Economics

Have You Ever Brought Yourself Back From the Edge of Fiscal Incontinence?

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Nations, like rich people, are different from you and me. They've got more money.

And if you care about the effects of long-term budget deficits and accumulating debt, what's even worse is that nations have the ability to print money like there's no tomorrow. Which there might not be if they keep printing so much money…

Have you ever been in the red for a long time? Have you ever created a structural-deficit problem in your household? Or figured out how to pull yourself from the brink before you pulled a Chrysler and become the love toy of a foreigner? Hmmm…the two aren't necessarily related, though I did come to own a Plymouth Valiant, one of only two cars I bravely swore never to drive while in high school and couldn't afford insurance, much less a set of wheels. At lunch one day I pounded the table like some retarded version of Kruschev and announced that I wouldn't drive a Plymouth Valiant, even if I got one for free! The other car I wouldn't drive was the Valiant's twin, the Dodge Dart; they were such nerdmobiles! But then my grandfather died and his Valiant came my way… I can't help it if I'm lucky…That freaking car still drove after I destroyed the distributor cap during a tuneup gone wrong (and they always went wrong)…Sorry, where was I? Admiral Stockdale, can you come and get me?

Here's Reuters' Jim Pethokoukis writing in The Weekly Standard on the magnitude of the debtitude and how to fix it. He worries that President Obama's plans revolve around the iron triangle of confiscate, inflate, and growth (hey, one out of three ain't bad!). Which may lead to everything from Weimar Republic hyperinflation (go long in wheelbarrow futures!) to Argentine-style seizure of pension plans (but the beef is so good, tenderized by bolo-weilding gauchos!) to a fixation on unlikely scenarios of massive economic growth (wouldn't it be great if someone invented something new and revolutionary for a change? Maybe the Segway will finally take off and the economy will be as sound as a pound in no time flat).

Such worries are easy to come by but what's interesting is that Pethokoukis points to a fascinating recent summary of what's worked and what hasn't:

A 2009 study by Harvard University's Alberto Alesina and Silvia Ardagna…examined 40 years of debt reduction plans by advanced economies and found that "those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases." They're also associated with higher economic growth. But spending cuts alone are probably not enough. The budget-cutting Roadmap for America's Future of Representative Paul Ryan, the Wisconsin Republican, intelligently cuts future social insurance benefits as a share of the economy and partially shifts Americans into private retirement and health care plans. So far, so good. But the Ryan plan would take seven long decades to restore American indebtedness to pre-financial crisis levels.

To which I say, those seven decades won't seem "long" because everything speeds up when you get older and more broke!

In other words, what works for you and me might just work for nations: Spend less, you dummies, and keep working to bring in revenue. If you don't fuck around with taxes (which means, inevitably, screwing around with various types of loopholes to let your favored pals get around said taxes), money will come in as easily as before. Markets like stability in terms of large institutional structures, right? The key is spending, just as it is in your personal finances. We all know (read: dream about) millionaires who go broke because they spend too much. Everyone can live within their means, even Uncle Sam, the spendthrift son of a bitch, you know he's got a closet full of like 30 of those stupid red, white, and blue outfits. How many tophats does a guy need anyway?

The full story doesn't appear to be on The Weekly Standard's website, which is like a throwback to the Internets circa 1995 or whenever TWS started publishing and lobbying for U.S. entry into what Bob Dole used to denounce as "Democrat Wars" before he got caught up with the Viagra and the Britney Spears and the soda pop. So I'll link to Pethokoukis's blog at Reuters instead. He's always worth reading.

Bob Dole. I bet he drove a Valiant at some point. Such nerdmobiles. Such good cars…

NEXT: Reason Morning Links: Obama's Court Pick, Utah's Election, and Bob Barr's Ghost

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  1. I like the snarling way he spits out the phrase Democrat Wars. That has a certain ring to it!

  2. Let’s face it, the Valiant didn’t hold a candle to the Pacer or Gremlin.

  3. The solution is obvious; a Toga Party!

    Toga!

    Toga!

    Toga!

    1. It’s too late for that. We’ve reached ‘road trip’.

      1. Wouldn’t you rather smash Obama’s guitar against the wall?

        1. That bastard gave my love a chicken that had plenty of bone.

          1. Not to mention that cherry with the big-ass stone.

  4. Call you doctor if you have a recession that lasts more than four years.

  5. Call your doctor, that is.

    1. Call you doctor if you have a recession that lasts more than four years.

      Depends on what’s receding Pro’L Dib and the extent of the recession. If it’s the hairline of the scalp, then TX options are pretty limited, but they are measurably effective.

