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The Masked Tulip

President Obama Doesn't Understand The Origins Of The Deficit

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No one can justify wasting money on wars that should not have been fought, giving away tax breaks to people who don't need them, or deliberately designing a prescription drug benefit so that it needlessly hands hundreds of billions of dollars to drug companies and insurers. But even with all of this waste, the deficit was still not out of control.

This is a central point that needs to be made 300,000 times in the current debate over the budget. The deficits were very much containable until the collapse of the housing bubble sank the economy.

http://www.huffingtonpost.com/dean-baker/debt-ceiling-housing-_b_911342.html

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The deficits were very much containable until the collapse of the housing bubble sank the economy.

Uhh, yeah, until you consider the increase of debt within the private sector for the previous 30 years, which afterall, is from what govt revunue is derived from one way or another.

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"No one can justify wasting money on wars that should not have been fought, giving away tax breaks to people who don't need them, or deliberately designing a prescription drug benefit so that it needlessly hands hundreds of billions of dollars to drug companies and insurers. But even with all of this waste, the deficit was still not out of control."

Obviously, he is aiming for an economics Nobel to so with his peace one.

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This is a central point that needs to be made 300,000 times in the current debate over the budget. The deficits were very much containable until the collapse of the housing bubble sank the economy.

Nonsense, and here's why:

From the 2006 movie "I.O.U.S.A.", made well before the financial crisis hit:

Some people think that we can solve our financial problems by stopping fraud, waste and abuse or by canceling the Bush tax cuts or by ending the war in Iraq. The truth is, we can do all three of these things and we would not come close to solving our nation's fiscal challenges.

Here's how bad our situation really is -- we already have approximately $11 trillion in total liabilities, including public debt. To this amount, you need to add the current unfunded obligations for social security benefits of about $7 trillion. Then add Medicare's unfunded promises, $34 trillion, of which about $26 trillion relates to Medicare parts A and B and about $8 trillion relates to Medicare part D, the new prescription drug benefit which some claimed would save money in overall Medicare costs. Add another trillion dollars of miscellaneous items, and you get $53 trillion.

Our country would need $53 trillion invested today, which is about $175,000 per person, to deliver on government's obligations and promises. How much of this $53 trillion do we have?

Zip.

By the time today's college graduates are ready to retire, 40 years from now, the only things our government will be able to pay for are interest on the Federal debt and some social security, Medicare, Medicaid benefits. All other parts of the Federal government will be closed and out of business.

Yeah, that sure sounds "containable".

Source of that quotation is David M. Walker, former comptroller general of the United States for 10 years.

http://www.youtube.com/watch?v=Mkg2bzSXfJs

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US govt. deficit is simply the corollary of it's capital a/c surplus.

In the main this is because the dollar isn't (only) the US currency, it's the world's currency.

Asia wants/needs to generate trade surpluses and accumulates dollars via their pegs.

These current a/c surpluses generate capital a/c deficits for Asia.

In turn this results (axiomatically) in US current a/c deficits which are matched by capital a/c surpluses.

These capital a/c surpluses have to be matched by govt. deficit spending.

USD cannot therefore be both the global reserve currency AND the US have balanced budgets, UNLESS Asia unwinds their pegs and stops accumulating dollar reserves via their trade surpluses. i.e. Globalisation has to reverse as it currently exists.

There's additionally the not insignificant effect of private sector surpluses. i.e. Govt. borrowing is (must be) offset by private.household/corporate surpluses.

The solution therefore might be:-

* Reduce US capital a/c surpluses i.e. trade deficit by Asia revaluations

* Reduce private sector supluses via spending (infrastructure?) or tax rises.

Some combination of the two.

All this Republican hand wringing is nonsense. They want a balanced budget, cheap offshoring labour to earn megabuck profits for their corporates, lower taxes and a stronger dollar. They're nutters.

Edited by Red Knight

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  • 285 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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