.
    23 Feb 2013, 09:24 AM Reply Like
  • Got drones?
    23 Feb 2013, 09:45 AM Reply Like
  • If you want I can send Roman legions all over the world and fix world problems; viva la pax Romana
    23 Feb 2013, 09:52 AM Reply Like
  • 90% of the American people and states manage themselves just fine.

     

    D.C. on the other hand, has printing presses.....
    24 Feb 2013, 08:04 AM Reply Like
  • > 90% of the American people and states manage
    > themselves just fine.

     

    This is a hilariously false statement. You clearly don't know anything about the state of personal or state finances in the U.S. :-)
    24 Feb 2013, 09:15 AM Reply Like
  • LOL. Everything is fine, says the Pollyanna Northern Virginian who depends on the Federal Government for their revenue. Troll on, D_Virginia! Yes there is a Santa Clause and his name is Uncle Sam. ;-)
    24 Feb 2013, 10:13 AM Reply Like
  • I think Darken meant: 90% of the [Conservative] American people and states manage themselves just fine.
    24 Feb 2013, 10:18 AM Reply Like
  • So the 80% number is counting trillions in unfunded public sector pensions and future social security and medicare shortfalls?
    23 Feb 2013, 09:47 AM Reply Like
  • According to usdebtclock.org US debt stands at $16.57 trillion while GDP is $16 trillion = a debt over 100% of GDP.Going forward a $1 trillion a year annual deficit far outpaces annual growth in the GDP. Maybe if you tried a calculator
    23 Feb 2013, 09:53 AM Reply Like
  • june
    So you believe the gov't official numbers of $1T annual deficits; then no surprise we are in this shape; if you include the interest payment on debt which is off the books, the cost of the wars again off the books, the use of cash from Social Security and other government retirement funds, I have seen numbers for the deficit jumping to $2T-$3T; we the people have had a deficit attention to the government numbers for the past 40 years and look where we are; we the people should start questioning those numbers now; I am sorry but we got start looking at real numbers and my problem is I got some training in auditing from engineering or finance
    23 Feb 2013, 02:03 PM Reply Like
  • Amazingly short sighted to consider rate of debt service without also considering the magnitude of the debt. Even though we 'enjoy' artificially low rates of interest on our national debt currently, there is no basis for expecting these interest rates to remain low for very long.
    Consequently, it is irresponsible to 'tout' debt service of only 10.5% of GDP while the magnitude of the debt to be financed continues to spiral. Even a school child knows that a slight increase in interest rates - say from 2% to 3% - will have a devastating impact on our economic ability to service this debt.
    23 Feb 2013, 09:54 AM Reply Like
  • I have been thinking about the Baseline Budgeting that our Government has always used. We should stop BL Budgeting and fund only those things that need to be funded and let old line items fade away instead of continuing to fund a long since dead horse. I think this would help us in a material way. But I know our slime-ball politicians on both sides of the aisle would never allow that to happen. So, I am very discouraged with where we go from here. In our strange world of government accounting, a "cut" is really only not allowing the budget to increase year after year after year. In other words, keeping the budget at last years funding level is considered a "cut". It is NOT a "cut", it is the SAME as last year!! How crazy is that?
    23 Feb 2013, 10:02 AM Reply Like
  • WJG
    A cut in government accounting is based on future projected budget...so it is not a real cut from today's budget; we the people have been reelecting those slime ball politicians giving us goodies
    23 Feb 2013, 02:29 PM Reply Like
  • And this is why we need to get to accountant peer-reviewed budgets in all departments that all parties can understand. When monies are spent in government, all items need to be included. everything needs to be on budget. If social security receipts are a collection of I.O.U.'s, then they need to be tabulated as such. if money is spent on wars, it should be added to the debits and credits. Basic accounting 101 can be understood by everyone. Otherwise all numbers cited in debates and speeches mean nothing and cannot be tested, just argued over. While we are at it, the Fed's balance sheet and the Defense department should be included.
    23 Feb 2013, 04:14 PM Reply Like
  • The FED says, "this time is different". Look out below.
    23 Feb 2013, 11:31 AM Reply Like
  • Two things - if they admit the truth about what's going on, they will rapidly become ex-Fed officials and PhD should be replaced by the more descriptive PF'D up.
    23 Feb 2013, 12:10 PM Reply Like
  • Canary
    Let's get real; they will never admit to anything and they protect themselves;if you want go a step further, I suggest we take their PhD and MBA away for fraud and shut down by decertify the business schools for teaching fraud
    23 Feb 2013, 02:39 PM Reply Like
  • Never mind selling more paper 'treasuries' to the Chinese; we are selling birth certificates to pregnant Chinese visitors.

     

    But the military turns a blind eye; the military turns a blind eye.
    23 Feb 2013, 02:16 PM Reply Like
  • Respectfully, "the military" ... follows orders.
    23 Feb 2013, 03:19 PM Reply Like
  • Maybe some should seriously take this serious and buy some physical metals? Fiat money might run into a problem soon..
    23 Feb 2013, 04:30 PM Reply Like
  • Deficits don't matter. What we need is growth not a obsession of self-flagellation...The Federal Reserve has to be more agressive and conduct asset purchases above the $500B amount per month.
    23 Feb 2013, 04:50 PM Reply Like
  • Is there a typo here "$500B" vice "$50B"?