      If the recession is the efficacy of your cardiac output and airway clearance over four years, that recession would end in cessation, most notably of your life.

  6. Doesn’t it seem like he got a little depressed and drunk when he found out that Europe went nuts last night with bailouts and massive quantitative easement, much to the delight of the investor class.

    Which brings up the question: If monetizing debt (printing money, to put it archaicly)is such a disaster for the wealth of nations, why is the euro worth more today and why are world stock markets shooting up like a geyser? Obviously some companies directly benefit, particularly German and French banks who have had a lot risk taken off their shoulders.

    I think the answer has something to do with systemic risk, market confidence, threats of bank runs, freezing credit markets, all that nasty stuff that came up a while ago with Lehman Brothers is just a much, much bigger threat to the world economy than an extra trillion dollars or so in long term debt.

    1. The investor classes like it because it keeps them from bearing the consequences of their action. Of course the fact that it makes you and me pay for it in the long run is all the better. So why wouldn’t the markets rejoice at the fact that those who messed things up get to party another day? It’s the same reaction I’d have if a rich uncle bailed me out from a bunch of negative consequences. Never mind that the rich uncle is a gangster who’s been knocking off the little folk to get that money?

      1. But what’s the argument here? Corporate profits depend on stuff like GDP growth and low taxes. Fiscal crisis lead to lower GDP, higher taxes, and risks of government debt default.
        That’s why the markets don’t like fiscal crisis. If the current policies will inevitably lead to fiscal crisis, the stock market should factor that in.

        Assuming that markets are rational, or course.

        1. Assuming that markets are rational, or course.

          Worth saying twice.

          1. There’s another explanation, too. It could be that a some speculators took big short positions on world markets over the weekend. They suspected, just as I did, that the EU wouldn’t get it’s act together in time and Monday morning would roll by with no plan for Greecem and the markets would crash again.

            If they took short shorts, say deliverable sometime Monday, they could have got burned very bad when the EU came out with it’s shock and awe bailout only hours before Asian stock markets opened. The speculators got caught short, and hard, when the market went long, and they’ve been forced to buy up stock (and euros) all day long at any price.
            In that case, this burst might be short lived, but since the markets sank 6 percent or so last week, I can’t even guess where it’s going.

    2. If monetizing debt (printing money, to put it archaicly)is such a disaster for the wealth of nations

      If you want to be real archaic about it, you could just refer to it as counterfeiting or hot check writing. It is destructive not for the wealth of nations, but for the wealthy of nations – it bamboozles people out of their assets and savings.

      1. “it bamboozles people out of their assets and savings.”

        only if you hold cash. There is a reason why despite there bing little inflation currently that gold is still about 1200 dollars an oz. Many people do not want to hold dollars.

  7. Paging Doktor Kruuuuuuugman!

  8. My first car was a ’66 Valiant. Slant 6 engine, 3 on the tree…I had to try really hard to blow that engine up.

    1. In 1968 I bought a 1961 Valiant with a 3 on the floor. This was my first car not purchased from a wrecker, and first and last car financed until a couple of years ago. Learned a lot about cars, and finance companies with that car.

  9. My dad had a Valiant. A yellow one.

  10. To continue the theme:

    I can’t wait for the 2012 State of the Union Address, at which time the Ascended One will smirk, shrug his shoulders, and say, “You fucked up- you TRUSTED US!”

    1. I expect to hear that all tea-partiers are on double secret probation after November.

      1. I’d also vote for Dean Wormer.

      2. Way ahead of you, Brett.

    2. Hey, I’d vote for Otter. But Obama is no Otter.

    3. Rush Limbaugh (seating himself at the Obama table) : “Let’s see if you can guess what I am now…”

      The National Debt!

  11. Which brings up the question: If monetizing debt (printing money, to put it archaicly)is such a disaster for the wealth of nations, why is the euro worth more today and why are world stock markets shooting up like a geyser?

    All that liquity has to go somewhere. Much of it will go into the stock market. Ergo, stock prices will go up. At least for awhile.

    1. I don’t fully grasp this point. I kind of see it but… this liquidity injection hasn’t actually happened yet. That is to say, they haven’t printed the electronic money yet. The EU has agreed to borrow a bunch of money, and the ECB has promised to buy a bunch of bonds, but… is the mere future promise of liquidity the same thing as liquidity itself? Also, if all the EU doing is monetizing the problem and spreading the risk, shouldn’t the rise in stocks be counterbalanced by a fall in the value of the Euro?
      But the Euro was already very low, so maybe the inflationary forces were submerged by the improvement in investor confidence.

