"The Liberal Ratchet"

[Reub]

http://www.usnews.com/opinion/blogs/eco ... al-ratchet

Here is an article by James Rickards that might interest you. It sure makes the future look bleak.

This quote from the article:

"The Obama deficits were an order of magnitude greater than anything ever attempted. The deficit numbers were staggering—$1.5 trillion in 2009, $1.37 trillion in 2010, $1.37 trillion again in 2011 and an estimated $1.4 trillion in 2012—a cumulative four-year total of over $5.6 trillion dollars. The liberal ratchet was back with a vengeance."

[doodle]

Before I read the article I want to make a quick comment. I find this process of pinning emotional labels on things to be a very vexing problem which undermines clear, rational thinking. Creating labels like "liberal" is a way to get an immediate knee-jerk reaction out of people and it prevents them from giving due consideration to issues.

You see this on Fox News all the time. They first create a negative connotation around a word like "liberal" and they then attach it to anyone or anything they don't agree with. Then, they don't actually have to force people to go through the process of thinking. They can instantly demonize something with one word.

Out of curiosity, what is the denotation of liberal once you remove all the connotative emotion that has been tacked on to the word???

[6 Iron]

Before I read the article I want to make a quick comment. I find this process of pinning emotional labels on things to be a very vexing problem which undermines clear, rational thinking. Creating labels like "liberal" is a way to get an immediate knee-jerk reaction out of people and it prevents them from giving due consideration to issues.

You see this on Fox News all the time...

Doodle, I typically avoid political posts here, but your post reminded me of this:

http://www.youtube.com/watch?v=QJ882QYz ... ata_player

[moda0306]

The vast majority of the deficit was an automatic response given our pre-designed tax code and pre-designed spending programs.  Between 2003 and 2008 (including 2008) the average fiscal deficit was about $325 Billion, annually.   So if you'll humor me let's assume that as already built into normal economic activity with Bush-era budgets.

That means that with three years at about $1.5 Trillion, we've got almost $1.2 Trillon per year for three years to account for that was above and beyond "normal."

Well the Obama stimulus was only $787 Billion dollars of that $3.6 Trillion... the stimulus is only about 22% of the excess deficits.

Further, a decent chunk of the increase in the deficits after 2008 was tax receips, which are down about $300 billion per year... I'm quite sure that the tax-cuts in the stimulus package (about 1/3 of the stimulus was tax cuts) are actually listed as tax preference items, or expenses, but I could be wrong, so it's likely that this $300 billion in reduced taxes doesn't even count the Obama "tax-expenditures."

So the $900 billion in reduced taxes in the past three years is actually more than the entire stimulus package.... unless I'm wrong about how the stimulus tax cuts were counted.... Tax reductions are 25% of the increased deficits.

So what's the rest of it?  Automatic safety net programs that pay out more 1) as our population ages, and 2) as more people access medicaid, welfare, and unemployment insurance as a result of the recession.  Almost all of this is automatic.  Unemployment benefit extensions is all Obama can claim credit for.

I'll add that state/local governments have been cutting spending significantly.

So all in all, before I even read the article, here's my rebuttal.  The article is likely too biased to be taken seriously... sorry.

http://useconomy.about.com/od/candidate ... imulus.htm
http://www.taxpolicycenter.org/taxfacts ... ?Docid=200

[Gumby]

Here's what that article looked like in a word cloud...

[align=center][/align]

He seems to like saying "Liberal" a lot.

Anyway, I read the article. It's an interesting look at the school-yard fight that is our political system.

The key quote of the article is...

...Now the United States is going broke in visible, measurable ways. With no tax increases or spending cuts in sight, only rapid inflation—another form of going broke—can save us. Get ready.

This is basically a tired Peter Schiff argument. But, it's all politically-motivated fear mongering. Peter Schiff pretty much made the exact same flawed hyperinflation prediction on Glenn Beck on December 28, 2009:

PAYNE: So, where are you then, Peter, with respect to inflation? Do you think this is going to be the big story of 2010?

SCHIFF: You know, look, I know inflation is going to get worse in 2010. Whether it’s going to run out of control or it’s going to take until 2011 or 2012, but I know we’re going to have a major currency crisis coming soon. It’s going to dwarf the financial crisis and it’s going to send consumer prices absolutely ballistic, as well as interest rates and unemployment.

