Government Spending

Your Horrifying Chart of the Morning

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A recent International Monetary Fund study's main finding is that the United States might not look better than most other governments forever, and that the hill the United States has to climb to fiscal stability is much steeper than most other countries.

That's from Reason columnist Veronique de Rugy, writing at The American.

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  1. We’re coming for you, Spain. Cuidado!

    1. Pay no attention to that racist chart.

      1. Didn’t you know, math and reality have a racist bias.

        1. Of course I knew that. That’s why I warned everybody!

          1. It doesn’t work; you can try, but peoples’ biases are pretty concrete.

            1. Someone on MSM told me you think they are born that way.

    2. heh.. Cuidado is portuguese =P

      1. ….and also Spanish.

  2. The gig is up. The whole thing is over. Third way liberal democratic socialism is done. They are just trying to fight off the repo man at this point.

    1. Tell that to the Greek rioters.

      1. Rioting is one way to fight off the repo man.

          1. The life of a Repoman is always intense.

            1. Bud: Credit is a sacred trust, it’s what our free society is founded on. Do you think they give a damn about their bills in Russia? I said, do you think they give a damn about their bills in Russia?

              Otto: They don’t pay bills in Russia, it’s all free.

              Bud: All free? Free my ass. What are you, a fuckin’ commie? Huh?

              Otto: No, I ain’t no commie.

              Bud: Well, you better not be. I don’t want no commies in my car. No Christians either.

    2. Yep. Europe at the G-20 has pretty much sounded the death knell for not just third way socialism, but Keynesian economics in general. The only people still hanging on are a few dead-enders like Alfred E. Krugman and Turbotax Tim Geithner, but nobody other than our Dear Leader is still listening to them anymore. It should have been done long ago.

      1. Kruginator has so much invested in it working he won’t let go. He’s so deep that the only choice he sees is to keep digging, no matter how stupid that choice is. He’s lost most of his credibility as an economist, and is nothing more than a political commentator at this point. (a hack commentator at that)

      2. Alfred E. Krugman

        What, me worry?

      3. Laffer’s not laughing either:

        http://online.wsj.com/article/…..86610.html

  3. I thought defecits only mattered during the Reagan Administrations. No worries though, we were all killed during his nuclear war anyway. This is all a dream…

    1. Not a dream, it is our pre-programmed memories.

  4. It will all be worth it if the stimulus works, right?

    1. That’s what the Japanese have been saying for the last 20 years.
      “Just one more stimulus will put over the top.”

      1. They better be careful. If they over stimulate their island might tip over.

  5. Lost Decades ain’t a movie on the Lifetime channel.

  6. What does a positive percentage mean in this chart? What is going on with Norway and Iceland that is being represented here?

    1. If either was the USA, the classroom/Air America explanation would be we are stealing the resources of the world. In this case, it means we need more socialism.

      1. What’s going on with Norway–it pays to have a small population and a ton of oil.

        1. Yeah, Norway and Denmark made sense. I was surprised to see Italy above the line though.

          1. Maybe it’s time we sent a peacekeeping force to Norway…

            1. Sod off turbo-tax, were not sharing.

    2. It means they have surpluses. The chart is poorly described. It should say “Surpluses as a percentage of GDP”, and then deficits would in fact be defined as negative, as they’re illustrated.

      1. I agree.

        1. So does that mean that Iceland has a surplus? Are they not counting any of the banking stuff or is the Icelandic govt officially not paying for that stuff? And what about Italy? Ive been hearing that they are in the shitter, economically speaking, what does their position on the chart mean?

          1. I think their currency is basically worthless, so it’s entirely possible that they have a meaningless surplus.

              1. I was talking about Iceland, I think pretty clearly.

    3. Whoopie Goldberg version: It’s all the white countries taking our money.

    4. Norway =Oil
      Iceland = Defaulted recently (so nobody lends them now..)

  7. I haven’t been paying attention; not so very long ago, Ireland was being touted as an economic success story. What happened?

