Who dat own the debt? Bush dat own the debt!

by: Paul Rosenberg

Sun Feb 07, 2010 at 19:15


Before Bush took office, the CBO projections were for a decade of rising surpluses.  The reality: Not so much.

Putting Bush's record together with the latest projections for the future under Obama doesn't make things look exactly cheery, but it makes a mockery of attempts to blame Obama:

Paul Rosenberg :: Who dat own the debt? Bush dat own the debt!

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Who dat own the debt? Bush dat own the debt! | 14 comments
Damn, Paul, that's not nice! (0.00 / 0)
Confusing second language folks with deliberate misspellings, I mean. I'm sure the correct spelling is not "dat", but "dit"!
:D
Uh, or is it "tit"? Wtf...
That, settles it! (4.00 / 1)

I'm never voting for Bush! (4.00 / 1)

[ Parent ]
Clearly, this means that we have to cut entitlement spending (4.00 / 6)
Because grandma's so selfish and besides who needs her when we've got smart bombs?

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton
Yup. Grammy will never kill any Iranians! (4.00 / 1)
So, she's as useless as protection of historic monuments. For rethuglicans.

(sry, grandma)

[ Parent ]
I think Obama was on tv bragging about how he bought it. (4.00 / 1)
Nothing like the pride of ownership.

"Oh. My. God. .... We're doomed." -- Paul Krugman
http://krugman.blogs.nytimes.c...">http://krugman.blogs.nytimes.c...">http://krugman.blogs.nytimes.c...
"Tax and spend" and "borrow and spend" (4.00 / 2)
Most people erroneously believe that government spending is either funded by taxes immediately or else financed by borrowing, which means that the principal plus interest must be paid by taxes later. This is only true under a convertible fixed rate monetary regime, which currency issuance is anchored to the gold that the government holds in its vault. This now obsolete monetary regime ended on August 15, 1971, when President Nixon shut the gold window. The US immediately went on a non-convertible floating rate system, which is currency issuance is not financially constrained. The government neither funds its currency issuance (spending) with taxes, nor finances it through borrowing. The required debt offset of deficit spending is a political (voluntary) choice that is an unnecessary holdover from the previous era. Now, as then, it is thought of as providing fiscal discipline for the government.

Progressive need to realize that a balanced budget and especially a budget surplus is not in their interests of the interest of national purpose for this reason. Under the present monetary system, government deficits generate a surplus of non-government net financial assets, and vice versa. A balanced budget is a wash, leaving non-government NFA the same. What this means practically is that unless the country runs an export surplus, spending power is insufficient to purchase all the goods and services for sale at full capacity. This means that either people have to go into debt to commercial banks or the economy will contract ad unemployment rise.

The US government has a monopoly prerogative of currency issuance and the corresponding responsibility to manage the currency by injecting by spending and withdrawing NFA in the proper amount by taxation to balance nominal aggregate demand or spending power with the real output capacity of the economy operating at full employment, neither injecting too much, so as to generate inflation, nor to little, so as to produce deflation and a consequent recession, with rising unemployment.

The government does not need to issue debt to finance deficits and does so because of an obsolete political requirement. The common belief that the national debt must be paid down through taxation is false. The debt is paid in its very creation, because the amount of the deficit from currency issuance (spending) is exactly offset by the debt issuance (debt issuance through Treasury securities.) The interest on the debt does not come from taxation or borrowing either, since it is another from of currency issuance and increases non-government net financial assets.

Why, then, would conservatives want to balance the budget or run surpluses. First, it sounds good to those who erroneously believe that government finance is the same household finance, even though the government is the currency issuer and not financially constrained, while households, firms and states in the US are currency users and are revenue constrained. Secondly, conservative ideology is against any government involvement in the economy other than security and protection of private property, without concern for public purpose and promoting the general welfare, as the Preamble states.

Third, capital wants to impose "discipline' on labor to keep wages low, and it regard social programs as being antithetical to this. Fourthly, bankers do not want the government creating non-government net financial assets because then people need to borrow less from the commercial banking system and the bankers don't get the interest they would otherwise.

Of the latter, Michael Hudson has this to say: " You have to realize that what they're trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They're not trying to make the economy more equal, and they're not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards, it's the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite."
(quoted in Washington's Blog here.)

That's the plan.

