In the midst of the economy being in shambles, unemployment rising and with the need for lower taxes, our government just keeps spending money we don’t have. Ultimately, this will end badly. When there is no one left to buy our debt, we will have to resort to quantitative easing, hence the printing of money. Got Gold and Silver?
If I were to run my life this way, I would be bankrupt. Politicians have the one thing that allows the game to continue; the ability to tax the American consumer.
Spending bill moves forward in Senate
Dec. 12, 2009, 2:33 p.m. EST
SAN FRANCISCO (MarketWatch) — Senators rebuffed Republican efforts to delay a massive spending bill that would boost the budgets of most federal agencies, ending the debate Saturday by a slim one-vote margin.
The Senate is expected to vote Sunday on the $1.1 trillion measure, which provides greater funding for the Education Department, the State Department, the Department of Health and Human Services, and others.
The spending bill would combine $650 billion in government spending for programs such as Medicare and Medicaid with $447 billion in discretionary government budgets. It also would allot more money for financial-markets regulation, high-speed rail, and small business lending.
The 60-34 vote was the minimum necessary to end the GOP filibuster. Independent Sen. Joe Lieberman of Connecticut sided with the Democrats. A final vote was set for Sunday afternoon to send the measure to President Barack Obama.
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Luckily the economy of a country can’t be compared to someones personal income, so we won’t go bankrupt. The negative and “disaster” hype about government spending and deficits in a recession are vastly overstated.
Government spending on stimulus during a time of recession is the best way to get an economy out of a recession quickly, it increases jobs and consumption much quicker than if nothing were done.
The risk of quantitative easing is that it would increase inflation due to the increase of money in the economy (and hence decrease of value). Important concern, but as usual, overstated.
The target inflation rate for the FED is even expected to be lower than their target and TIPS are also showing now expectations of wild inflation. The only thing an increase in gold prices shows is that people panicking about the economy are driving prices up.
Edwin, We’re borrowing money we simply don’t have. there are consequences. Politicians don’t care because it is not their own pocket; quantitative easing destroys the value of a currency. President Kennedy somewhat understood this. He proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation). Current administration is going to have to raise taxes because housing is not bringing the revenue it was.
Gold is going up because it is floating against the dollar and soon to be all fiat currencies. It is a hedge against government mismanagement (forget inflation) 100 years ago, all currencies were backed by gold. Today 0 are. If government spending were “the best thing” unemployment would be decreasing, not increasing at the fastest rate in 50+ years. That’s like telling me that the govt. trying to stop foreclosures is a good thing because it keeps people in houses they can’t afford. The numbers don’t lie. Gold’s been in a bull market for the last 8 years. The Dow prices in Gold is below break even. Just a few facts not hyperbole.
The numbers don’t lie but can easily be misused or misinterpreted. Politicians tend to care about what gets them re-elected and fit in what they think is right when it convenient.
I think it’s somewhat dishonest to directly correlate the cutting of the top tax rate with increase in tax revenues. The economic growth (and tax revenue growth) began in 1961, well before the individual and corporate rate tax cuts that went into effect in 1964. In 1962, Kennedy instituted changes in how depreciation is calculated and instituted a tax credit for purchase of equipment. The correlation is far more convincing that the first two tax changes had more effect on the growth than the individual or corporate marginal tax cuts.
Additionally, payroll taxes increased after 1965 and a tax surcharge for Vietnam was implemented in 1968. In 1969, further tax reform increased taxes across the board. All of this combined to make the previews tax breaks almost a wash. Directly correlating the top marginal tax rate to the revenue growth without taking into account the factors listed here plus others is just not correct.
It’s not government spending that’s “the best thing”, it’s any spending that spurs job creation the fastest. The concept of supply side economics (lower tax rates affecting companies and they will invest more and hire more workers) has been debunked after Reagan started it and Bush continued it. Businesses just do not increase their investment and growth when given tax cuts, they act as before and hedge for risk.
