The dealing over raising the US debt ceiling continues, with the Republicans refusing to countenance tax increases and the Democrats baulking at cuts to social programs, and negotiations again breaking down. The two sides seem too far apart to reach a compromise by August 2, at which point the US would formally default (before Greece?!). How did the US get into such a mess? In 2000 Federal receipts were 20.6% of GDP and outlays were 18.2% of GDP. Clinton left Bush 2 a healthy surplus and declining public debt, if also some looming problems in the economy. By 2004 receipts were down to only 16.1% of GDP. Yes the US suffered from recession in 2001, but 2004 is far enough down the track that receipts ought to have recovered. But Bush combined tax cuts and concessions with spending increases, so that outlays rose to 19.6% of GDP in that same year. So much for smaller government under the Republicans.

By 2007 receipts had crept back up to 18.5%, still 2% of GDP less than at the end of Clinton, but of course the GFC has blown all of this out of the water. I’m not neccessarily a fan of sovereign wealth funds, but it does make sense to balance the books when the economy is doing well. Loose monetary AND fiscal policy from 2003 or so until the GFC sowed the seeds for the GFC and for the looming US fiscal disaster.

How will this unravel? There are a large number of papers from the early 1990s (Dornbusch, Sachs, Pereira and others) arguing that populism in Latin America leads to large budget deficits, inflation, and balance of payments problems. Alas this disease has now migrated north, and the populists in the Tea Party are promising balanced budgets on tiny taxes. At least our former PM had the courage to state that Australia was heading towards being a banana republic. The US is now nearly there.

Yellowstone?

I bet you'd sell your own children into slavery, if the price was high enough.

Last edited by JDelage (2011-07-12 11:43:52)

Italy is now wobbling and if you throw money at that mutha', you just now it will be endless just like cleaning the streets of trash in Naples.

USA locked in Depression and the European project about to fall apart.

I blame the baby-boomers myself, a selfish rock and roll generation wanting their kicks now, so long as their children and grandchildren will pay for it.

The Kabuki theatre of the debt ceiling:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011099/the-kabuki-theatre-of-americas-debt-ceiling/

Good article.

Predicting where anything will go 1 week from today is a fools' game.  What I think is that the Euro as a whole is more sound than the USD.  The cumulative debt in Europe is 0.  Plus, if a weak country leaves the Euro, it will only leave the Euro stronger.

Last edited by Maximilien de Robespierre (2011-08-02 11:08:10)

Unless you inflate it all away over a couple of years.

You can't tax the super rich that would be a communist plot instigated by Hussein Sadam Badass Obama.

And in Blighty the argument goes: you can't tax the super rich as they will immediately move to Monaco and you can't take the banks as they will overnight move their operations to Dubai. That's how patriotic the filth is.

The rest of you poor huddled masses can wait on the trickle down effect.

Can you really imagine the Fed will ever stop fighting for the the US to borrow money? The default was never going to happen, last person that didn't give the Fed their own way got shot. There is no coincidence Senator Rockafeller is going after The Murdoch's.

Last edited by Oo Bop Sh'bam (2011-08-03 11:47:17)