Are you saying that the elite are trying (0.00 / 0)
to impoverish and indebt the citizenry so that which they earn or possess maybe taken away?  And why not?  They did it to the Native-Americans.  They are doing it to the South Americans.  And with somewhat less success are working on the Middle East.

"Oh. My. God. .... We're doomed." -- Paul Krugman
http://krugman.blogs.nytimes.c...">http://krugman.blogs.nytimes.c...">http://krugman.blogs.nytimes.c...
[ Parent ]
Do the Bush numbers include the Iraq war supplementals (4.00 / 2)
and money taken from the SS trust fund, or do they reflect the true deficit?  

Help support "CRASHING THE STATES"--a Netroots Film!
blame clinton. or better yet, let's not play that game. (0.00 / 0)
the CBO projections were for a decade of rising surpluses.

please pardon my language but the CBO was full of shit.

seriously, what's with the focus on the fed deficit when private sector debt is where the action is now (in a bad way)? my main problems with the fed deficit are that it's not big enough and i don't like what it's being spent on.

focusing on fed deficit is useful to help the dems score political points by making them look Very Serious and Responsible, but it's only in the Versailles sense of VSP. it's economic nonsense. and worse it works to confirm the conservative economic frame.

this reminds me of your diary, Three Types of Crazy:

So long as the masses are effectively excluded from shaping political discourse, elites may develop models of economic policy, as well as a wide range of other models and narratives, which don't actually get the job done, but also never have to face sustained criticism from those whom they fail.  This is the situation that gives rise to the elite, centrist lies listed toward the beginning of this post.  It is as isolated from sound fact-checking as any conspiracy nut you might care to point out.

And it is definitely a fringe position.

when you wrote:

Indeed, when was the last time that our political elites actually helped us to solve a major social, economic, or political problem?

One might count Clinton and the Congress eliminating the deficit in the late 1990s...

i claimed this statement was also crazy (you agreed) and quoted a bit from wynne godley and randall wray's excellent 2000 warning, Is Goldilocks Doomed?:

...the notion that a federal budget surplus is sustainable, and that it promotes economic growth, must be abandoned. Given the realities of the U.S. trade imbalance, public sector surpluses are consistent with economic growth only so long as the private sector's financial situation deteriorates at an accelerating pace.

that same weekend you did a wonderful economic series, including, The Crash: Who Saw It Coming--And Why.

here's a bit from your post:

Dirk Bezemer, writing in the Financial Times on September 7, "Why some economists could see the crisis coming".  What's more, he has a much more detailed explanation in a 51-page paper, "'No One Saw This Coming': Understanding Financial Crisis Through Accounting Models" (pdf).  Long story short, Bezemer set out to find those who had been right in predicting the financial meltdown, not just randomly, but because of a well-reasoned argument.  He found eight examples-including Baker-and analyzed what they had in common.  He discovered that they all relied on accounting models that looked at the economy in terms of stocks and flows, in sharp contrast to the standard macro-economic models that actually have no way of predicting a financial crisis, since their programming does not allow for the possibility.

and right there on bezermer's list and your post is wynne godley.

...................

also from your same excellent economic series, What Went Wrong-Krugman And Beyond, which was really about what krugman missed/left out. james k. galbraith written his own response to krugman, Who Are These Economists, Anyway? (maybe you've already seen it? if so, i apologize for missing some of your posts).  galbraith also notes godley's work:

The work of John Maynard Keynes is linked closely to the accounting frame-work that we call the National Income and Product Accounts. Total product is the flow of expenditures in the economy; the change in that flow is what we call economic growth. The flow of expenditures is broken into major components: consumption, investment, government and net exports, each of them subject to somewhat separable theories about what exactly determines their behavior.7 Accounting relationships state definite facts about the world in relational terms. In particular, the national income identity (which simply states that total expenditure is the sum of its components)8 implies, without need for further proof, that there is a reciprocal, offsetting relationship between public deficits and private savings. To be precise, the financial balance of the private sector (the excess of domestic saving over domestic investment) must always just equal the sum of the government budget deficit and the net export surplus. Thus increasing the public budget deficit increases net private savings (for an unchanged trade balance), and conversely: increasing net private savings increases the budget deficit.

