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Author Topic: IMF says US budget deficits threaten world economy
DrConway
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Babbler # 490

posted 07 January 2004 07:12 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
Over here.

quote:
WASHINGTON, Jan. 7 — With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report made public today by the International Monetary Fund.

In nearly 60 pages of carefully worded analysis, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration's tax cuts and warning that large budget deficits posed "significant risks" not just for the United States but for the rest of the world.



From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
banquo
rabble-rouser
Babbler # 2124

posted 07 January 2004 07:28 PM      Profile for banquo     Send New Private Message      Edit/Delete Post  Reply With Quote 
Now we get to watch while BushCo. bobs and weaves and evades the IMF when the IMF talks about them but roundly endorses the IMF when they talk about anyone else.

Ain't this fun?


From: north vancouver, bc | Registered: Jan 2002  |  IP: Logged
Stephen Gordon
rabble-rouser
Babbler # 4600

posted 07 January 2004 09:34 PM      Profile for Stephen Gordon        Edit/Delete Post  Reply With Quote 
quote:
Many outside economists remain sanguine, noting that the United States is hardly the only country to run big budget deficits and that the nation's underlying economic conditions continue to be robust.

That seems sensible - if their fiscal policy were sensible. It's not. The math of budget deficits means that one of three things has to happen:

a) Increasing taxes by a huge amount.
b) Cutting spending by a huge amount (Medicare? Social Security?).
c) Default.

The current administration won't do a). And it won't do b) if they care about winning elections. I can only infer that they're hoping that c) will happen after they're gone, so that someone else will get the blame. The sad thing is that they're probably right.


From: . | Registered: Oct 2003  |  IP: Logged
banquo
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posted 07 January 2004 10:12 PM      Profile for banquo     Send New Private Message      Edit/Delete Post  Reply With Quote 
Hey as Grover says, government oughta be small enough enough to drown in the bathtub. What better way than to see to it that government does nothing than to see to it that it has nothing to do it with.
From: north vancouver, bc | Registered: Jan 2002  |  IP: Logged
humbleman
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posted 07 January 2004 11:25 PM      Profile for humbleman     Send New Private Message      Edit/Delete Post  Reply With Quote 
http://www.publicdebt.treas.gov/opd/opdpenny.htm

Actual debt

01/06/2004 $6,991,488,657,454.93


Current
Month

01/05/2004 $6,989,184,944,125.77
01/02/2004 $6,981,477,122,871.86

Prior
Months

12/31/2003 $7,001,312,247,818.28
11/28/2003 $6,925,065,499,881.34
10/31/2003 $6,872,675,839,106.67


Prior Fiscal
Years

09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/28/2001 $5,807,463,412,200.06
09/29/2000 $5,674,178,209,886.86
09/30/1999 $5,656,270,901,615.43
09/30/1998 $5,526,193,008,897.62
09/30/1997 $5,413,146,011,397.34
09/30/1996 $5,224,810,939,135.73
09/29/1995 $4,973,982,900,709.39
09/30/1994 $4,692,749,910,013.32
09/30/1993 $4,411,488,883,139.38
09/30/1992 $4,064,620,655,521.66
09/30/1991 $3,665,303,351,697.03
09/28/1990 $3,233,313,451,777.25
09/29/1989 $2,857,430,960,187.32
09/30/1988 $2,602,337,712,041.16
09/30/1987 $2,350,276,890,953.00


Its interesting to note that in May of 2003, the Congress authorized the raising of the debt ceiling by .94 trillion. If trends continue Congress will have to revise the debt ceiling by a cool trillion or 2 in May of this year.

Well who would you blaim? I really would not discount a tax raise in the second term of bush. I remember Reagon an his second term. But at the moment its a handy way for the US to debase its currency.


