Economics

Robert Samuelson: Democrats "ignored conspicuous warnings" of Impending "budget crisis"

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Washington Post econ columnist Robert J. Samuelson is not optimistic about the future outlook of the U.S. federal budget and economy. Here's how he starts his latest column:

When historians recount the momentous events of recent weeks, they will note a curious coincidence. On March 15, Moody's Investors Service—the bond rating agency—published a paper warning that the exploding U.S. government debt could cause a downgrade of Treasury bonds. Just six days later, the House of Representatives passed President Obama's health-care legislation costing $900 billion or so over a decade and worsening an already-bleak budget outlook.

Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered—though their quest was for political glory, not financial gain.

Let's be clear. A "budget crisis" is not some minor accounting exercise. It's a wrenching political, social and economic upheaval. Large deficits and rising debt—the accumulation of past deficits—spook investors, leading to higher interest rates on government loans. The higher rates expand the budget deficit and further unnerve investors. To reverse this calamitous cycle, the government has to cut spending deeply or raise taxes sharply. Lower spending and higher taxes in turn depress the economy and lead to higher unemployment. Not pretty.

Whole thing here. Read Samuelson in Reason on the "Lessons from the Great Inflation," and viddie the viddie below.

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  1. Did someone mention that the Morning Links weren’t too depressing today?

  2. To reverse this calamitous cycle, the government has to cut spending deeply or raise taxes sharply.

    I wonder which it will be?
    But there is a third option, one which we’ve perfected: doing nothing.

    1. The third option is currency devaluation.

  3. Robert Samuelson is obviously a violent racist fearmongering teabagger.

    1. I forgot SEXIST!

      He is a violent racist, SEXIST, fearmongering teabagger.

    2. The fucker is too lazy to go out and smash the jewish shops.

      In my day….

  4. Historians? You mean those guys who every year unleash “rankings” or “ratings” of presidents on us, and report that the most recent Democrat was the best prez evah and the most recent Republican was the worst failure in human history?

    Face it; future historians of the Socialist States Of America are going to blame bankers and WalMart for any early 21st century budget crisis, if they even bother to address the issue.

    1. Yes, those guys. Because historians are a single minded bloc who all agree on everything.

    2. I agree with you Mitch. 40 years from now, every kid in school is going to learn how the great Barack Obama, just like FDR, took on the evil capitalist (robber barons) to give us all health care. All the criticism currently going on around all of this will be ignored. You think this kids are going to learn about the bond market connection? Really? Obama is fully aware of this and that’s why he really didn’t care about popularity today. He knows he’ll have it in the future among democrats in perpetuity.

  5. Samuelson is just another RepubliKKKan shill in the pocket of the insurance companies. Pelosi said that the health care bill is going to SAVE us billions. I thought the Washington Post was better than this. Now they will let any teabagger write columns full of lies passed off as truths.

    1. No, B-.

    2. A gentleman’s C.

      1. Come on… “RepubliKKKan”? I felt that gave it real panache.

  6. “allies” is a code word

  7. It’s rather staggering to realize, but Obama is going to add more money to the publicly held portion of the national debt in just two years than the reviled George W. Bush added in his entire eight.

    With respect to Samuelson and John Fogerty, someday is already here.

    1. Absurdly wrong.

      Bush 2001 Jan – $5 trillion public debt

      Obama 2009 Jan – $11.1 trillion

      now – $12.6 trillion.

      And the CBO scored the FY 2008/09 deficit at $1.3 trillion before Obama was sworn in.

      Quit listening to Hannity – he is a liar.

      1. Your numbers are a bit off, but it’s true that Obama still has a pretty long way to go to catch Bush for the total combined debt. However, I specifically said the PUBLICLY HELD portion of the debt, you illiterate mental midget.

        1. “Publicly held” = debt instruments like Treasuries with interest accruing.

          That is exactly what I am referring to.

          There is no other type debt.

          There IS liability – which is not “debt” per se.

          Take a basic course in finance some day.

          1. Actually deby held byt he public means the debt less intergovernment held debt (owed to the social secutiy and medicare trust funds) because the later is just an accounting entry. The number that the laws of economics care about is the debt held byt he public which is about 6 trillion currently.

            1. Not true. The government spent the money owed to the Trust Funds, so it owes the whole amount.

              1. you are missing what i am saying… the total debt number (the 11 trillion) is real debt (held by the public) and debt owed to the social security fund. But the social security fund isnt anything in of itself, its just another account. So what we have is the SS fund with an accounting surplus of about 4-5 trillion and the general fund with an accounting debt to the social security fund of about 4-5 trillion. These wipe each other out. Yes, the government has spent the entire fund, but all they have done is debit one account and credit the other with the same value (this would be like me borrowing 5,000 dollars on my credit card an putting it into a savings account. My net debt did not change). The unified budget balance sheet is the public number which is about 6 trillion currently.