    1. Ireland can be viewed as somewhat similar to Florida. A huge boom in financial services and real estate followed by a large bust. Leverage for both individuals and companies increased rapidly. Some of their GDP is illusory b/c companies use Ireland as a tax shelter to take advantage of their low corporate tax rates. These corporate profits merely pass through Ireland, rather than really representing a significant boost in output.

    2. A couple of things. First, the got on the bullshit 00s real estate bubble. They have a worse real estate bubble than we do. Second, while they cut taxes and regulation, they never cut their spending. Worst still, the real estate bubble gave them a false sense of wealth so the government spent away during the good times rather than paying down debt. Now the bubble has burst and they have a huge social welfare system they can’t afford.

      1. I think they were asking for humanitarian aid 6.8.10 @ 9:26AM

      2. while they cut taxes and regulation, they never cut their spending. Worst still, the real estate bubble gave them a false sense of wealth so the government spent away during the good times rather than paying down debt.

        So in other words, exactly the same as us.

        Except we spent our money on the military and on tax cuts (ahem, sorry, “returning the surplus to the people”).

        1. We spend more on entitlements than we do on the military.

          1. And letting people keep money that was already theirs isn’t spending.

    3. I’m guessing they racked up lots of debt to give money to their banks which then loaned it out, and then when the crash came they were no longer making a profit. About ten years ago a lot of Irish banks showed up in business banking, like Iceland.

  8. Just as I feared.

  9. I think the sign that we’re living in a messed up world is that Italy — Italy — is now one of the most fiscally responsible countries in the world.

    1. Meh. These are structural deficits. If you add in repayment of debt, the Italians and Greeks probably aren’t so hot.

      1. Nor the Icelandics.

      2. It would be handy to see the interest rate for each govt’s debt compared to their structural deficit.

        Greece’s debt is 108% of GDP and will climb to almost 150% by 2013 when the bailout loans would come due. 25% of Greek taxes will go to service its debt ? to mostly foreigners.

  10. Working link for the de Rugy article:

    Athens on the Potomac

  11. Anybody got $500 for a Diet Coke? I’m tapped out till 2044 or so…

    1. INSERT MONEY AND MAKE SELECTION. THIS MACHINE ACCEPTS ONE THOUSAND AND FIVE THOUSAND DOLLAR BILLS.

  12. I’d like to see some modeling on how things will look under the following assumptions:

    (1) Anemic growth (say, to be nice, 2.25%).

    (2) Conservative state spending growth (say, to be nice, population increase plus GDP growth).

    (3) Higher interest rates (I think 7% 10 year and 3% 1 year T-bills are probably wildly optimistic, but lets stay conservative).

    I think this is probably about as favorable a scenario as we are likely to see, but it is also one that would play out as utter fiscal disaster within a decade.

    1. No, it won’t be a disaster. It will just mean that they will have to stop spending. To some that is a disaster. To others it is a feature.

      1. I think its a disaster, John.

        Even if we cut back the rate of spending growth dramatically, when interest rates go up (and they will)*, outflows from the Treasury will skyrocket (because we have put so much of our debt into short-term notes that will roll over at the higher rates).

        That will lead to one of two things:

        (1) Running the printing presses, setting off inflation or even “deflationary hyperinflation”, which is a disaster.

        (2) Massive cuts in government spending, with consequent economic and social dislocation, which is a disaster. And will likely crater the economy for awhile.**

        *The higher interest rates will slow or reverse economic growth, BTW, leading to reduced tax revenues, higher deficits, and even higher interest.

        **Another recession will lead to reduced tax revenues, higher deficits, and even higher interest.

        1. First, the asset bubble is going to continue to deflate. We basically printed money via the asset bubble which is now going away. For that reason the danger of hyper inflation is a lot lower than you think it is.

          Second, the interest rates on bonds are not going to go up as fast as you think. In a perverse way, the lousy economy will help. Where the hell else are you going to put your money? This is not 1973 where people could put their money in the US. The entire world is going to suffer from this. US bonds will continue to sell at reasonable interest rates if for no other reason than there is no where else for the money to go.

          Third, there will be a massive cut in spending. We will have no choice for the reasons you list. Yes, that will cause a lot of displacement. But, it will also create a lot of opportunity. It will take a few years, but we will come out of this whole thing better off for it having happened.

