Costs of austerity

[expat_panama]

The rot is going to have to be stopped sometime...before the US loses its credit rating, and becomes a third world basketcase like many others.

Can't just keep on borrowing and spending money like there's no tomorrow.

Too late.

The rating of US debt's already falling (Chinese agency downgrades US credit rating, Fitch signals it could downgrade U.S. credit rating) and unlike previous false warnings this downgrade has the respect of the bond market; in the last few days US T-bill interest rates have begun to soar--

--and America's going to have to face annual interest outlays in excess of a $trillion:
[ame=http://www.youtube.com/watch?v=F-cki8tWbS8]The US Debt: Just Wait Until Interest Rates Return To Normal! We're Screwed - YouTube[/ame]

 

[jasonnfree]

The rot is going to have to be stopped sometime...before the US loses its credit rating, and becomes a third world basketcase like many others.

Can't just keep on borrowing and spending money like there's no tomorrow.

Too late.

The rating of US debt's already falling (Chinese agency downgrades US credit rating, Fitch signals it could downgrade U.S. credit rating) and unlike previous false warnings this downgrade has the respect of the bond market; in the last few days US T-bill interest rates have begun to soar--

--and America's going to have to face annual interest outlays in excess of a $trillion:
[ame=http://www.youtube.com/watch?v=F-cki8tWbS8]The US Debt: Just Wait Until Interest Rates Return To Normal! We're Screwed - YouTube[/ame]

But these rating downgrades are because of threats of default. Yes or No?

 

[expat_panama]

...rating downgrades are because of threats of default...

Absolutely, they're used to calculate the interest needed to pay for the risk.

Kind of like life insurance actuary tables set policy prices; they can't say when any one individual person is going to die but they can say what percent of a thousand policy holders will. In the US we can just plan on not defaulting because we know there's virtually no chance of it happening. Nevertheless we can also plan that a debt downgrade will raise interest rates to the point that outlays for interest leap four fold --from the current $1/4T to well over a $T. For starters.

All this talk about funding NPR and parks is going to start sounding pretty hollow.

 

[oldfart]

...The unanswered question in your OP is what constitutes austerity...

...If there is a limit to America's public debt, we are nowhere near it and would not be near it with double the stimulus I advocate...

Hard to tell if that's your answer but the post seems to say you consider fiscal policy over the past four years to have been one of austerity in contrast to say, the four previous.

The total deficit spending over the past four years has been more than double that of the four previous, and that alone should characterize post crisis fiscal policy --however necessary-- as anything but "austere".

You persist in repeating an historical error. Both in Europe and America, "austerity " policies were not on the agenda until 2010, banking reform and stimulus were. So arguing about the "last four years" is the wrong time frame, as it includes both a period of stimulus (2009-2010) and a period of retrenchment (2011-present).

I take your argument as being that austerity has never been truly attempted. From that I surmise that you are a "hard austerian" who holds that austerity means a level of government spending that is no greater than that level that would have created a balanced public budget in the previous time period. I can't find where you have ever defined austerity; here is your opportunity to correct me.

If I am correct as to your definition, then since it has not been tried, there is no evidence that austerity has ever worked. Further, the closer an economy gets to austerity policies, the worse its economic performance. I do not see the logic in an argument that as you approach the recommended policy things get worse, but once you get there confidence fairies will make everything work out. If you are one of those who criticize stimulus as not having been effective, I ask why you believe that austerity which has also proven ineffective should be judged by a different standard. At least we knew from the beginning the stimulus was too small to provide adequate recovery and there is a general agreement that it forestalled a full-blown depression, at least moving the economy in the correct direction. Austerity attempts have moved economies in the wrong direction.

If you want to debate the above paragraph, I will be happy to do so. Start by defining what you mean by austerity and where and when it has been implemented. I look forward to your reply.

 

[oldfart]

Fitch signals it could downgrade U.S. credit rating) and unlike previous false warnings this downgrade has the respect of the bond market; in the last few days US T-bill interest rates have begun to soar--

--and America's going to have to face annual interest outlays in excess of a $trillion:
The US Debt: Just Wait Until Interest Rates Return To Normal! We're Screwed - YouTube

First, rates in your graph are still near historical lows, especially when you consider that Monday the four week T-bill rate will return to normal. Second the claim of a $1 trillion interest cost assumes a quadrupling of interest rates which no one is predicting. Do you have a source for that other than Youtube?