      1. I don’t fully grasp this point. I kind of see it but… this liquidity injection hasn’t actually happened yet.

        Stock prices reflect expectations, so the market is betting on a Euro liquidity-driven bull market. Can you blame them, after the Dollar liquidity-driven bull market of the last year?

        Also, if all the EU doing is monetizing the problem and spreading the risk, shouldn’t the rise in stocks be counterbalanced by a fall in the value of the Euro?

        Eventually, all those shiny new Euros will depreciate. But right now, the market is happy that the immediate risk/uncertainty (serial sovereign defaults) has been replaced with a remote risk/uncertainty (inflation sometime in the future).

        Plus, there’s still a raging debate out there about whether we are still at risk of a deflationary collapse, rather than an inflationary spiral. Liquidity injections are the recognized remedy for deflationary collapses, so the to the aggregate Mind of the Market, the risk of inflation is severely discounted.

        1. Thanks. That makes sense.

          1. Well, I would add that the whole idea that Wall Street can predict is demonstratably false – pets.com, Nasdaq 5,000.
            Another point is agency problems – if you get ginormous bonuses for short term trades, your likely to buy and sell loans of 714K to strawberry pickers who make 14K – because you are trading, and don’t hold the loans, if they default its not your loss.
            Same with a lot of this in Europe – there is so much hedging, CDS’s, and currency swaps, what the market indicates and reality are two different things.

            This will end badly because debt is not wealth and borrowing is not income.

            1. Borrowing won World War II

    2. Ergo, stock prices will go up. At least for awhile.

      Long enough to give the “smart” players enough time to get out of the market profitably before the capital gains tax goes back up next year….and before the bottom falls out of everything as it was in danger of doing last week.

  12. If this is so gosh durn wunnerful for the banks and such, then why is the transportation sector the one leading the charge (by quite a bit, +11.15% as of a little while ago)?

    1. Because you’re gonna need a freight train to carry around all those dollar bills?

      1. I thought we were dropping them from helicopters.

        1. You’re thinking of turkeys.

          “As God is my witness…”

            1. OMG
              Even I don’t avocate dropping the Fed chair and little Timmy Geithner from helocopters!

    2. Looking at the top 10 gainers according to CNN Money, the only financials in the top 10 are life/health insurers.

      At least two others are tech & manufacturing firms that got destroyed for one reason or another last week and had nowhere to go but up overnight.

  13. Not sure pinning WW2 (saving the world from fascism) and the Korean War (saving Korea from communism) on Democrats is a very good Republican strategy…

  14. Some unlicensed dude in a flat-bed truck rear-ended me while I was stopped, waiting to make a left turn, while at the wheel of my Dad’s Mercury Marquis Brougham. This accident was clearly not my fault in any way, and accordingly, we received a fairly hefty insurance settlement from the company that owned the truck that the other guy had been illegally driving. As I had proven to have a bit of a lead foot in the Merc, and as my other brothers were due to start driving soon, my Dad decided to use the settlement money to get a mint-green used Dodge Dart: The “gutless wonder,” we used to call it. Had we actually lived in the flatlands, I suppose it wouldn’t have been all that bad, but as we lived in the Sierra Nevada foothills, the lack of engine power was a serious handicap when dealing with uphill mountain traffic. At that point, I would rather have driven his pickup truck — and I hated driving that truck.

  15. Hmmm … the fact that this anecdote happened during my high school years seems to have fallen on the cutting-and-pasting room floor before I hit SEND.

  16. Nations, like rich people, are different from you and me. They’ve got more money.

    Nations are like collection agencies. What happens when collection agencies go after collection agencies?

    1. Everybody wins?

  17. The slant six, a motor that can’t be killed.

    Now if you are lucky enough to see one, the legendary ’68 Hemi Dart is the king of all muscle cars. The Hemi was rated at 425 HP, allegedly Dodge pulled one spark plug wire to get the HP that low. The NHRA rated the engine at 500 HP and the car would run low 10s with little modification.

    To see some kick ass Darts head on over to

    http://www.BigBlockDart.com

    Regards

    Joe Dokes

  18. Some of read this fucking blog at work, can we limit the f’bombs to the fucking comment section?

    (Semi-seriously)

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