          1. Make that 1873 not 1973

          2. We basically printed money via the asset bubble which is now going away. For that reason the danger of hyper inflation is a lot lower than you think it is.

            Hyperinflation often takes place in a deflationary economy, because hyperinflation is not the result of demand or price factors, but is the result of loss of confidence in the currency.

            Second, the interest rates on bonds are not going to go up as fast as you think. In a perverse way, the lousy economy will help. Where the hell else are you going to put your money?

            This assumes that the US Dollar will be the least worst currency, and will continue to be the world’s reserve currency. I don’t think that is the case, myself.

            Third, there will be a massive cut in spending.

            I agree. I just don’t think it will happen before we have a fiscal catastrophe, because I don’t think our political class is capable of cutting spending any sooner.

            1. “This assumes that the US Dollar will be the least worst currency, and will continue to be the world’s reserve currency. I don’t think that is the case, myself.”

              You don’t think so? Really? Maybe you know something about the Euro and the Yuan, I don’t. But I think least worst is a good way to describe the dollar. Europe is literally going broke before our eyes. And China is about where we were in early 2008 only with a much worse asset bubble and a much more unstable society. I really don’t see anything surpassing the US dollar despite our best efforts to destroy it.

              “Hyperinflation often takes place in a deflationary economy, because hyperinflation is not the result of demand or price factors, but is the result of loss of confidence in the currency.”

              No it is a result in a loss of confidence in the entire government. You get hyper inflation when your government is going to collapse into anarchy and people don’t think the government will be around to enforce the currency value anymore.

              If you honestly think we are headed towards the kind of social anarchy that produces non-supply and demand driven hyper inflation, you need to take off the tin foil hat and get out of West Texas more often.

              1. I would think a reflective tin foil hat would be a good idea in Texas. Also I heard that scorpions don’t like tin.

              2. You don’t think so? Really? Maybe you know something about the Euro and the Yuan, I don’t.

                I do. China and others are quietly entering into bilateral trade agreements so that they don’t need to use dollars. Plans are being floated now for “special drawing rights” (essentially, a basket of currencies) that would be used as a de facto reserve currency.

                The Euro is clearly toast. The Yuan is not (yet) mature enough to be a reserve currency. Plans are being made and implemented to transition away from the dollar, though.

                I don’t think anyone would argue that the dollar will be the least worst currency until the heat death of the universe. The only question is when it loses that status. The answer to that question may be, sooner than you think.

                If you honestly think we are headed towards the kind of social anarchy that produces non-supply and demand driven hyper inflation,

                No currency has ever recovered from a debt to GDP ratio exceeding 100%. We will exceed that ratio. No tinfoil hat needed.

                You can have hyperinflation without a complete breakdown of society. Everyone’s favorite example of hyperinflation is Weimar Germany, which, although it certainly took a bad turn, did not feature anything approaching social anarchy.

                1. “No currency has ever recovered from a debt to GDP ratio exceeding 100%. We will exceed that ratio. No tinfoil hat needed.”

                  Really? The UK’s debt to GDP ratio at the end of WWII was over 250% and they never had hyper inflation.

                  http://www.ukpublicspending.co…..chart.html

                  And I don’t have the links but I bet you it was just as high or higher at the end of the Napoleonic wars. And the Pound Sterling did just fine in the 19th Century.

                  Seriously RC. You are a bright guy, but where on earth do you learn your economic history?

                2. and go to my link and you will find out the UK debt was over 250% of GDP in 1815. Yet, somehow the British managed to rule the world in the 19th Century.

                  Sadly you probably won’t read this.

            2. Exactly. Assigning Blame/Avoiding Blame replaced solutions as the goal of our system a long time ago.

              1. That happens to every socialist economy eventually. Look at the USSR.

        2. Increases in Government spending soak up available credit and consequently reduce private/business spending. Lower Government spending would make credit more available to individuals and businesses. What is the overall difference in economic “stimulus” between Government spending and private spending that seems to make Government spending the preferred action of the Lib-Left?