                1. No you’re missing what I’m saying. Sorry this is such a late reply.

                  The trust fund is spent, which is like borrowing $5000 on your credit card and spending it.

                  The two accounts don’t wipe each other out. They are like two different credit cards.

          2. Thank you, EJ, for saving the trouble of trying to teach shrike basic public finance.

            1. Are SS/Medicare trustees not “public”?

              That is why I said “like Treasuries”. Interest still accrues. Whether you call such a T-Bill or an SS-Bill is not pertinent at all.

              The “public” still holds it as an interest bearing instrument.

              Liability is another animal altogether.

              Someday you will heed “the better craftsman”..*

              (* prologue from TS Eliot)

              1. “As this definition makes clear (as clear as government-speak gets), there are two categories of public debt. The first is confusingly called debt held by the public, or publicly-held debt, and consists of securities available for purchase and trade on the open market. For example, U.S. bonds held by China’s and Japan’s central banks are publicly-held debt.

                The second category is intragovernmental debt, which consists of securities held by “Government trust funds, revolving funds, and special funds” — including the trust funds of Old-Age and Survivors Insurance and Disability Insurance, together known as Social Security.”

                http://www.polianna.com/2005/07/06.trustfunds.shtml

                for the chart… http://www.flickr.com/photos/4…..858206549/

      2. You also need to remember that the Democrats refused to pass a budget in Bush’s last year, preferring the tactic of continuing resolutions so Captain Unicorn would get to sign their plumped-up budget as soon as he took office.

        The last year’s deficit belongs to the Democrats, lock, stock and barrel.

        1. Correct, and furthermore, almost half of the publicly held debt accrued in the Bush years came after January of 2007 when Pelosi and Reid took over Congress.

          Bush certainly deserves his share of the blame for this, but the democratic Congress deserves their equal share. As we all know, the president can’t spend one time without it being approved by both houses of Congress first.

  8. The moustache speaks: “No one can tell when or whether a crisis will come.”

    But if a crisis does come, well, then, I said it would come. And if it doesn’t, well, I said that too. So give me another doughnut, please.

    1. Vanneman, I’m feeling the need for a review of Invasion of the Blood Farmers. Can you oblige? It seems right up your alley.

    2. Vanneman, perhaps you’d care to go fuck yourself with a cattle prod? Fucking Vanneman.

  9. The budget is a problem. It’s not the biggest problem. It’s just the problem that Republicans have decided they can beat Dems over the heads with. Repubs don’t believe there’s a healthcare crisis, they don’t believe in climate change, they don’t believe that economic inequality is really a problem, so they latch on to one thing they can, federal debt, something by the way they have no credibility on. This is an entirely partisan con. There are plenty of serious economists who feel that debt and inflation are not the things we need to be worrying about at this exact moment. Unless all you want to do is hobble the current government in its efforts to clean up the economic mess it inherited.

    Samuelson is smart enough to know that the federal budget is not simply a matter of addition and subtraction. If we want a sound fiscal situation then we need to fix a lot of related problems, problems deficit hawks/GOP shills like Samuelson just ignore: healthcare, economic inequality, and the outsourcing of industry.

    1. What about the rest of us that are not Republicans? If there is a healthcare crisis, and there may be, the bill just signed into law will not fix it, it will exacerbate any issues caused by government burden.

      If global warming is anthropomorphic, cap and trade will not fix it. It will just shift emissions from one group to another at the expense of those suffering the most from economic inequality. The greatest expense will be handed to consumers, and the poor who have the majority of their income already earmarked for needs will be able to afford even less.

      So, even if we don’t ignore the crises you say are being handled by the Democrats, they are making them worse.

      There is no evidence the health reform or cap and trade will lower costs and emissions.

      1. If global warming is anthropomorphic, it will become one of us.

    2. Hey Tony, we are not Republicans!

      Economic inequality and poverty are not the same thing. How is inequality a problem by itself? I am able to provide myself with everything I need and have some left over. How is it a problem for me that some people make 100 or 1000x what I make?

    3. There are plenty of serious economists who feel that debt and inflation are not the things we need to be worrying about at this exact moment.

      There were plenty of serious economists who had absolutely no inkling that there was a massive fiscal crisis brewing. There’s quite a bit of overlap between those two groups, too.

      Unless all you want to do is hobble the current government in its efforts to clean up the economic mess it inherited.

