Geithner To World: Spend Now. Cut Deficits Later.

NPR ^ | 06/23/10 | Jacob Goldstein

[TigerLikesRooster]

Geithner To World: Spend Now. Cut Deficits Later.

by Jacob Goldstein

There's this big debate in both the U.S. and Europe right now: cuting government spending to reduce deficits versus continuing to spend heavily to promote economic growth.

Europe has been moving to lower deficits. The Obama administration is pushing for spending, at least in the short term.

Ministers from the G-20 — the world's 20 largest economies — are meeting in Toronto this weekend, and hashing out this question is at the top of their to-do list.

Tim Geithner and Larry Summers land on the WSJ op-ed page this morning, outlining the U.S. agenda for the G-20. They argue for more spending:

[ScottinVA]

World to Tax-Cheat Geithner: Screw off. We’ve been there and done it. And it doesn’t work.

[LibLieSlayer]

What a ****ing idiot... but then every single marxist appointed by obama is a ****ing idiot... including obama.

LLS

[paul51]

They argue for more spending

Figures

[austinaero]

“...outlining the U.S. agenda for the G-20. They argue for more spending”

And when someone at the G20 asks them why the U.S. Congress isn’t passing a budget right now I wonder what Tim’s answer will be...?

God I wish hypocrisy caused leprosy.....

[MozarkDawg]

With what just occurred in Greece, how can they possibly be still having this big debate in Europe, let alone here??!!!

[A message]

If only Visa would up my credit limit to 1 trillion dollars I could save the country.

Hmm, I wonder how long it would take to pay off 1 trillion dollars paying the minimum each month?

[TigerLikesRooster]

Attack of Harvard Monster Rats

http://www.ivygateblog.com/2009/04/harvard-expansion-unearthing-rats-big-enough-to-put-saddles-on-allston-residents-not-glad/#comments

Harvard Expansion Unearthing Rats “Big Enough to Put Saddles On,” Allston Residents Not Glad

by Adam Clark Estes | April 28, 2009 at 1:08 am

Harvard’s multi-bajillion dollar expansion into Allston, already only crawling forward, now faces a new obstacle: rats. According to an article in today’s Boston Herald, the deep digging required for Harvard’s TNMT-style underground lairs has stirred a colony of mutant rodents that EATS THROUGH HOMES! (That’s working-class homes, btw.)

Rats “big enough to put saddles on” are running amok in Allston and Brighton, leaping from trash bins, chewing their way into homes and terrifying residents who blame Harvard’s own “Big Dig” for unleashing the vermin.

“They pop out of the trash. A couple of weeks ago one ran right across my hand. It’s nasty,” said Gerry Gentilucci, 43, an MBTA equipment operator who lives on Myrick Street in North Allston.

Harvard is clearly denying having unleashed a herd of house-munchers. There’s no way a 530,000 square-foot area dug 40 feet deep might upset some underground life form. After all, they set up “rat monitoring stations.” Because monitoring something (like say a volcano) actually prevents it from doing something unpleasant. Sarcasm aside, this sounds less like a complaint from Harvard’s neighbors across the river and more like an impending battle of the species.

A minute ago, the Cantabridgians thought that giant spray-painted banners on abandoned buildings in Allston were threatening. Wait ’til those yellow-toothed rat-steeds come rumbling across Anderson bridge looking for the Faustian figure who signed the deal and p0ured the green sludge on Splinter’s family.

[Common Sense 101]

Brilliant.

In other words, spend taxpayer money like there is no tomorrow, because the detrimental effects will hit after these no-talent a$$ clowns are out of office.

2012 can not come fast enough...

[erkyl]

Bad link... can you get a good one?

[blueyon]

I see by your replies you all have it covered so I don’t need to say any thing else...Keep up the Good job fellow Freepers!!!!

[TigerLikesRooster]

I wonder how much it costs to build a guillotine at Layette Park.

[Nosterrex]

“Spend now, and cut later.” Does anyone actually believe that Congress is going to “cut later”? Both parties have abandoned all financial restraint. Let us hope and pray that things are going to change. If the government wanted to help spur the economy, all that it would have to do is cut taxes and reduce the size of government. That would create such an economic boom that we could reduce the deficit.

[thecabal]

“TNMT-style underground lairs”? Sign me up!!!

[KarlInOhio]

Out of the lifeboats and back on to the Titanic. The band needs an audience and the deck chairs must be rearranged. If you don't get out of the lifeboats now, it will be your fault if the Titanic sinks.

[alice_in_bubbaland]

Unbelievable ignorance! The whole Obummer administration is incompetent.

I here listening to Glenn Beck, getting sick to my stomach. They are destroying this Nation while we all watch.

Somebody has to stop the madness.

[jiggyboy]

Ha, Germany to Geithner, “forget it, chump!”. It might be an interesting G20 this weekend for a change.

[Sacajaweau]

Spend what?? Where does he think the government gets its' money from???

Oh...He means just go further into debt.