From: Oakville | Registered: Oct 2003  |  IP: Logged
rasmus
malcontent
Babbler # 621

posted 08 January 2004 12:34 AM      Profile for rasmus   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Surely there is some mistake here. It must be someone else's fault. Canada? Bin Laden? France? Bill Clinton? (Did you notice how similar "Bill Clinton" and "Bin Laden" sound?)
From: Fortune favours the bold | Registered: May 2001  |  IP: Logged
ReeferMadness
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posted 08 January 2004 02:55 AM      Profile for ReeferMadness     Send New Private Message      Edit/Delete Post  Reply With Quote 
I'm not sure what all the complaining is about. In the last 18 months, the debt has gone up from about $6 trillion to $7 trillion or about 17%. In the same time period, the value of the currency that the debt is denominated in has declined by about 20%. So, in real terms, our wonder boy George has actually reduced the debt!!!

As long as be devalues the currency faster than he raises the debt, everything is fine, right?


From: Way out there | Registered: Jun 2002  |  IP: Logged
DrConway
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posted 08 January 2004 03:15 AM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
Well, ideally, the US would like to have its currency remain high in value, so that its debt becomes more attractive to hold.

What strikes me is that the gang of idiots running the US government right now could just be crazy enough to think printing some extra money might ease the problem.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
faith
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posted 08 January 2004 03:36 AM      Profile for faith     Send New Private Message      Edit/Delete Post  Reply With Quote 
I remember discussing this problem with my father when he was still around about 15 years ago - we thought the debt of the Reagan era was scandalous.
My father brought up a good point - if the US owes money and they don't want to pay , who is going to make them?

From: vancouver | Registered: Aug 2003  |  IP: Logged
Catus
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posted 08 January 2004 05:22 AM      Profile for Catus     Send New Private Message      Edit/Delete Post  Reply With Quote 
Anyone Know the ratio of Current Debt to GNP?
Anyone know the Ratio from ten years ago?
To be hoenst, dollar amounts of debt do not mean much unless you know how big the pile is to begin with.

To be clear I am not contradicting the IMF nor any comments made on Rabble, but, in all honesty, it is the ratio that counts.


From: Between 234 and 149 BCE | Registered: Nov 2003  |  IP: Logged
Catus
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posted 08 January 2004 07:22 AM      Profile for Catus     Send New Private Message      Edit/Delete Post  Reply With Quote 
Never mind, Yahoo news listed most of the pertinent info, they use GDP rather than GNP

quote:
The White House has said it expects the budget deficit to expand to a record $ 475 billion in fiscal 2004, exceeding 4% of the gross domestic product. U.S. Treasury Secretary John Snow on Wednesday described that level as "entirely manageable," and said the Bush administration expects the deficit to shrink to 2% of GDP (news - web sites) within five years.


But the IMF researchers said that won't be enough to address the government's long-term fiscal problems - including financing the Social Security (news - web sites) and Medicare programs over the next 75 years. In their report, they said the government faces a $47 trillion shortfall in its ability to pay for those and all other long-term obligations. Closing that gap would require "an immediate and permanent" federal tax increase of 60% or a 50% cut in Social Security and Medicare benefits.


The dollar's recent decline, the researchers said, suggests that foreign investors are starting to worry about the U.S. government's ability to resolve its long-term fiscal problems. "The United States is on course to increase its net external liabilities to around 40% of GDP within the next few years - an unprecedented level of external debt for a large industrial country," they said in the report. "This trend is likely to continue to put pressure on the U.S. dollar."


The IMF report said the ratio of U.S. public debt to GDP is expected to increase by 15 percentage points over the next decade. If that occurred, global interest rates, adjusted for inflation, would rise by an average of 0.5 to 1 percentage point. "Higher borrowing costs abroad would mean that adverse effects of U.S. fiscal deficits would spill over into global investment and output," the report said.



http://news.yahoo.com/news?tmpl=story2&cid=808&u=/dowjones/20040107/bs_dowjones/200401071721001228&printer=1

From: Between 234 and 149 BCE | Registered: Nov 2003  |  IP: Logged
humbleman
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posted 08 January 2004 12:20 PM      Profile for humbleman     Send New Private Message      Edit/Delete Post  Reply With Quote 
Nobody will make america pays its bills. But its important to remember that they have a monopoly on the creation of US dollars. So they can print as many dollars as they like.

