Saturday, June 9, 2012

Report: U.S. debt load falling at fastest pace since 1950s

1960 cotton kite
The Good and the Bad of a Sturdy Cotton Kite
It won't go up fast, but it's built to last, like Obama's recovery.What could be better?  Nylon would be lighter and sturdier, but the GOP, in Congress, as well as business and families that do have money, won't give the president a better recovery through a more Keynesian stimulus so that's the best we'll get.

Picture shared via Flickr native coding, and allowed by Creative Commons License Attribution (CC by 2.0) Thanks to Flickr user Swithin Hall Free Photos.

A slow but steady recovery has started, and a report from the Wall Street Journal's Marketplace '' sees good and bad in it. It is good in that debt is being reduced, making for a solid base, but also bad because people need recovery so terribly and as fast as possible.

Who's making the recovery slow? According to the WSJ's Marketplace author, it's the Republicans in Congress and the rest of us, in business and without who are focused on reducing private debt.

We're doing Keynesian economics wrong.

Rex Nutting:
If you want to know why economic growth has been so tepid, here’s your answer. Four years after the storm hit, the economy is still deleveraging. And it’s very hard for any economy to grow when everyone is focused on increasing their savings. The rapid rise in federal debt over the past four years has distracted us from the big picture. The level of public debt is indeed worrisome, but it’s not as big a worry as the economy’s total level of debt — public and private. Although we have a whole cottage industry devoted to warning us about the dangers of too much public debt, we don’t have any comparable Cassandras telling us about the dangers of too much private debt. Yet the history of the past 30 years (or 300) clearly shows that too much debt, of whatever variety, can pose a systemic risk to the national and global economies. As much as we hear politicians, pundits, tea-party patriots and the Congressional Budget Office obsessing about government debt, it was excessive private debt — not public debt — that caused the 2008 financial meltdown. And it was private debt — some of it since transferred to the public — that lies behind the current European debt crisis. (Greece is unique in having a public sector that ran up spending while its private sector is rather conservative.) As the political rhetoric about the federal deficit has heated up, we’ve lost sight of the progress that’s been made in bringing total debt back under control. The U.S. is actually doing much better than you’d think if you just listened to the conventional fears about how we’re rushing headlong into a debt Armageddon. In fact, since the recession ended in June 2009, total U.S. debt has risen at the slowest pace since they began keeping records in the early 1950s. While Washington has taken on a lot of debt since then, the private sector has paid off, written off or dumped on the government almost as much.
So, in two ways, the economy in the US is healing. By reducing debt, and by a slow but steady jobs recovery.

What we don't need is for Romney to run in and start dealing out massive tax cuts to the wealthiest Americans like Bush did, skyrocketing the national debt, while possibly creating inflation, delfation or having no effect except an increase in national debt, but doing little to help with an underlying economic weakness. Throwing money at fat cats helps no one but the fat cats. and creates problems for everyone else. During Bush's first term the supply side tax cuts passed in the Spring of 2001 were so ineffectual that by January 2003 economists started worrying about actual "deflation" (linked is one of many references to articles from that time I just found via web search of economist worrying about the apparent deflation threat). Those of us who were  renting were rather ecstatic about the price of houses coming down, but those who owned homes and had the necessary massive mortgage to go along were very upset.

But life isn't decided by those like us.

The threat of deflation probably sealed Iraq's fate more than any real conviction within the Bush White House of WMDs. The war drums were brought out, a 70% majority against the war was either flipped or faked to a 70% majority for the war (remember that at this time Karl Rove did his propaganda & news crafting work right within the White House) and the bombers took off for Baghdad in March, eventually leaving over 1 million dead, more than 1/5 of the population of Iraq either displaced within it's borders or to another country, and the US in debt for another trillion dollars (with more to follow as medical and psychological help is needed by veterans for many years).

Now though we are recovering and could recover faster if the Republicans in Congress would work with this president. Maybe if they see that the American people want recovery more than anything, and certainly not inflation or deflation and weakness produced by trickle down tax cuts, Republicans will start to understand..

I doubt, though, that we can craft more sensible stimulus if the GOP is still so strong in Congress next year. Hopefully, Americans can see through Norquist's and Fox News' lies and vote for the people who will strengthen our nation economically, not just those who scream loudest the the economy is dead and won't revive until the wealthiest in the nation get to raid the public coffers again.

Supply side tax cuts were also used in the Reagan administration.  The result, I remember was a very slow recovery, but also, inflation that made life for those in the working class difficult when their wages didn't go up as rapidly as the increase in the cost of living, and then more malaise near the end of his administration.

The Clinton administration and  Bush 41 before him used tax cuts for working and middle class people with modest tax hikes for the wealthiest and we saw the strongest economic growth since the 50s when Europe and Asia were trying to recover from WW2 and couldn't compete with us. Maybe that should tell us something.