      Obama is mostly innocent of the mess – except voting for the reprehensible bailouts. Members of his party are partially to blame for the mess, by refusing to control the GSEs. Obama and his party are responsible for all the lousy things they’ve done since 2009, such as propping up failed auto business, continuing to shovel money into Wall Street, garbage stimulus plans, etc. Japan’s been trying the same trick for 20 years, to no avail, and is now on the verge of public bankruptcy.

      1. continuing to shovel money into Wall Street

        Actually, Wall St has been shoving money back into the Treasury since spring of 09.

        1. Google “quantitative easing” and read up.

          1. The Fed?

            I am a big fan of QE. The Fed paid the Treasury $46 billion in January.

            The Fed is the only reason there was not 40% UE in the fall of 09.

            So if the Fed is “part of Wall St” then I am right again – they are shoveling money back into the Treasury/taxpayer.

            1. And technically there was no QE – Bernanke did “Credit Easing”. That is why the money supply did not grow by any significant amount.

              1. The money supply did grow by a significant amount. The Fed is paying banks interest on their deposits with the Fed. That’s one reason why the inflation dam hasn’t burst. Yet.

                The Fed, of course, is not part of Wall Street. Helpful indeed, but not part.

                1. The money supply did grow by a significant amount.

                  Prove it.

                  I can prove otherwise.

                  1. “As this definition makes clear (as clear as government-speak gets), there are two categories of public debt. The first is confusingly called debt held by the public, or publicly-held debt, and consists of securities available for purchase and trade on the open market. For example, U.S. bonds held by China’s and Japan’s central banks are publicly-held debt.

                    The second category is intragovernmental debt, which consists of securities held by “Government trust funds, revolving funds, and special funds” — including the trust funds of Old-Age and Survivors Insurance and Disability Insurance, together known as Social Security.”

                    http://www.polianna.com/2005/07/06.trustfunds.shtml

                    for the chart… http://www.flickr.com/photos/4…..858206549/

                  2. yes and no… M2 was growing very quickly but now is no longer. What has grown is the monetary base which has over doubled. The thing is most of this money is being held as excess reserves on t e fed balance sheet and therefore nto multiplyiong through the fractional banking system and creating a ton of new money and inflation. So basically the fed has printed a ton of money but it isnt doing anything yet. When banks desire to take these excess reserves out oft he fed and tsrat lending them, either 1. the fed is going to have to shrink the monetary base greatly, or 2. we are going to have massive moneatry expansion and high inflation (prices would have to about double from current values assuming a constant velocity of money). So the answer to is the fed printing money si btoh yes and no.

      2. Serious economist. Gary Becker, Nobel prize winner. In WSJ: “I learned from Milton Friedman that from time to time there are going to be financial problems, so I wasn’t surprised that we had a financial crisis. But I was surprised that the financial crisis spilled over into the real economy. I hadn’t expected the crisis to become that bad. That was my mistake.”

    4. It’s just the problem that Republicans have decided they can beat Dems over the heads with. There are plenty of serious economists who feel that debt and inflation are not the things we need to be worrying about at this exact moment.

      There is no debt problem. These are not the droids you are looking for.

    5. Even granted that every problem you’d like to fix is legitimate and demands immediate attention, how will be they fixable if the value of the dollar collapses? Global faith in our dollar is necessary before we can accomplish anything, and I don’t see what’s stopping other countries from deciding they don’t want to keep playing our IOU game. (In fact, I’m surprised they haven’t stopped already–I would have if I were them.)

  10. Nice work on the checklist, Tony, but you forgot OMG McMaaaaaansions! and CheapChinkCrap!!

    1. To be fair, the “Chinese Crap” bitching is usually done under the “Chad” moniker. Can’t blame him for following his own playbook. Got to keep up the pretense they are two separate people, after all.

      1. Got to keep up the pretense they are two separate people, after all.

        It is my working hypothesis that one is the stupid half and one is the evil half.

        I’m still not sure which is which, though.

  11. STFU because you don’t know what you’re talking about, you partisan hack.

  12. Tony – you are exactly correct. What we need is a congress and a president unafraid to spend what needs to be spent to keep this economy moving. Can I start the chant – SIX MORE YEARS! SIX MORE YEARS!

    Only through massive spending increases can we start to address the problems of economic inequality.

    We need to go as protectionist as possible regarding outsourcing – we are becoming like a third world country for crying out loud! Nothing but bankers and lawyers! We need to MAKE STUFF.

    Mandating all people buy or otherwise obtain a health insurance policy is a start, but what we really need is a budget outlay for single payer healthcare on par with defense spending. Actually it should be greater than defense spending. Don’t get me wrong, we shouldn’t cut defense spending – we’re still the greatest country in the world!