The question becomes at what point do international bond holders race for the exits. If the US policy makers announced today that if you buy a US 30 year bond and will of only get 70% of its face value back in 30 years people would panic. I dont mean central banks or governments because its clear that they dont want a panic on a global scale. But they also lack the political will to impose barriers to the flow of capital. Individuals with individual profit motives would be the great herd seeking safety.

The interesting thing about this scenario is that if it happened in a massive way the US government would do a 180 about face and throw up capital controls. At the moment they are running around the globe spreading friedmans quackery as gospel and really engaged in nationalist economic policy. If the sh!t hit the fan the friedman smoke screen would be jettisoned and montarist ideologues would be destroyed when they raised their voices about the evils of capital controls. Let me suggest in such a situation people trying to move their money out of the US or into alternatives like gold would be denounced as "economic terrorists" and be dealt with as terrorists are currently dealt with.

Its all a giant confidence game, as long as people have confidence in fiat dollars the game can be played. Once that confidence is lost, well we would see reactionary forces in the US really unimaginable by todays standards. I consider this scenario far fetched by not impossible. America is living beyonds its means and there will be a day of reckoning sooner or later.


From: Oakville | Registered: Oct 2003  |  IP: Logged
hibachi
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posted 08 January 2004 01:39 PM      Profile for hibachi   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
I always like to assume the worst, which is generally good news for our conservative friends. Then they can make things worse for us to make them better for their friends. Then more people vote for them as the 'honest managers' (ROFL), proving Leon Trotsky wrong once and for all and forever. Worst is NOT Best!!!!!!!

The line was always that the Right has it wrong on wealth distribution and the Left has it wrong on wealth creation. The best solution, then, is a mixed economy. What seems to keep wages and prosperity up for the most number of people is to have a strong (AND INCLUSIVE) union movement, an effective public sector, decent labour laws with worker security, and high minimum wages. It works in Europe. It used to work in North America.

All western economies are mixed. None of them are purely capitalist, and none of them are purely socialist. A conservative in one country might be a centrist in another, and a liberal in a third country might be a leftist in a fourth. It is all just a matter of perspective and degrees.

For certain, running a deficit is socialist if and only if it redistributes wealth. Bush's economic policies seem to undistribute wealth, or redistribute it to those who already have it. I think the myth that Bush is socialist because he runs deficits should be extinguished.

Taking money from the future and using it to distort the present will amplify whatever you are trying to distort in the present. Bush wants to turn America from a high wage Western-type economy to a low-wage Asian or Latin American type economy. This process started in Canada many years ago under Mulroney. After-tax wages for most people here are not enough to get ahead in life (who makes $50,000 in Canada?), and build the much-vaunted middle-class North American lifestyle.

A good government will encourage both wealth creation and wealth distribution. Bush is only trying to increase profits, as to him the measure of profits is the measure of success of the US economy. This bodes ill for wealth redistribution. A dollar more for profit is a dollar less for wages, taxes, healthcare, etc.

The 20% drop in the US dollar has also been a 20% wage cut for US workers. Even though the US is producing profits (a 'recovery') it is not producing jobs. Bush is the only president since Hoover during a time where there has been a net loss of jobs in the US.

Oddly, Bush is now proposing 'temporary worker' visas for people (mainly in Mexico) who will do jobs that Americans are to unwilling to do. This will tend to lower wage rates more. Combine this with a low dollar and low interest rates, and we have an ideal investment environment in the US. Money is shifting into stocks, as the DOW and the NASDAQ have risen by a corresponding amount to the fall in the US dollar. To sweeten the pot, dollar-denominated profits from outside the US (where US multinationals dominate) become richer. This flow of equity investment dollars back in might just be enough to offset the outflows for the budget and trade deficits, at least for a while.

