EnMasse

[thwap]

Earlier, I brought up some differences between 1929 (the year the Great Depression began) and today. Among those differences there is the more timely use of counter-cyclical fiscal policy, the continued easing of monetary policy, a larger public sector and, even if I didn't mention it last time I'll mention it now, greater income support programs (unemployment insurance, general welfare assistance) relative to what we had in 1929.

All of these things have worked to prevent us from having slipped into a downward economic spiral as happened between 1929 and 1932 (the worst year of the Great Depression). Obviously though, we're not out of the woods yet. Unemployment (especially in the USA) continues to rise, along with bankruptcies and foreclosures. Supposedly the big bust in commercial real-estate is still to hit. Some economists have said that employment is a "lagging indicator" meaning that it takes a while for unemployment to rise in tandem with a financial meltdown and credit crunch and then it takes a while for employment to rise after the financial and credit crises have been resolved.

The problem with that analysis is that there doesn't appear to be any indication that there's going to be any sector producing good, stable employment for large numbers of people anytime soon. We're going to be mired in an even more dismal labour market than we've had since 1990, and this time the "credit" (re: DEBT) that sustained the expansion of household consumption is tapped-out.

So, are we still headed for economic Armageddon?

Perhaps. Here's the thing. It might be possible for us to limp along like this as a society for a number of years. The factors I mentioned earlier still have a lot of life in them, especially government counter-cyclical spending. All of the weeping and wailing about exploding deficits is misinformed, dangerously simplistic nonsense. Crooks and Liars had an interesting graph that serves once again to dispel all this deficit hysteria we've been conditioned to feel but which should have been forever dispelled by Linda McQuaig's bestseller: Shooting the Hippo.

We are not in any sort of danger of hitting a "deficit wall." Neither is the United States. We aren't today and we weren't in 1993 when Paul Martin and Jean Chretien were slashing billions in needed public services while simultaneously giving away billions in tax-cuts to the wealthy and the corporations.

Even after years of bush II's tax-cuts and deficits, and Obama's stimulus spending, the USA's debt-to-GDP ratio is still under 60 percent. I once read somewhere that the "debt-wall" that a nation crashes into and then becomes unable to borrow anymore money is hit at a debt-to-GDP ratio of 80 percent, but this is bullshit. Japan has a debt-to-GDP ratio of almost 120% and it's in no danger. The simple fact of the matter is that a Canadian household with an income of $100,000 and with no other outstanding loans or credit card debt except for a $300,000 mortgage has a debt-to-householdGDP ratio of 300 percent. And when a couple making 100 g's a year buy a $300,000 house, nobody shows up screaming at them for burdening their kids with a crippling level of debt.

The point is, Canada, the USA, the whole industrialized world, can limp along at this anaemic level of economic growth for years to come with no danger of ever hitting a "debt wall." Of course, elites will continue to propagate the easily-demolished claim that all of these necessary deficits (for insufficient counter-cyclical spending on construction projects and military spending AND for continued financial sector bail-outs) are going to require belt-tightening and social welfare cuts, education cuts, etc., in order to prevent us from going completely bankrupt, and that brings me back to the central problem.

We COULD still have an economic collapse because the causes of the 2008 collapse are still with us, and under the deluded policies of our elites, becoming even greater. There is simply nothing in the real economy that points towards sustainable economic growth. The last few years of the bush II bubble were built on deficit spending (with USA military spending being about the only thing that "benefited" ordinary US-Americans) and a real-estate/financial bubble built on massive fraud.

The wars continue, but the real-estate bubble has collapsed. We now have a stock-market bubble based on the US Federal Reserves expansion of the money supply, which is unsustainable. Meanwhile, the elites have completely failed to learn their lesson and instead of directing some of the wealth back into households to spend in the real economy, or to prevent homelessness and bankruptcies from exploding, are insanely trying to squeeze yet more blood from ordinary people's bodies. They're laying people off, in both the public and the private sectors, and calling in debts.

The way I see it, most all of us go through life hoping for the best. Thinking "it's going to be okay" when for the vast majority of us, it doesn't end okay. We all die and most of us die painfully and in fear. Very few of us get the uplifting "good death" drifting painlessly off to the big sleep after having shared our last affections for our loved ones gathered 'round. We all say "it's going to be okay" simply to get through day to day.

It's the same with elites. They imagine "it's going to be okay" while they continue to plunder and reinforce the patterns that almost did them in the last time. For them, this has not been so bad. In the USA, the tax-payers rescued them and instead of unemployment they're getting $21 billion dollars in bonuses. Rather than see the trauma of the working class as a problem, they see it as an opportunity. Manufacturing is a good environment for trade unions. It's awesome when manufacturing jobs go to dictatorships in the global South, because it destroys the union movement in the home countries where you can't just shoot union leaders like you can in Indonesia or Colombia. Using the deficit as an excuse to slash the public sector is another way to destroy those pesky union movements. Get everybody working in low-paying, uncertain service sector jobs and the whole working class can be tamed into submissiveness. Overburdened with debt and with no job security, you can ask anything you want from them. And, "it's going to be alright" because, well, it just will.