    There ought to be a federal VAT tax and income taxes should be at Carter or Roosevelt levels, whichever were higher.

    That was for Tony. For Episiarch and similar H&R readers, this is how I learned to stop worrying and hasten the demise.

    1. B+

      To get an A you need to make assertions that are clearly designed to drive the commenters here nuts, yet they fall for them anyway.

      1. I liked the six more years bit. However, given the disaster this government seems dedicated to creating, my sense of humor about sockpuppet trolls has mostly vanished.

  13. the “Chinese Crap” bitching is usually done under the “Chad” moniker.

    Oops; it’s so hard to keep track.

    I guess Tony is more into “Corporations are EEEEVUL!1!”

  14. “Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings.”

    Isn’t their canned response to that already about the Iraq War? …that if we hadn’t spent some $900 billion or so on the Iraq War, that financing ObamaCare wouldn’t be a problem?

    …since everyone against ObamaCare obviously, by definition, must have been in favor of the Iraq War.

    Actually, I think a lot of them are so naive, they think ObamaCare is the solution to our budget problems!

    ObamaCare is actually gonna shrink the deficit! Did you know that? It’s better than a 10% off sale! …ObamaCare gets us 10% off the budget deficit and it makes us more competitive internationally!

    1. And ponys! Every adolescent girl gets a pony of her very own.

      1. Hello there, little girl.

      2. And a bag of chips!

    2. I’ve said it befor, but for me, seeing Uday an Qusay’s bloated, naked corpses made the expenditure worth every penny.

      1. Certainly that could have been accomplished for less than $900 billion or so.

        I mean, seriously, Saddam might have handed them over himself for a fraction of that.

        And, besides, haven’t they been dead for like 7 years already? What about all the money we’ve spent since then?

        This must have been snark, which I admit goes right over my head sometimes, but then I have seen people say stuff like that seriously around here, so just in case you really meant it, I mean, sheesh, pay for your own entertainment!

        For what you owe on that debt, you could finance like a home theater or something, with surround sound, and you could watch Michael Bay films on it.

  15. Ugh. I should buy a house soon so I can get a home loan at a reasonable interest rate rather than paying the same crazy interest that my parents paid back in the 80s.

  16. Lower spending and higher taxes in turn depress the economy and lead to higher unemployment.

    Lower spending leads, in the short term, to higher unemployment among unionized public workers. This I can live with. If continued a while, it leads to most of those public workers finding other jobs, which is good for an economy.

  17. “”Robert Samuelson: Democrats “ignored conspicuous warnings” of Impending “budget crisis” “”

    I thought they were sounding the alarm, until Obama got elected.

    1. Right. Four hundred billion dollar defitics used to cause Democrats to line the streets of DC, their plangent wails piercing the night, a chorus of jeremiads the likes we hadn’t seen since, well, the last Republican administration.

      Now, $1.7 trillion deficits are masturbatory aids for the same bunch.

      1. Mmmm. Soft, absorbent thousand dollar bills . . . .

  18. Don’t kill the messenger. Robert J. Samuelson’s credentials are solid. He is generally non-partisan and has called attention to excess spending by both the Left and the Right. If you forget your personal politics, his facts about where we’re headed should be scary to anyone who can do simple arithmetic. Since our national budget is made up about two thirds of spending that cannot be cut – for example interest on the debt. That means we can only find a balanced budget by increasing revenue (better economy, higher taxes or both) or by cutting sharply within the remaining one third of the budget. Forget the politics and face the numbers – we are spending too much relative to our income. Left, Right or Center – you can’t change the facts.

  19. Hey, where’s my net spending cut?

  20. Just six days later, the House of Representatives passed President Obama’s health-care legislation costing $900 billion or so over a decade and worsening an already-bleak budget outlook.

    Um, hello?

    The CBO confirmed that the health care bill will reduce the deficit by billions.

  21. I am just a dad in an American family. This is what I need to survive. I have been unemployed 29 months and counting. These changes are important.

    First, Banks and credit unions need to pay four per cent interest on all savings accounts, especially the no minimum balance ones.

    Second, when there was usury restraint, we lost the full interest deduction on federal income tax. The usury restraint is gone, individual taxpayers must have the full, not just mortgage, interest deduction restored.

    Third, to replace and exceed the revenue lost in the second item, there needs to be a Lender Side Usury Tax. The Lender Side Usury Tax would tax interest and fees from all lenders at a rate of one hundred per cent above eight per cent APR paid by individual consumers. The national debt would be paid off quickly, social security, medicare, and medicaid would be fully funded, and the eight per cent break point then could be adjusted for a continuing balanced budget.

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