If you look at the Congressional Budget Office numbers, they will predict a balanced budget in 2012-2013. The CBO uses a static model for the economy, so it can't be accused of writing Laffer economics into the projections as White House economists would. The White House people claim the Clinton boom came out of the Reagan tax cuts, and they claim the US will boom out of the tax cuts of George Bush II. The last two quarters of US economic activity seem to be confirming the worst, i.e. Bush is right. Industrial production in the US has been booming, although with fewer jobs and in a more Third World model. Remember, a lot of 'US' production that says 'MADE IN USA' is not actually made there through various trade deals.

What is really happening is that the purchasing power of a worker in America who was making $35,000 US a year is being replaced by the purchasing power of someone making $2000-$4000 a year somewhere else. It used to be that the $35,000 job propped up several other lower paid jobs elsewhere through the purchasing power. If the entire US workforce was replaced elsewhere in the world on this basis, net jobs would be lost.

This is what is threatening the world economy in the long term. The financials as reflected by the IMF are just a reflection or representation of this.

"You had better buy these bonds that only pay 1% interest and will depreciate by 30% against your currency, or we won't have any of your currency to buy your stuff with". This is economic coercion, brought to you by the Organization for Economic Coercion and Domination (OECD).


From: Toronto, Ont. | Registered: Jul 2001  |  IP: Logged
Catus
rabble-rouser
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posted 09 January 2004 12:55 AM      Profile for Catus     Send New Private Message      Edit/Delete Post  Reply With Quote 
How will temporary work visas lower wages? if anything it will raise wages as those workers are then required to be paid a minimum wage.

i fail to understand either political argument against Bush's Immigrant worker plan. It is not amnesty so why should conservatives care? It also enriches immigrant families which should be of benefit to the very people the liberals claim to support. While I may not think Bush's planis good politically ( let's face it Bush has about as muchof the hispanic vote as possible and has nearly every other immigrants vote anyhow minus the Arabs) I do think it is beneficial policy, both for Americans and for immigrants.


From: Between 234 and 149 BCE | Registered: Nov 2003  |  IP: Logged
Catus
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posted 09 January 2004 01:10 AM      Profile for Catus     Send New Private Message      Edit/Delete Post  Reply With Quote 
Sorry to double post but i ran across this ten seconds after my prior post and it has very little to do with my prior post.

http://www.politicalusa.com/columnists/gillette/gillette_032.htm

quote:
Nope. All countries have debts. They have to maintain a modern economy. The big question is this: can the countries pay them back? That’s why the key statistic is to measure the national debt as a percentage of the nation’s output (GNP) for any given year.

The United States actually has the lowest debt to GNP ratio in the industrialized world. Japan’s ratio is twice that of America’s. So, the U.S. has plenty of room to maneuver, and even more wiggle room if history is taken into account. Michael Darda of Polyconomics pointed out to clients that “even if we ran deficits of $400 billion for the next 10 years, our debt to GNP ratio would return to 1992 levels.”


Good article about the debt and yet another reason why no one likes the IMF, Left or Right.

income re-distribution is not preferable to overall increase in the well being of individuals through a sustainable economic climate (income re-distribution not being sustainable for an whole host of reasons). one way to insure a continuous and gradual increase in the wealth of individuals ( of whatever income level) is making sure investment capital is readily available, education remains a priority of government ( though it need not be monopolized by government), and that government does not overwhelm start up businesses with regulation.


From: Between 234 and 149 BCE | Registered: Nov 2003  |  IP: Logged
Catus
rabble-rouser
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posted 09 January 2004 02:01 AM      Profile for Catus     Send New Private Message      Edit/Delete Post  Reply With Quote 
Seems the IMF study reveals nothing new...

http://www.townhall.com/columnists/brucebartlett/bb20040109.shtml

from a conservative POV, of course.


From: Between 234 and 149 BCE | Registered: Nov 2003  |  IP: Logged
person
rabble-rouser
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posted 09 January 2004 02:15 AM      Profile for person     Send New Private Message      Edit/Delete Post  Reply With Quote 
uh,
it seems like a rather "good" justification for eliminating remaining social services in the us, i doubt bush is terribly unsure about where he "has" to find that money.

