Too much debt?

[Lostviking]

We have been bombarded with the idea that the US has too much debt. I think we are often lead to believe that this is bad and that the US is taking on much more debt than the rest of the world.

This chart shows debt to GDP ratios for the entire world. The US is high - but not much higher than many countries and certainly not the worst. (source: CIA factbook)



This next chart is more interesting to this discussion, it shows US debt since 1930 as a percent of GDP. When you look at this chart, remember that we were out of the Great Depression by 1945 - look where the US debt ratio was at that point!



We spent ourselves out of the last depression and we will in time spend ourselves out of this one. Obama would have a long way to go to come close to FDR's level of deficit spending. And, going back to the first chart, all countries do this. Ours is not an irresponsible level yet. Not if we we expand our GDP to meet our expanded debt level.

That said, its what we borrow money for that really matters - not our debt level. If we borrow to fund economic expansion, thats a good thing. If we borrow to keep crappy companies afloat and poor businesses in business, its an awful thing. We gave billions and billions this past year to keep the big three auto companies in business (With Obama's blessing). Now, while its true that many many people would have lost their jobs in the short run, in the long run we are stuck with three companies that can't possibly survive and a huge loss of borrowed money. This expenditure did not help our GDP or expand our economy.

I am all for the government spending money. If they stop we are all doomed. But its the way they spend their money that does matter. Unfortunately, the Obama administration do not seem to get this. Every action they take seems to support poor business models and unions. Not growth. restrictions and penalties are fine. Forced repayment of TARP money is fine. But new taxes? Controls that prevent growth? No, no, no.

I want to see our government spend money and make rules in a way that will expand our GDP. I am not afraid of debt. In fact, I welcome it.

[Rocky Raccoon]

You know you'll have to pay that, though, right?

[Lostviking]

Originally Posted by Rocky Raccoon

You know you'll have to pay that, though, right?

We never ever ever pay for our debt. We just borrow more and more. If we ever stop - no more economy.

We also inflate it away.

[waiting]

The best thing that Obama can do right now, is replace Ben Bernanke, Larry Summers, and Tim Geithner. And people should really listen to what Elisabeth Warren has to say on the situation. The problem is that as soon as Obama appears to be reigning in the Wall St. crowd, the market goes way down, and everyone starts pointing their fingers at him and saying he is screwing things up even worse. People need to understand that we cannot be held hostage to the whim of Wall St. if we are to remain a viable nation. And that new laws and regulations must be in place that keep what just happened from happening again.

[vincentstuntdbl#23]

Originally Posted by waiting;25289[B

]The best thing that Obama can do right now, is replace Ben Bernanke, Larry Summers, and Tim Geithner.[/B] And people should really listen to what Elisabeth Warren has to say on the situation. The problem is that as soon as Obama appears to be reigning in the Wall St. crowd, the market goes way down, and everyone starts pointing their fingers at him and saying he is screwing things up even worse. People need to understand that we cannot be held hostage to the whim of Wall St. if we are to remain a viable nation. And that new laws and regulations must be in place that keep what just happened from happening again.

dbl

[Aunt Sam]

Now that the corporations can legally fund billions into purchasing our government officials, maybe they should just take care of our national debt.

[Lostviking]

Originally Posted by waiting

The problem is that as soon as Obama appears to be reigning in the Wall St. crowd, the market goes way down, and everyone starts pointing their fingers at him and saying he is screwing things up even worse. People need to understand that we cannot be held hostage to the whim of Wall St. if we are to remain a viable nation. And that new laws and regulations must be in place that keep what just happened from happening again.

My prediction for next week is that obama tunes down his cry to regulate Wall Street. Why? Because the elephant in the room is that wall street trumps the president. No one want to admit this, but everyone knows it. Wall street is a barometer of the mood of the people. It is also one of the most effective predictors of the future available. Many many people in the know buy and sell stock based on public information and inside knowledge. It is like a real crystal ball - every large action taken by our government gets a yay or neigh vote on wall street first. And the street is most often correct. More correct it seems than the congressional budget office.

People did not sell stocks this week to show their disapproval of Obama's words. They were selling stock out of fear of future losses. China is on the brink of its own financial bubble crisis right now. Greece may soon default on its credit. Things are still bad here. The one bright spot in the US is the financial recovery. No one sold a single share because of Obama's talk about tighter banking laws. They sold shares because he said the federal government would, for the first time, limit banking mergers. They sold shares because he threatened a new levy on the banks - which cuts into profits of barely recovering companies. It was a pot shot by Obama. Ill conceived and poorly planned. But to have a sitting president threaten with serious tax penalties worries investors.

When we hear the president toning down his stance this week, we will know the truth. He answers to the street, for better or worse.

The best thing Obama can do next week is tone down his taxation and regulation talk. The next thing is talk about how he will reduce our deficit spending. Pretty much in that order. If he fires Bernanke at this stage, he will only add to the fire. Despite the fact that Bush should have fired the man in 2008.

[Lostviking]

todays news from London.

From The Sunday Times
January 24, 2010
Alistair Darling warns Barack Obama over banking reforms
David Smith and Iain Dey


Alistair Darling warns Obama's proposals would not have averted the credit-crunch
Alistair Darling warns today that President Obama’s proposals for shaking up the banks would not have prevented the crisis and risk undermining the international consensus on reforming the financial system.

In an interview with The Sunday Times, the chancellor made clear that he saw serious shortcomings in the American approach.

“It is always difficult to say ex ante that you would never intervene to save a particular sort of bank,” he said. “In Lehman, for example, there wasn’t a single retail deposit, but the then American administration allowed it to go down and that brought the rest of the system down on the back of it.

“You could end up dividing institutions and making them separate legal entities but that isn’t the point. The point is the connectivity between them in relation to their financial transactions.

“Equally, the large-small thing doesn’t run. Northern Rock was very small in global terms but systemically it was quite important when it got into trouble.”

The chancellor said Britain would continue to work with America on financial reform but that any proposals would have to be “workable and deliverable” and that he would not do anything to “disadvantage London relative to the rest of the world”.

Darling’s big worry is that Obama’s bombshell proposals, based on ideas set out last year by Paul Volcker, former chairman of the Federal Reserve Board, will shatter the consensus within the G20 nations on banking reform.

“If everyone does their own thing it will achieve absolutely nothing. The banks are global — they are quite capable of organising themselves in such a way that if the regime is difficult in one country they will go to another one, and that doesn’t do anyone any good.”

Lord Myners, the City minister, will host a meeting at 11 Downing Street tomorrow to discuss long-term solutions to the “too-big-to-fail” dilemma.

He is gathering senior representatives from each of the G7 nations, along with officials from the International Monetary Fund, the Bank of England and the Financial Services Authority.

Myners convened the meeting to discuss the best way to ensure banks will not need taxpayer bailouts in any future crisis. One plan is to force them to pay into a global insurance fund that could support the sector in times of stress. Another is a tax on all financial transactions, known as a Tobin tax.

Some of Wall Street’s biggest banks are examining ways to duck out of the restrictions. Goldman Sachs and Morgan Stanley are believed to be in talks with the US Treasury about changing their legal status to avoid the new rules.

[Rocky Raccoon]

Originally Posted by Lostviking

We never ever ever pay for our debt. We just borrow more and more. If we ever stop - no more economy.

We also inflate it away.

See, just because it hasn't had to happen yet, doesn't mean it won't.

[Lostviking]

Originally Posted by Rocky Raccoon

See, just because it hasn't had to happen yet, doesn't mean it won't.

Well, thats true. But we do have a 200 year trend.