          There is a finite pool of available money unless the Federal Government starts the presses. Government dollars generate no more economic activity than private spending, but the Government losses the power to direct money to preferred recipients.

  13. OH wow, horrifying indeed!

    Lou
    http://www.Anonymous-VPN.de.tc

  14. Threadjack (possibly).

    http://www.telegraph.co.uk/new…..-debt.html

    “Canada brought public spending under control guided by the principle that people should ask, “what needs to be done by government and what we can afford to do””
    –Oh really? How novel.

    1. I realize I’ve left out a word at the end of the quote. Hilarious antics ensue in 3….2….1….

    2. Doesn’t Canada have a pretty rough debt ratio at the moment too?

  15. r45when interest rates go up (and they will)*, outflows from the Treasury will skyrocket

    Exactly.

    No matter how hard Bernanke tries to keep rates at zero.

  16. Who runs Bartertown?

    1. Helen Thomas and Mel Gibson have a theory.

        1. *blushes* thank you

  17. We’re fucked. Time to learn Mandarin, Russian, and Portuguese. Growth and opportunity in this country is over.

    I never thought I would say Russia was a better over all prospect than the US.

    1. Russia ended its experiment in socialism in the 90’s.

      The US experiment is still underway, and will fail just as miserably.

      Socialism: The longest, most painful path from capitalism to capitalism.

    2. Russia is only in the black because of their oil resources. Their economic structure is untenable.

      China is a tougher nut to crack. They’re developing alternative export markets as fast as they can (ie, to avoid being so dependent on the US economy), but the sooner our total crash comes the less likely it is that they will survive without negative effects. I would guess that in another 10 years, China won’t need our market anymore. And then we’re totally fucked if we haven’t stopped the spending insanity.

      1. China has the mother of all housing bubbles waiting to pop. Not to mention serious societal issues such as a huge surplus of college graduates with no job prospects and a surplus of males with no marriage prospects.

        1. I’m talking strictly business. At this point I would rather be in SE Asia than the US. The uncertainty and level of just plain stupid shit in the US is getting to the point where the risk elsewhere is looking good.

          1. Yeah, that sounds about right.

          2. There is no such thing as “strictly business.” All of those societal issues in China are going to hit the fan in the next few years, with highly unpredictable consequences. In other words, “going long” on China is a highly risky proposition.

            1. And going long in the US isn’t?

              There is such a thing as “strictly business” and it comes with horizons like any other business decision. While the socioeconomic issues play into all business decisions you notice how I said risk? And what does risk involve when discussing any business? Ya, everything from exchange rates to riots.

        2. Also, rough estimates of unrealized bad paper on the books at state banks approximates their cash reserves.

          And don’t forget Foxcomm, who is apparently doubling salaries of workers assembling Apple products. Their competitive advantage in manufacturing will evaporate pretty quick if all electronics firms end up having to give raises like that.

      2. China will need our market for more than 10 years. Russia is a mess, but more so due to cronyism. So if you know the right people and grease the right palm you are fine. Brazil is an interesting prospect. It has some major hurdles, but a lot of what its government is doing is good for business. The problems lie with infrastructure, education, and cronyism/criminal acts.

        1. I’m all about Chile and Columbia right now.

  18. “We don’t need another Nero…”

  19. There’s a “Paris School of Economics”? Wtf does that even portend?

    1. It’s like regular economics, but with a snotty attitude.

      1. … and with good food, more wine, and first hand understanding of how completely fucking retarded Keynes was.

  20. As opposed to the U.S. where the government pushed banks into making risky loans so that the poor can be homeowners, too, China has just increased the down payment on first houses to 30% and the down on second houses to 50%. There are no bank loans available for third houses. Real estate offices that were packed with customers a few months ago were almost empty last week, however, there hasn’t been a big decrease in house prices, yet and there are still come cash buyers.

    1. Does that apply to party officials and families of party officials? Will the banks be able to foreclose on shitheads? Because that isn’t how business loans went.

  21. Anyone else able to get that link working?

  22. It’s all Greek to me … and my children … and my future grandchildren.

    A nasty meth habit is starting to look appealing.

  23. Check into Arthur Laffer. You figure what you want.

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