Who cares that these people will be less capable of sustaining the consumption levels that were totally unrealasitic (but for expanding credit-card debt and an imaginary rise in real-estate wealth) for the past twenty years? Who cares that this continued shovelling of taxpayer dollars relies on an economy that hasn't yet gone completely down the toilet?

Well, they should care. Because it might be impossible to sustain this nightmarish policy, even on it's own terms. To speak nothing of the possibility of a democratic revolt as the injustice of this system is stripped naked for all to see, as elites resort to such blatant theft to sustain themselves.

And this all ignores the reality that we're headed for an environmental catastrophe that requires we direct the bulk of our resources and talents to something other than propping-up a bunch of insular, selfish pricks in the banking and investment industries.

That's enough for today.
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I thought she was going to marry that snooty rich guy!

[Maestro]

It should be pointed out that the difference between the WW2 deficit in the US, and the current deficit is that the WW2 deficit was used to 'buy' the British Empire, with its huge amount of resources. That in turn fed the US industrial machine, and there was a huge expansion in the US economy.

The deficits they are incurring today are doing no such thing. These deficits are being incurred during a contraction of the economy, and there is no industrial expansion in sight. In fact, it is now China that going around the world buying up resources to feed it's own industrial machine. Ironically, they're using US dollars which were supposed to bolster the US economy.

Canada is still in relatively good position for two reasons. The Conservative government had not yet completely relaxed capital requirements regulations - although they were in the process of doing so - and Canada is a net exporter of resources, a good thing in times when resource prices are high, and going higher.

As to deficits generally, I will go so far as to say that the left should never advocate deficit spending. In my opinion all it does is tie the citizenry ever tighter to the existing owners of capital, making citizens slaves to the interest that must be paid. And make no mistake, that interest is huge. It has been the largest single budget item in Canada for years, an enormous transfer of wealth from the poorest to the wealthiest.

One could say that the government could just make more money and spread it around. That's a fairly close approximation of what's happening today in the US (and most of the industrial world). But that doesn't solve the problem. More money without more production causes inflation, which I will argue is always bad for the working class.

The current financial crisis was caused by allowing the private sector to print money (via credit default swaps), and just printing more money is not a solution, it's only a way to make the problem worse.
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On the wilds of the Drive

[TS.]

The deficits being incurred today are due to the Bush project to hollow out the government and contract even core government functions out to contractors without even minimal oversight, and usually on cost-plus contracts.
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"Question with boldness even the existence of a God; because, if there be one, he must more approve of the homage of reason, than that of blind-folded fear." - Thomas Jefferson

[Cartman]

[abnormal]

There's a big difference between a family with a $100K income buying a $300K house and a country with a high debt to GDP ratio. In the former case the family has a $300K liability and a $300K asset. At least in theory the house can be sold to settle the debt. In the latter case the only asset the country has is the ability to tax its citizens into perpetuity. I don't know how to sell that to settle the debt.

[thwap]

Well, another difference is that the state isn't going to lose its job. And, it creates its own opportunities and therefore its income can rise every year.

Furthermore, states, unlike the private sector, don't factor their assets into those debt-to-GDP ratios.

And I'm not pro-deficits just because. Obviously we could have done without those witless tax-cuts for the wealthy over the past couple of decades. But when it comes to a choice between a recession and deficit financing, take deficit finance.
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I thought she was going to marry that snooty rich guy!

[DSquared]

[Maestro]

[DSquared]

[Maestro]

That solution is precisely the one John Maynard Keynes came up with back when. That is, governments borrow money during times of faltering economic growth, and then take it back through taxation during better times. But John Maynard Keynes was no socialist, he was a capitalist through and through. His viewpoint was that deficits were a way of preserving the capitalist system when it was having difficulty preserving itself.

When business had no profitable investments to make, the government would step in, borrow their money and make their own investments, paying interest on the borrowed money, providing a profitable investment where none other existed.

Unfortunately what happened in the long term is that much capital found it easier to make money lending to governments than in undertaking 'business'. Then some bright economist realized that if they at the same time pressed for reduced taxation, that would force the government into permanent debt. Capital then had it made. Instead of giving money through taxation, as regular working folk did, they lent money to the government, and reaped the returns.

It's always interested me that the right wing constantly hammers away at the theme of government debt, and how bad it is, yet at the same time it is precisely those right wing governments who have caused the largest increases in government debt. Obviously their rhetoric is not matched by their actions.

But they also hammer away and government expenditure, and at the same time support wholeheartedly expenditures on the military and other projects such as the Space Shuttle (which Canada has also participated in - see, Canadarm).

Obviously, again, the right wing is not opposed to government expenditure. What they are opposed to is expenditure that has the tendency to compete with existing businesses. Thus the US government can spend US$450 billion a year on military with nary a sound from the Wall Street Journal, Rush Limbaugh, Terence Corcoran and other hacks. But let them spend a tenth of that on anything that really does anyone any good, and those same hacks go into foaming at the mouth mode.

It's not at all about principle, it's about using the government to sustain the private sector. And that is what government debt is about, and always has been about.
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On the wilds of the Drive