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dexion10 (27.67)

Reagan-omics or Obama-nomics | IT DOESN'T MATTER - You're still losing your job!

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November 08, 2008 – Comments (7) | RELATED TICKERS: SPY

CORRECTING SOME TYPOS: I don't generally like talking politics - but it appears to be the topic dejur right now so I'll chime in quickly.

REGARDING THE CURRENT BIG ISSUES OF THE DAY:

Politics and policy are not as big a determinent of economic prosperity as money supply and government balance sheets.   

What I mean by this is that policy changes have their limitations in this current environment.

The U.S. had a decent balance sheet (not great) at the time of Reagan so we could afford to lever up and spend to grow the economy.  But what do we do now that the U.S. balance sheet is insolvent?


THE CATCH 22

1. If the U.S. tries to spend our way out of this with government bailouts and subsidies: our debt will carry such substantial interest that our tax revenues will barely cover our interest payments - leaving very little left to pay for day to day operations of the governement.

2.If the U.S.Government doesn't share the private / free  market's losses and broken balance sheets, then the deflationary spiral will continue as the money supply shrinks and the financial system implodes. 

See my post here for proof that the financial system will definitely 

The only reason the U.S. is not bankrupt is that we can print money - unlike other entities like a corporation or state - who would be bankrupt with this balance sheet and this paltry level of operating income (income statement).


A FEW PROBLEMS WITH REAGANOMICS:

I laugh at all the conversations about tax cuts for the wealthy. What a side show... with or wtih out them we're still pretty much so screwed.

Even President Reagan, himself, couldn't fix this mess.

Make no mistake that Ronald Reagan was a very effective president when it comes to popularity and being, well, presidential.

Reagon wasn't a god though.   The truth is he was a president who spent America out of problems.

WE CAN'T SPEND OUR WAY OUT OF THIS MESS NOW.

Hopefully I've not gone too far. Hopefully even Regan lovers will agree that deficit ballooned under Reagan's watch - these deficits funded subsidies for the private sector.

 

REAGAN SOCIALISM:

Building up a huge government deficit or socializing the costs on behalf of private sector profits isn't  a hallmark of unfettered capitalism. That was well intentioned socialism.  The profits went to the private sector and the debt went to the public U.S. balance sheet.

Historians have done a poor job of recognizing Reagan's work for welfare program.

 

CALLING OUT THE TAX PAYERS MOCK OUTRAGE

Americans outrage over the current account deficit and government waste is often captured by the popular statement: "Us tax payers got stock with the bill".

The truth is that the American tax payer has not been paying the bill. If Taxpayers had been paying for our wreckless government spending we wouldn't have a current account deficit. The U.S. would have no debt at all.

THE TRUTH IS THAT FOREIGNERS SUBSIDIZE THE AMERICAN WAY OF LIFE. 

Countries like China, Russia, Saudi Arabia, and Japan all subsidize the American way of life - in fact we couldn't have even fought the Iraq war without funding from many of the nations who supposedly opposed the war.

7 Comments – Post Your Own

#1) On November 08, 2008 at 7:43 PM, lquadland10 (< 20) wrote:

Amen brother that is why I still can't wait for Ron Paul to be elected.

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#2) On November 08, 2008 at 9:38 PM, LordZ wrote:

Ron Paul ??? never happen... he's just a talker.... never really a team player either...

 

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#3) On November 08, 2008 at 10:01 PM, jegr5347 (< 20) wrote:

The only consolation I have is that national debt as a percentage of GDP was over 120% around WWII and I believe its around 80% now. The only problem is there was a long expansionary period after WWII and US citizens actually saved. When and what the next expansionary period will be like???

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#4) On November 08, 2008 at 11:32 PM, dexion10 (27.67) wrote:

great point Jegr5347:

The only consolation I have is that national debt as a percentage of GDP was over 120% around WWII and I believe its around 80% now.

80% is still pretty bad but it's even worse when you realize that our GDP is a fluffed up number.

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#5) On November 10, 2008 at 1:30 PM, Gemini846 (48.98) wrote:

You are correct that we can't spend our way out of this mess. Reganomics did infact work because after GHW Bush raised taxes (remember "read my lips") the Clinton Admin kept those taxes and under the Republican house balanced the budget. (Dem's loved to talk about how Clinton ran a surplus).

Nobody actually retired any govt bonds however. When 9-11 came around the outstanding debt bit us. The fed panic crashed the interest rates. I was working for a GMC dealer at the time and I remember our sales manager pulling the 0% for 5 yrs off the fax machine and calling GMAC for a clarification. Surely this was a misprint.

The resulting housing bubble and stock market bubble are pretty fresh in our minds now.

Many of you have pointed out, "why does the FED have this much power"? Why are we decending into bondage rather than freedom?

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#6) On November 10, 2008 at 3:05 PM, jegr5347 (< 20) wrote:

I keep on reading about a contraction of the money supply/velocity of money as a result of deflation in commodities, real estate, and other investments (including major banking losses on asset backed paper) and also a decrease in business and consumer transactions in general. As a result of this contraction, the Feds expansionary fiscal and monetary policy (stimulus) wont be as inflationary or hurt the dollar as much as everybody thinks.

Can anyone explain or add to this school of thought?

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#7) On November 10, 2008 at 4:27 PM, dexion10 (27.67) wrote:

the current increase in the Feds lending and the Treasuries lending is still LESS THAN  the value destroyed by the fall in asset prices so the money supply is contracting on net... so we have no near term worry about inflation.

The fact that credit card companies aren't increasing credit limits and consumers aren't taking out MORE big loans are all signs that there is less money in the world (credit is money).

 

So the recent money creation is sterile... it isn't inflationary.

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