The Cambridge (UK) economist Wynne Godley and a team at the Levy Economics Institute have built a series of strategic analyses of the U.S. economy on this insight, warning repeatedly of unsustainable trends in the current account and (most of all) in the deterioration of the private financial balance.9 They showed that the budget surpluses of the late 1990s (and relatively small deficits in the late 2000s) corresponded to debt accumulation (investment greater than savings) in the private sector. They argued that the eventual cost of servicing those liabilities would force private households into financial retrenchment, which would in turn drive down activity, collapse the corresponding asset prices, and cut tax revenues. The result would drive the public budget deficits through the roof. And thus-so far as the economics are concerned-more or less precisely these events came to pass.

...................

if i had to pick which president was most responsible for today's fed budget deficits, i'd pick clinton. but i'd rather not play the conservative fed budget deficit blame game. it reminds me of william mitchell's recent post, When you've got friends like this ... Part 2 (my bold):

... who needs enemies. Today's blog is Part 2 in a series I am running about the propensity of self-proclaimed progressive commentators and writers to advance arguments about the monetary system (and government balances) which could easily have been written by any neo-liberal commentator. The former always use guarded rhetoric to establish their "progressive" credentials but they rehearse the same conservative message - the US has dangerously high deficits and unsustainable debt levels and an exit plan is urgently required to take the fiscal position of the government bank into balance. In doing so, they not only damage the progressive cause but also perpetuate myths and lies about how the monetary system operates and the options available to a currency-issuing national government.

I have been reading some of the articles and essays put out by the Center for American Progress lately, which describes itself as follows:

The Center for American Progress is a think tank dedicated to improving the lives of Americans through ideas and action. We combine bold policy ideas with a modern communications platform to help shape the national debate, expose the hollowness of conservative governing philosophy, and challenge the media to cover the issues that truly matter.

On their About Us page they the prolific use of the word "progressive" (or plural forms) to describe themselves stands out. It is run by former Clinton hack John Podesta and George Soros is one of its benefactors. They are very well connected in Democrat political circles and arguably have strong influence in the Obama camp.

They tell us that:

Our ability to develop thoughtful policy proposals and engage in the war of ideas with conservatives is unique and effective.

So with unemployment at around 10 percent and housing foreclosures still rising (especially among the poor) and with a major attack on the US government coming from the "conservatives" based on spurious understandings of how the monetary system operates, you would think that the centre would want to push a strong case for expanding the US government deficit and also to disabuse Americans of the central propositions that the deficit terrorists lambast the public with on a daily basis.

You would be very wrong if you thought that. These guys are as conservative as they come even though the Austrian school zealots and the mainstreamers from the Chicago school tradition hate them.


CBO Figures Reflect Current Law & ExistingTrends (0.00 / 0)
Preamble:

my main problems with the fed deficit are that it's not big enough and i don't like what it's being spent on.

That's certainly true in the short run.  But this particular diary is about the medium run.

There certainly were good reasons to doubt the projections, based on underlying economic conditions. The housing bubble had begun as far back as 1995, for example, in addition to everything else. But the CBO figures were there, and they were the best idea anyone had at the time of what the future was likely to hold.  Bush looked at budget projections showing the debt being paid down, and said, "Who needs that?" They are also the same projections being used now to scare the pants off of everyone. So, no they aren't holy writ.  But neither are they meaningless, either.

While I agree with Galbraith--and have the whole series of Levi Institute analyses going back to 1998 downloaded on my computer--I think it's mistaken to primarily blame Clinton.  It was Reagan & Bush who created massive running deficits that weren't used for any good purpose.  Clinton's mistake was to let Robert Rubin spook him when he first took office, but after the 1994 election, budget-balancing became a political necessity, the only question was how to do it, and by concentrating a lot of the cuts in the (still bloated) DoD, Clinton took a fairly good approach.  As you can tell from the passage you quoted, another aspect of the macro equation is the change in the trade balance.  And basically taking a neo-liberal hands-off attitude toward trade was far more significant, IMHO.

In any event, one cannot ignore the following chart of how Bush helped dig the current hole:



"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
who was ignoring who? (4.00 / 1)
But the CBO figures were there, and they were the best idea anyone had at the time of what the future was likely to hold.

if you read the godley and wray article you will see that this is just not so. the cbo figures were not the best idea anyone had -- unless you listen only to the salt water and fresh water economists instead of the people who, you know, have a clue. (aside: wray was minsky's phd student, so you might consider, for that reason alone, the possibility the guy might deserve to at least not be ignored).

have you by any chance read warren mosler's essay, The 7 Deadly Innocent Frauds of Economic Policy,  i keep linking to?

http://moslereconomics.com/200...