[Wyatt's Torch]

Be Careful What You Wish For
by John Mauldin
June 18, 2010
In this issue:

Be Careful for What You Wish

GDP = C + I + G + (X-M)

The View From Europe

“Everyone” is upset with the level of fiscal deficits being run by nearly every developed country. And with much justification. The levels of fiscal deficits are unsustainable and threaten to bring many countries to the desperate situation that Greece now finds itself in. We must balance the budget is the cry of fiscal conservatives. But there are unseen consequences in moving both too fast or too slow in the effort to get the deficits under control. Today we look at them as we explore what a fine mess we have gotten ourselves into. (I am working without internet today so the letter will be shorter with fewer references than normal.)

GDP = C + I + G + (X-M)
We have discussed the above equation before, but let’s look at it again from a different angle. Basically, the equation is another accounting identity. GDP (Gross Domestic Product) for a given country is the total of Consumption (personal and business) plus Investments plus Government spending plus exports minus imports.

The Keynesians argue that when there is a drop in C due to a recession that the G must rise to offset the drop. That was at the heart of the argument for stimulus packages in so many countries. And there is no doubt that stimulus did help keep a very deep recession from turning into an even deeper depression. One can legitimately argue about the size of the stimulus, or about the nature of the spending, but it is difficult to argue that it did not have an effect.

Now, of course, the hope is that a recovery will allow C to begin to rise so that there is no more need for government deficits. Keynes argued that governments should run surpluses in good times, which is conveniently forgotten by most government spending types. The problem is that we are still running massive deficits. Tax receipts are way down (10% unemployment will do that to you!) and show no sign of turning back up soon all over the developed world.

If you reduce government spending, that also has a negative effect on GDP in the short run. But in past recoveries the growth of the private sector has overcome that negative effect. Normally at this time in a recovery growth is in the 7% range. This is a very tepid recovery in the US and the developed world.

There are loud calls in the US and elsewhere for more fiscal constraints. I am part of that call. Fiscal deficits of 10% of GDP is a prescription for disaster. As we have discussed in previous letters, the book by Rogoff and Reinhart (This Time is Different) clearly shows that at some point, bond investors start to ask for higher rates and then the interest rate becomes a spiral. Think of Greece. So, not dealing with the deficit is simply creating a future crisis even worse than the one we just had.

But cutting the deficit too fast could also throw the country back in a recession. There has to be a balance.

Greece has promised to cut its deficit by around 4% a year for 3 years. Spain is also making deep cuts. But the danger is that you could create a nasty spiral.

That deficit reduction will also reduce GDP. That means you collect less taxes which makes the deficits worse which means you have to make more cuts than planned which means lower tax receipts which means etc. Ireland is working hard to reduce its deficits but their GDP has dropped by almost 20%! Latvia and Estonia have seen their nominal GDP drop by almost 30%! That can only be characterized as a depression for them.

If you are in a country which cannot print its own currency as Greece or Ireland, the only way you can get back to competitiveness is to increase your competitiveness by decreasing your costs of production. And that is not just goods. It is a lot of labor cost. But if you reduce labor costs, you get less tax receipts. It is a very painful path, but once you get to the end game, the only choices you have are painful.

Britain is now running about 5% inflation. Let’s say real (after inflation) growth could be 3% for a total of nominal growth of 8%. If Britain can get their deficit to GDP down to 6%, then they would actually be seeing the relative size of their debt being reduced. Debt is not adjusted for inflation (what that does to bond investors is another story) and so a country can run a deficit that is less than nominal GDP essentially forever. That may not be wise, but it is not a course for disaster.

But countries like Greece which cannot print their own currency don’t have the inflation option. They are stuck with the low inflation of Europe. So if their economy is shrinking by 3% that means their debt to GDP level is rising even if they were not borrowing any more money. And trying to reduce “G” by large amounts insures that their GDP will shrink even more. Essentially they have to deflate their economy to make themselves more competitive. It is not going to be easy.

Those calling for countries to quickly cut their deficits are essentially telling them they must enter into a serious recession for some time in order to get the ECB to buy their bonds. And what choice do they have? If they do not make the cuts, the bond market will simply dry up and their interest rates will sky-rocket, which will force more cuts that will be deeper and sooner. There are not good options, only painful ones.

By the way, as countries go into recession, they will buy fewer goods. That cannot be good for exporting countries like Germany and China.

Be Careful for What You Wish
In the US, we must start to get our fiscal house in order. But if we cut the deficit by 2% of GDP a year, that is going to be a drag on growth in what I think is going to be a slow growth environment to begin with. If you raise taxes by 1% combined with 1% cuts (of GDP) that will have a minimum effect of reducing GDP by around 2% initially. And when you combine those cuts at the national level with tax increases and spending cuts of more than 1% of GDP at state and local levels you have even further drags on growth.

We need to cut our fiscal deficits. We need to reduce the size of governments. But let’s make no mistake that it will be painless. It is necessary that we begin as soon as possible so that we can do it at a reasonable pace before the bond markets force us to move at a pace which will be even more painful. Be careful what you wish for.

I still maintain that we have better than a 50% chance of a recession in 2011. I wish it were otherwise.

[The Comedian]

Good financial and patriotic advice for all 10 remaining employed Americans:

Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.