     

    If it were indeed "$500B" I would push my chips to the velvet table center, All In!
    23 Feb 2013, 04:55 PM Reply Like
  • Yep, $500B. Keep in mind that the financial sector is still in a weak state, we need it robust.
    23 Feb 2013, 05:00 PM Reply Like
  • Hooray! Heap heap hooray! Whoa! Phew! Gajagaj! Jarrrr.

     

    TK making funny noise now, elated, exhilarating, joyously dancing, cheering...

     

    @anonymous#12 - I cannot agree with you more. 100% concurrence. Total agreement.

     

    Go for it now, professor BB! Go BB Go!!!
    23 Feb 2013, 05:05 PM Reply Like
  • In for a penny, in for a pound, eh?
    23 Feb 2013, 07:32 PM Reply Like
  • Japan has had a 200x debt/GDP, but they are a major creditor nation and JGBs carry a high number of domestic holders.

     

    The U.S. has a significant amount of unfunded liabilities, although many don't realize that 'entitlements' are not a "right." Paying into the system does not guarantee one future benefits, even though there are those currently drawing more benefits than they paid in. Ponzi schemes and bubble finance.
    23 Feb 2013, 05:23 PM Reply Like
  • The Fed calling anyone or anything else "simplistic" is projection. Ironic, too, but they're too clueless to notice that either.
    23 Feb 2013, 05:28 PM Reply Like
  • I believe the Fed has more of a clue than a bunch of arm chair economists.
    23 Feb 2013, 08:21 PM Reply Like
  • National debt: 16 Trillion
    Interest rate:~1.5%
    Debt service: ~250 Billion.

     

    So, when interest rates move up to just 3%, debt service goes to ~500 Billion/year.

     

    And we're all up and twisted over 50 Billion in sequester? Yeesh.

     

    Pity math is a second language in the USA.
    23 Feb 2013, 08:53 PM Reply Like
  • Darken, the last figures I saw the average rate the Central Bank was paying was 2.3% vs the norm of 5 to 6%....
    23 Feb 2013, 11:13 PM Reply Like
  • Sure. Thank you.

     

    So we go from 250 Billion @ 2.3% to 500 Billion with a move to 4.6%, which is under the "norm." The ratio/concept still stands.

     

    The question now is: "knowing these facts now, where do we place our material treasure to preserve/grow its value?"

     

    Buehler?
    Buehler?
    24 Feb 2013, 08:11 AM Reply Like
  • In school.
    24 Feb 2013, 10:44 AM Reply Like
  • Remember what the Great Winston Churchill said:

     

    If you are in your twenty's and have no heart you are not a liberal: If you are in your forty's and are not a Conservative, you have no brains...
    24 Feb 2013, 10:21 AM Reply Like
  • Well, between the tin-man and the scarecrow, where does that put you when you are in your fifties?
    24 Feb 2013, 12:08 PM Reply Like
  • In a rest home...I do like the tinman and the scareocrow analogy, however...
    24 Feb 2013, 12:26 PM Reply Like
  • I resemble that.
    24 Feb 2013, 01:31 PM Reply Like
  • America is basically bankrupt. We are using debt as money. A bank debt note has no ability to hold value. Prices rise to compensate because the dollar loses value. Since 1971 prices are up 1,000% and wages are up 500%. The middle class is wiped out. This could have been predicted August 15th, 1971, when gold exchange was defaulted on.

     

    The Dow was $700 in real US Treasury silver coins in 1964. In 2013 the Dow is $700 in the same exact silver coins or $14,000 in US debt notes. Our money IS debt. Gold and silver are a claim on the past. Debt notes are a claim on the future. The future is being over loaded with too many promises. Too many "over promised" pensions out there. Default is the way to clear the deck and reset.

     

    The default will occur. Will it be inflation, hyper inflation, default and foreclosure, or what? I fear the Fed will expand it's balance sheet to ten or twenty trillion counterfeit dollars, purchase unlimited government bonds and debt for nothing, and foreclose on the United States, taking all the Federal Land after getting a rigged ruling from a loaded Supreme Court.

     

    History is quite clear about currency debasement. It has never worked in any case and always ends in tears. Protect yourself.
    24 Feb 2013, 12:55 PM Reply Like
  • Reading both sides of this argument i come to one conclusion..NO ONE has the right answer..Were doomed!

     

    Every suggestion has nasty consequences and we all better understand that..
    24 Feb 2013, 01:13 PM Reply Like
  • For me there is nothing to understand; this country has to bite the bullet soon or later..it is only a matter of time whether we like it or not...we have been living way above our means...let economy crash and then we can rebuild fast without anybody having to say ands, ifs, or buts
    25 Feb 2013, 12:19 PM Reply Like
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