PAYNE: And what does that mean? For people watching this show, what does that mean for the average American?

SCHIFF: It means their life is going to get a lot more difficult. It means things that they need to buy, things like food and energy, are going to be much more expensive. Ultimately, interest rates are going to rise and their entire standard of living is going to plunge.

And I’m hoping the government doesn’t respond to this inflation with price controls because that’s going to make it even worse. Now, you’re going to be waiting in long lines to get basic food items or to get energy because there’s going to be shortages. People might be going to the black market.

PAYNE: You’re talking you’re talking Zimbabwe, Weimar, Germany — I mean, you’re really talking about something like that actually happening in this country.

SCHIFF: It will happen if we don’t change policies. There is still time to change.

PAYNE: Right.

SCHIFF: I mean, I’m running for the United States Senate, so I can try to change that myself. But if we don’t reverse course, if we continue to stimulate, then we will end up with hyperinflation and it will be like Zimbabwe.
Source: http://krugman.blogs.nytimes.com/2011/1 ... edictions/

And here we are two years later — the money supply has tripled — and no clear sign of inflation anywhere in sight. Could it still happen? Sure. But, to use the simplistic Quantity Theory of Money argument is nothing more than an attempt to rile people up with "scary" tales of hyperinflation that may never happen.

[melveyr]

I think the biggest problem with the article is that it assumes greater government debt or higher deficits are a bad thing. Perhaps it is because they both start with the letter "D" and we are trained to think that "D" words are usually bad.

I like the analogy of government deficits/surpluses being like the gas and the brakes for the economy. Is stepping on the gas always a bad thing? What if we are climbing a very steep hill?

[Coffee]

And here we are two years later — the money supply has tripled — and no clear sign of inflation anywhere in sight. Could it still happen? Sure. But, to use the simplistic Quantity Theory of Money argument is nothing more than an attempt to rile people up with "scary" tales of hyperinflation that may never happen.

Gas in California (the cheap stuff!) is $4.40 a gallon.  Many food stuff is up 30%, and a lot of the stuff that's not, is priced the same but you're getting less quantity.  Example: 36 roll pack of toilet paper at Costco is now 30 rolls... but for the same price as the 36.

Maybe the problem is the liberal (ha!) use of the word hyperinflation when instead they should be using the term: mass-inflation?

[Gumby]

And here we are two years later — the money supply has tripled — and no clear sign of inflation anywhere in sight. Could it still happen? Sure. But, to use the simplistic Quantity Theory of Money argument is nothing more than an attempt to rile people up with "scary" tales of hyperinflation that may never happen.

Gas in California (the cheap stuff!) is $4.40 a gallon.  Many food stuff is up 30%, and a lot of the stuff that's not, is priced the same but you're getting less quantity.  Example: 36 roll pack of toilet paper at Costco is now 30 rolls... but for the same price as the 36.

Maybe the problem is the liberal (ha!) use of the word hyperinflation when instead they should be using the term: mass-inflation?

I suppose if you view economics from a politically-charged perspective, you might come to that conclusion. But, it's likely false.

While the rise in food and energy prices may increase households’ inflation expectations, and temporarily raise prices, it does not mean that people can expect higher wages in the future. In fact, it's just the opposite for an economy experiencing a balance sheet recession. A profit squeeze from high oil prices will likely weigh on wages, further restraining labor income and consumption.

In other words, higher oil prices serve as a kind of tax from the consumer's perspective. As Paul Krugman pointed out...

“So, does a rise in food and energy prices do anything to alleviate these [deflationary] problems? No. In fact, it makes them worse, by reducing purchasing power. So while the commodity surge may temporarily lead to rising headline prices in Japan, the underlying deflation problem won’t be affected at all.”?
Source: Paul Krugman

I guess inflationistas will yell and scream about headline inflation while the real story is that wages won't be rising to compensate — ultimately causing deflation.

[Storm]

This is a highly inflammatory subject, however, let's do a little bit of "fact-checking", if you will:

[Lone Wolf]

And here we are two years later — the money supply has tripled — and no clear sign of inflation anywhere in sight.

Do you mean "no clear sign of high inflation"?  I agree that we haven't seen face-melting hyperinflation (and we are IMO unlikely to.)  But apart from the blip of 2009, hasn't it been a low but constant level of inflation right down the line?