Early in 2000, in a private home in Boca Raton Florida, I was seated next to then Presidential Candidate Al Gore at a fundraiser/dinner to discuss the economy.  

The first thing he asked was how I thought the next president should spend the coming $5.6 trillion surplus forecast for the next 10 years. I explained that there wasn't going to be a $5.6 trillion surplus, because that would mean a $5.6 trillion drop in non government savings of financial assets, which was a ridiculous proposition.  At that time the private sector didn't even have that much in savings to be taxed away by the government, and the latest surpluses of  several hundred billion dollars had already removed more than enough private savings to turn the Clinton boom to the soon to come bust.  

I pointed out to Candidate Gore how the last 6 periods of surplus in our 200+ year history had been followed by the only 6 depressions in our history, and how the coming bust due to allowing the budget to go into surplus and drain our savings would result in a recession that would not end until the deficit got high enough to add back our lost income and savings, and deliver the aggregate demand needed to restore output and employment.  I suggested the $5.6 trillion surplus forecast for the next decade would more likely be a $5.6 trillion deficit, as normal savings desires are likely to average 5% of GDP over that period of time.    

And that's pretty much what happened.  The economy fell apart, and President Bush temporarily reversed it with his then massive deficit spending of 2003, but after that, and before we had enough deficit spending to replace the financial assets lost to the Clinton surplus years (a budget surplus takes away exactly that much savings from the rest of us), we let the deficit get too small again, and after the sub-prime debt driven bubble burst we again fell apart due to a deficit that was far too small for the circumstances.

Anyway, Al was a good student, and went over all the details, and agreed it made sense and was indeed what might happen, but said he couldn't 'go there.'  And I said I understood the political realities, as he got up and gave his talk about how he was going to spend the coming surpluses.

........

regarding the clinton era economy -- you are COMPLETELY missing the issue of the private debt expansion (financial deregulation anyone?) which both fueled the bubbles and contributed to the conditions that REQUIRED large budget deficits of the bush era. (there's a lot to be said about trade balances, but if i can't make this point, the rest would be a waste of time). i think it stunk what the fed deficits got spent on (war and wealth transfer up instead of bettering people's lives and investing the in future), but arguing that we didn't need or wouldn't have a fed deficit during the bush years, in part to compensate for the clinton surpluses strikes me as more political posturing than economic sense (i don't think you would do this, but i think it's possible you are be being influenced by people who would. if so, then please, please, i beg you to reconsider.). you write about the hegemony of ideas. please consider the possibility that you are caught up a few yourself.

[ Parent ]
The Proper Thing To Do In 2001 (0.00 / 0)
was to spend the surpluses on long-term investments--primarily in the green economy to avoid global warming.  The failure to make such investments 9 years ago, when a longer lead time meant we could have ramped them up more gradually and intelligently, will end up costing us incalcuable amounts of money, that doesn't appear in any of the calculations that anyone has been tossing around.

So, really, if you want to play the "I'm more radical than you" card, I'll just play the "global warming could destroy industrial civilization" card and be done with it.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
not playing games! (0.00 / 0)
So, really, if you want to play the "I'm more radical than you" card, I'll just play the "global warming could destroy industrial civilization" card and be done with it.

wow. no, i'm actually just disagreeing with you strongly about something i think is really important. and based on your posts in september, i thought you got.

that's not playing games, and i strenuously object to you implying it is. i wish you would either ignore my comments or, better yet from my pov, argue with me about the substance of my comments -- but not what you imagine, to be my bad motivations.

The Proper Thing To Do In 2001 was to spend the surpluses on long-term investments--primarily in the green economy to avoid global warming.  The failure to make such investments 9 years ago, when a longer lead time meant we could have ramped them up more gradually and intelligently, will end up costing us incalcuable amounts of money, that doesn't appear in any of the calculations that anyone has been tossing around.

that was the proper thing to do long before 2001 and not with the private credit bubble induced gov surpluses, but with deficit spending. as investment. not doing so costs us far more than money. it costs us lives and the productive capability of our economy -- far more important than money to our country (for which $$ is not a store of national wealth) and the world, so not including the $$ in the calculations might just be a matter of priority.

[ Parent ]
Who dat own the debt? Bush dat own the debt! | 14 comments





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