Friday, August 12, 2011

Another Stimulus?

With more fear with the stock market some people in the U.S have been asking for another stimulus or spending package. Although putting money into the economy will create jobs the U.S can't afford it! Debt to GDP ratio is at 98%. The U.S doesn't have much wiggle room right now to lower taxes or to increase spending without paying for it. The U.S needs to reduce spending and raise taxes in order to lower the deficit. If the U.S doesn't reduce the deficit then it can face future downgrades, and will increase the interest of the debt. the Interest on the debt this year for the U.S is 200 billion and growing. With more downgrade and more stimulus that number will get bigger and force future cuts to be more sever and taxes to be raised more heavily in order to balance the budget. In 2020 under current projections the Interest on the debt will explode and be more expensive than the military, medicaid and medicare, and almost the exact same as social security. Another stimulus will make things harder in the future. The first stimulus wasn't all good either their was not enough spending on infrastructure and construction, and most of all it wasn't planned to be paid for. The Stimulus did create jobs and things would have been worse without it, but the U.S has no money or room to take any more cash for another stimulus. The U.S should invest in infrastructure and should extend the unemployment benefits , but this time they should pay for it. They need to have a plan that will eliminate the deficit all together within 7-8 years, and then if they want to spend any more they should have a new tax or cut to pay for the new spending. Stimulus season is over! The U.S made over 200,000 jobs last month in the recession they lost 700,000 a month in 2009 a stimulus made sense now not only is the U.S making jobs, but making another stimulus will make the deficit hard to handle .This May be an economic slowdown and the U.S might not employ to many people this month, but they are moving (slowly) in the right direction. the U.S may have to deal with sluggish employment for a while if they want to avoid being Greece!

6 comments:

  1. Deficits have gone through the roof in States and in Europe not because spending has, but because tax revenues have shrank. Another round of stimulus is exactly what is needed. The notion that governments can cut their way out of this is ridiculous. Greece is a great case in point. After the first austerity package came into effect, unemployment went from 10% to 16%, GDP shrank by 4% and the deficit grew by 8%.

    As for the size of the US debt and the S and P decision to down grade US debt, two things. One US bond yields are down not up since the decision and a 2002 decision to downgrade Japanese debt similarly has had no impact. Two, the US owes only US dollars. That means that it can keep printing money to pay for it. The risk, of course, is that at some point such actions become inflationary. However, there is zero evidence that core inflation is out of control in the US and given the weakness of the Euro and the economy little reason to believe that will change any time soon. If there was a risk of inflation, the Fed would not have promised to hold interest rates at .25% for the next two years.

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  2. Koby I appreciate the comment
    But the U.S can't afford a stimulus, because the interest on the debt will rise and force the U.S to make deeper austerity measures. I think the U.S must invest in infrastructure and extend unemployed benefits, but they should pay for it by increasing the tax on the rich, and yes the problem for most deficit is lower revenue, but that is because of the Bush tax cuts that must be eliminated.

    And yes so far no big interest hike, because of S and P, but if the U.S has another stimulus and doesn't pay for it then their may be future problems. I think we should have some sort of stimulus, but it must be payed for and their must be plan to get this structural deficit of the U.S back to Surplus.

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  3. Seriously? You two are blaming the whole deficit problem on tax cut? Because of course it has nothing to do with the fact the the size of the US govt. has double in the last ten or so years, or that all the money that was supposed to go into pension got robbed for vote-buying and as usable funds, or that caring for people all their lives cost a lot of money, or that regulations create massive barriers to entry for small businesses. Absolutely no chance.

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  4. The Bush tax cuts cost the US about a trillion and half dollars over ten years. That is a big number and Obama should restore tax levels to pre Bush levels, but that is not the drop in revenue I am talking about. I am talking about a far bigger one. Since 2007 the amount of income tax the government has collected has fallen by 450 billion a year and the combined State and Federal revenues are down 900 billion a year. Until the US address unemployment, it is not going to get its financial house in order.

    As to for the down grading of US debt, I would not bet on US bond yields going up anytime soon. Japan's debt to GDP is double what it is in the US, but the yield on Japanese bonds has been remarkably low for a very long time. Indeed, if the Euro debt crisis continues, count on them going down.

    Speaking of which, the most recent Euro crisis was not about public debt per say, but private debt. European banks were hit very hard when real estate bubbles started popping all over the Western world. This made them particularly vulnerable to the debt troubles of Europe's peripheral economies. When it became evident that Greece was in de facto default the banks that held Greek debt were hit hard. This is especially so for Italian banks. Even though Italy is running surpluses, it is no position to bail out its banks. That sent markets into a tizzy. Italian bank stocks tanked and the yield on Italian bonds rose as fear of liquidity freeze would tank the Italian government and Italian revenues right along with it.

    The bank bailouts, by the way, were far larger than the any government stimulus. Ireland's debt to GDP literally doubled overnight when its government decided to guarantee that debt of its largest banks.

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  5. "size of the US govt. has double in the last ten or so years,"

    You are funny guy.

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  6. Liamatics is right taxes aren't the only reason for the deficit it is also about the two wars the U.S waged wasteful subsidies to oil companies, and the fact that the Medicare and retirement age are still stuck in a time where life expectancy was much lower than it is now,

    going to bill Clinton income taxes you will see and increase of about 300 billion in one year and 3 trillion over 10 years and if you cut the military and end the wars in Iraq and Afghanistan quickly and eliminate loopholes on corporations you can make up the current deficit now and if you raise the Medicare and social security age the deficit of the future will be eliminated, but this means no new spending or tax cuts, so some other cuts or taxes will have to be made for the new spending or tax cut.

    side note easy way to make money and jobs legalize pot not a lot of money would be raised but a substantial amount.

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