The rise of food and energy prices over this period of time in the face of what should be very strong deflationary forces has been troubling to me.  The "man on the street" certainly feels it (and badly.)

...the real story is that wages won't be rising to compensate — ultimately causing deflation.

Will this actually arrive in the form of falling prices?  That hasn't really happened, either.  I haven't seen signs of deflation or hyper-inflation.  Just extremely slow growth, eroding savings, and annoying but modest levels of inflation.

This is a highly inflammatory subject, however, let's do a little bit of "fact-checking", if you will:

I wouldn't want the job of defending either President's economic record, but that infographic is a real piece of work.  After most deservedly beating up on Bush for his contributions to the national debt and laying out the unemployment level and poverty level, all of these indicators (now greatly worsened under Obama) go right down the memory hole in the Obama section.

These are just politicians.  None of them deserve our time or energy to be given cover for this mistakes.

[MediumTex]

These are just politicians.  None of them deserve our time or energy to be given cover for this mistakes.

IMHO, when you remove the lenses of personal preference, party affiliation and other factors that cause people to like one politician over another, there is little difference among most modern politicians.  They all want to expand state power and erode personal liberty (though they don't see it that way).

To me, the disease is not Republican or Democrat, it's statism in general.

I spent some time around politics when I was younger and one of the things that you can't help but be impressed by is how hard most politicians work and how sincere they are in their desire to improve society.  The basic problem, though, is that not all social, cultural and economic problems have state-based solutions.  Thus, in many spheres of life state action will always fail, not because the politicians don't have good motives or because they aren't working hard, but rather because what they are trying to do is the equivalent of trying to turn a screw with a hammer.

[Gumby]

Do you mean "no clear sign of high inflation"?  I agree that we haven't seen face-melting hyperinflation (and we are IMO unlikely to.)  But apart from the blip of 2009, hasn't it been a low but constant level of inflation right down the line?

Sorry, I meant there has been no sign of the kind of "ballistic" inflation that Peter Schiff talked about.

The rise of food and energy prices over this period of time in the face of what should be very strong deflationary forces has been troubling to me.  The "man on the street" certainly feels it (and badly.)

...the real story is that wages won't be rising to compensate — ultimately causing deflation.

Will this actually arrive in the form of falling prices?  That hasn't really happened, either.  I haven't seen signs of deflation or hyper-inflation.  Just extremely slow growth, eroding savings, and annoying but modest levels of inflation.

Well, it's more complicated than that. Once wages can't support the temporary oil-induced inflation, prices will then fall (i.e. price of gas comes back down, price of milk goes back down, etc.). But, the point is that the underlying deflationary problems would still remain, despite the oil tax. For example, Mish defines deflation as, "Deflation is a net decrease in money supply and credit, with credit marked-to-market." and shows the following symptoms of deflation ...

Symptoms of Deflation
1. Falling Credit Marked-to-Market
2. Falling Treasury Yields
3. Falling Home Prices
4. Rising Corporate Bond Yields
5. Rising Dollar
6. Falling Commodity Prices
7. Falling Consumer Prices
8. Rising Unemployment
9. Negative GDP
10. Falling Stock Market
11. Spiking Base Money Supply
12. Banks Hoarding Cash
13. Rising Savings Rate
14. Purchasing Power of Gold Rises
15. Rising Number of Bank Failures
Source: http://globaleconomicanalysis.blogspot. ... ation.html

In August 2011, Mish cited evidence for 14 out of 15 clear symptoms of deflation. The only thing that was missing at the time was negative GDP. Anyway, it's an interesting and quick read...

http://globaleconomicanalysis.blogspot. ... ation.html

[Lone Wolf]

Well, it's more complicated than that. Once wages can't support the temporary oil-induced inflation, prices will then fall (i.e. price of gas comes back down, price of milk goes back down, etc.). But, the point is that the underlying deflationary problems would still remain, despite the oil tax. For example, Mish defines deflation as, "Deflation is a net decrease in money supply and credit, with credit marked-to-market." and shows the following symptoms of deflation ...

Thanks, that makes sense.  Something we're always dealing with is the ever-present ambiguity between monetary deflation (the shrinking of some measurement of the money supply) vs. price deflation (prices actually falling, such as in 2008.)