BTW, if you continue to think Youtube is an acceptable source for any economic information, you are not an idiot, you are seriously delusional and deserve to be laughed out of the room. You really can't do better than YOUTUBE for a source?

 

[Cassandro]

...If there is a limit to America's public debt, we are nowhere near it and would not be near it with double the stimulus I advocate...

Hard to tell if that's your answer but the post seems to say you consider fiscal policy over the past four years to have been one of austerity in contrast to say, the four previous.

The total deficit spending over the past four years has been more than double that of the four previous, and that alone should characterize post crisis fiscal policy --however necessary-- as anything but "austere".

You persist in repeating an historical error. Both in Europe and America, "austerity " policies were not on the agenda until 2010, banking reform and stimulus were. So arguing about the "last four years" is the wrong time frame, as it includes both a period of stimulus (2009-2010) and a period of retrenchment (2011-present).

I take your argument as being that austerity has never been truly attempted. From that I surmise that you are a "hard austerian" who holds that austerity means a level of government spending that is no greater than that level that would have created a balanced public budget in the previous time period. I can't find where you have ever defined austerity; here is your opportunity to correct me.

If I am correct as to your definition, then since it has not been tried, there is no evidence that austerity has ever worked. Further, the closer an economy gets to austerity policies, the worse its economic performance. I do not see the logic in an argument that as you approach the recommended policy things get worse, but once you get there confidence fairies will make everything work out. If you are one of those who criticize stimulus as not having been effective, I ask why you believe that austerity which has also proven ineffective should be judged by a different standard. At least we knew from the beginning the stimulus was too small to provide adequate recovery and there is a general agreement that it forestalled a full-blown depression, at least moving the economy in the correct direction. Austerity attempts have moved economies in the wrong direction.

If you want to debate the above paragraph, I will be happy to do so. Start by defining what you mean by austerity and where and when it has been implemented. I look forward to your reply.

Since YOU started this thread, why don't YOU define what you mean by austerity and where and when it has been implemented? Also, the only recent example of extended low interest rates is Japan's stagnant economy. Is that what you want/foresee for the U.S. economy?

P.S. Isn't the "cost of austerity" an oxymoron like the "savings of extravagance?"

 

[expat_panama]

..."cost of austerity" an oxymoron like the "savings of extravagance?"

Maybe it's like "being able to afford a tax-cut" and "all the extra money we'll have by paying more taxes".

 

[oldfart]

Since YOU started this thread, why don't YOU define what you mean by austerity and where and when it has been implemented?

Fair enough. My definition of austerity is any attempt to reduce government spending during a downturn. In addition to America, it has been tried in most of Europe except Iceland and has been the customary IMF demand for troubled economies until the past year.

Also, the only recent example of extended low interest rates is Japan's stagnant economy. Is that what you want/foresee for the U.S. economy?

Your implied causality is backward, Japan has low interest rates because of its prolonged slump. It proves that liquidity traps exist and that traditional monetary policy is not effective in them. Abenomics seems to behaving a positive effect recently, however.

What I foresee for the U S economy is pretty much what the CBO projections are, but reducing the growth rate three and more years out by about 1% to adjust for CBOs over-optimistic track record.

What I want is a sensible fiscal policy of about $2 trillion stimulus over two years which should return us to the pre-existing growth path, but at a lower level. To prevent the next otherwise inevitable disaster, I also favor additional financial industry reform, breaking up the largest banks, and banning trading in certain derivatives and financial products which pose systemic risk.

I also want tax reform, world peace, the Bears to win the Superbowl, and Carolina to beat Duke!

P.S. Isn't the "cost of austerity" an oxymoron like the "savings of extravagance?"

Not at all. The loss of GDP is measurable and huge. The OP included the Peterson funded paper calculating it. Why don't you read it?

 

[expat_panama]

...austerity is any attempt to reduce government spending during a downturn.

You might want to modify that to include adjustments for population growth and inflation. Of course, since the recession ended in mid 2009, the you'll probably also want to broaden the definition to include any per capita real spending decrease any time after a downturn too. Thus the definition becomes any real per capita spending decrease ever.

We don't agree but it's good that we're clear.

 

[william the wie]

...austerity is any attempt to reduce government spending during a downturn.

You might want to modify that to include adjustments for population growth and inflation. Of course, since the recession ended in mid 2009, the you'll probably also want to broaden the definition to include any per capita real spending decrease any time after a downturn too. Thus the definition becomes any real per capita spending decrease ever.

We don't agree but it's good that we're clear.

In other words any and everything short of inflation is austerity. This definition has worked so well in so many places.