On the other hand, the government can potentially increase jobs much quicker by providing temporary employment (like the WPA of the FDR era). The way the current administration is don’t the job of increasing employment with the 800 billion stimulus is far from ideal. Even with it’s severe flaws, the stimulus is doing more to increase employment (or slow the increase of unemployment, as the numbers are still really poor) than tax cuts ever could.
It’s true that many people can’t afford the houses they are in because the artificially inflated housing prices are settling to proper levels and they are finding themselves stuck with unstable ARMs they can’t pay for. But for the economy, keeping people in their homes even with assistance would be advantageous because rather than going further and further into debt they could actually live their lives (although extremely frugally) which would be a much better addition to the economy than foreclosure after foreclosure.
Gold is a hedge against panic, the more panicked people are, the higher the price goes. It isn’t relevant if the panic is logical or not, as long as there’s a panic (as with any bubble, see the housing crisis). Additionally, investors (including good ones) are also willing to invest in gold because of the increase in price, rational or not.
Edwin,
I agree with some of the things you are saying but to call gold’s secular increase over the past 8 years, simply panic buying is irresponsible or an oversight of a few simple charts. Keeping short term rates at 0%, has a negative effect on the value of a currency. That is monetary policy 101, not my opinion. Further, gold is rising against all fiat based currencies, not just the USD. This 0% did not work for Japan and the results here in the US aren’t proving anything more than one kicking the can down the road. But seriously look at gold’s rise against the big 3 (Dollar, Euro and Yen) and it’s not gold rising but those fiat currencies which are responsible for the majority of world GDP losing value.
The detrimental effect this monetary policy has on savers who can’t squeak 50 basis points on a savings account isn’t a joke, its causing a massive decline in their standard of living. Of course things can get overstated but .5% money market rats are fact. That (Current Monetary Policy) is not a good policy for the average person, but meant to encourage further borrowing and keep the banks at status quo.
The things I referenced above aren’t my opinions but facts to observe.
A .5% decrease in the return on savings is not as significant an impact on those savers as the loss of a job is for someone. Keeping the rate down as close to 0% as possible does affect some people, in a very minor way. But it also increases the supply of money so company’s and people have an easier time of investing or purchasing on credit which is what is necessary for an economy to get out of a recession.
This is called counter cyclical policy where the rates will be increased dramatically when an economy is booming to avoid a quick expansion and a subsequent bust and rates are decreased in a poor period to spur the economy.
You state that you have all of these facts on your side but nothing we are discussing here is really “facts”. It’s statistics and they can be manipulated by both sides of any debate to say what that person wants them to say. You claim that its monetary policy 101 to keep rates close to 0% for a long time but I counter that its actually “monetary policy 101″ to keep rates that low until it’s necessary to raise them again (which in this recent time is far more extended than ever before).
Also a note on “monetary policy 101″, it similar to physics 101, students are taught the theories of Isaac Newton even though they are not actually correct because it’s a simple way to portray a complex situation and it would be silly to expose beginning students to Einstein’s theories when they have no basis. It works the way way with economics, or…. monetary policy.
Edwin
Your refusal to acknowledge these simple facts that gold is rising against all fiat based currencies and that there is a thing called peak debt (Minsky Moment) is quite amusing. I am not a gold bug and not an anti-dollar “person” I said savings accounts yielding a total of 50 basis points, not a .5% decrease. For god’s sake that has a huge impact on some one who is retiring and on a fixed income. The current monetary policy isn’t working, unemployment is rising; Gold is reflecting the failure of Central Banks who have overstepped their limits. Those are facts Edwin. It’s prices and percentages and the trends are secular.
We need more debt? You really can’t be serious. You’ve done or mentioned 0, nothing to prove anything factual regarding unemployment rising and gold prices rising against all fiat based currencies. Those are not opinions Edwin.
Sorry I misread the 50 basis point remark yet my reply stays the same. It’s a fairly minor decrease in the yields on savings accounts, particularly when you contrast it with how largely the lack of a job affects someone (it’s a tradeoff, lower returns on investments for a higher employment rate).
You state the following are “facts”:
- The current monetary policy isn’t working
- Unemployment is rising
- Gold is reflecting the failure of Central Banks who have overstepped their limits.
I’m confused how you think those are all facts. Economic analysis from the CBO, EPI and many other economic entities and individuals in the field have shown that the current monetary policy in fact is working.
Unemployment is rising, that is a fact I totally agree. The problem is your analysis of this one fact, if you compare to the change in unemployment rate had we done nothing, or even worse, decreased taxes, you will find that the employment situation is far better right now.
And the last point is as far from a fact as you get. You are correlating two things that are not near as related as you are trying to claim and throwing in your opinion on the function of central banks (I agree that central banks are doing too much, but that’s my opinion, not a fact).
You are using a strawman argument in claiming that I think we need more debt. What I’ve said all along is that more debt and proper response to this crisis from our government is better for the economy than worrying about purely lowering the debt.
I like your writing and find it informative and informational but you are emphasizing your opinions as facts far too readily. I have made no factual claims whatsoever, I’ve just pointed to numbers and my (and more importantly, others) analysis of those figures and how they affect our economy. All you are doing is stretching correlations that are nowhere near explanatory and claiming them to be facts.
Edwin,
How can we not say that the dollar’s secular trend isn’t down? To me that isn’t my stretching a thing but looking at a chart and observing. You called that simply panic buying I think. That is overlooking the last 8 years and not acknowledging things or refusing to IMO. Also, keeping ST interest rates at near 0 and the probability of longer rates rising puts a retiree into a box. Am I going to buy the 10 year for 300bps knowing the interest rate risk? Or, go into “dividend” paying stocks with this sort of volatility. Much of what I am referring to is not a stretch and the result of poor money management of Central Banks. If you disagree with that, then fair. Not to sound cocky or arrogant, but I just see the current “mess” as very clear. Also, if “spending” money were that beneficial, why not just keep borrowing more. We’ve gone beyond rational. That is what gold has been telling us for 8 years and the value of the dollar is clearly in a secular downtrend. I see more deflation than inflation
At some point borrowing needs to be curtailed because we can’t afford to pay the interest and entitlements. Our response, increase spending er, borrowing. I argue that decreasing spending and being more fiscally responsible is the only way to a sustained recovery. Simply spending more (borrowing) without cutting back the size of the US Government is irresponsible there will be consequences. When we count temporary unemployment and seasonal the rate of decrease is better, but that is like saying the last correction in gold, means we’ve reached a top, simply premature and cyclical.
I can look at the price of the dollar versus gold and see the inverse by observation. I can see the rise in unemployment has gone form 4% to 10% after the housing market collapsed. Those numbers really aren’t any more my opinions than the “fact” that Central Banks are net buyers of gold. I am not “anti” dollar or anti government for that matter, I just do not agree with you that the continued spending of trillions of dollars via borrowing from foreign nations is the answer. It could be said the rise in the markets and blip you reference in unemployment will have to be followed by more of the same. There is an end game or a limit to what central banks can and should do…Things change and as I mentioned earlier over 100 years ago, all fiat currencies were backed by gold, today none are. A traditional gold standard is not going to happen but at some point it is very logical and reasonable to say that the way things are being done today need to be seriously evaluated or the market will force its will upon us.
It’s clear we don’t fully agree with analysis of the data but a lot seems to be must miss-communication. It is no longer politically possible to get a bigger stimulus even if there was no debate whatsoever of it’s effect on the economy.
Fiat currency has been around worldwide for awhile now for good reason, it gives much greater flexibility in counter cyclical policy than a gold standard ever did and yes gold does tend to be a hedge against inflation and also crisis. I just disagree that it’s an indicator of financial collapse that some people in the media see it as.
You have lots of important points that I mostly disagree with but it’s all based on our analysis of the situation which I don’t think a lengthy back and forth argumentation will really change. I think I’ve put full view out for you and you’ve done the same and we just wont agree.
That’s fair Edwin and thanks for your comments.
It’s always a pleasure to be in an interesting conversation.