From: www.resist.ca | Registered: Nov 2003  |  IP: Logged
DrConway
rabble-rouser
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posted 09 January 2004 03:20 AM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Catus:
How will temporary work visas lower wages? if anything it will raise wages as those workers are then required to be paid a minimum wage.

If the prevailing wage in the sector of employment is higher than the minimum wage, then a higher supply of labor brings the wage down. That's standard economics.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Willowdale Wizard
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posted 09 January 2004 05:24 AM      Profile for Willowdale Wizard   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
01/02/2004 $6,981,477,122,871.86

09/29/2000 $5,674,178,209,886.86

09/30/1996 $5,224,810,939,135.73


a $450 billion rise in the last 4 years of clinton, a $450 billion rise in each year of bush.

a prescient analysis from 1998:

quote:
It is extraordinary how neglected or diverse the answers are to these fundamental questions. There has been little international discussion of the subject, while in the United States, some leaders and experts claim that a large external deficit is a net benefit for the United States. Others believe that it has a negative impact, and still others view it as of little significance oneway or the other.

There are four largely independent reasons, however, which lead to the conclusion that continued large current account deficits could have substantial adverse impact on U.S. interests:

1. Interest payments on the debt. The net external U.S. debt is rising toward $2 trillion by early in the next decade, which at 7 percent interest would equate to $140 billion per year in debt servicing, or about 1.5 percent of GDP, a significant cost for Americans now and in the future

2. Protectionist backlash. A rising U.S. trade deficit will increase protectionist pressures which, however irrational, can have an adverse impact on the overall international economic system

3. Market volatility against the dollar. The likelihood of a disruptive shift out of dollars by foreign holders of dollar-denominated financial assets grows as the volume of such assets increases rapidly and apparently without end. The launching of the euro could generate additional speculative incentives to move in this direction.

4. Foreign government leverage against the United States. During the 1990s, central banks have been tempted to buy rather than sell dollars, but this macroeconomic-based situation could change, in conjunction with a speculative run out of dollars as in (3), whereby some other governments with large dollar holdings -- China for example -- could threaten the sale of official dollar holdings as leverage for foreign policy or other objectives.



From: england (hometown of toronto) | Registered: Jan 2003  |  IP: Logged
Catus
rabble-rouser
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posted 09 January 2004 04:32 PM      Profile for Catus     Send New Private Message      Edit/Delete Post  Reply With Quote 
Conway, unfortunately your last post does not wash as those wages have already been decreased by the illegal immigrants currently inthe US and working for lower-than-minimum wages. that is standard common sense
From: Between 234 and 149 BCE | Registered: Nov 2003  |  IP: Logged
Tackaberry
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posted 09 January 2004 09:56 PM      Profile for Tackaberry   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Catus,

a little dated now, but

read this

So lets borrow a couple of trillion, spread it around, and pat ourselves on the back for our sound economic thinking. For tax cuts to be a legitimate engine of economic growth, they must lead to growth greater than the interest on the bonds that finance them. If you really believe that is true, than why dont the conservatives run on a zero tax budget, borrow all the money to pay for programs, because, as you believe, the econommic growth of tax cuts is greater than the cost of borrowing money. So the debt to GDP ratio would shrink right Catus?

And if you will finally admit that tax cuts do not lead to economic growth greater than the costs of borrowing money, then why do you advocate tax cuts instead of paying down debt?

[ 09 January 2004: Message edited by: Tackaberry ]


From: Tokyo | Registered: May 2001  |  IP: Logged
Catus
rabble-rouser
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posted 09 January 2004 10:55 PM      Profile for Catus     Send New Private Message      Edit/Delete Post  Reply With Quote 
Tackaberry, to be honest i am not a great advocate of the Federal government borrowing money either. Nor am i an advicate of not cutting taxes ( a round-a-bout way of saying that i do advicate Tax cuts), thus leaving only one option open.

My point was that the IMF piece does not mean what most people assume it means, even the IMF admits that.

About your article. The Federal government does not generate as much capital whenit spends money as private business does becasue the government is not required to be profitable nor to insure that monetary outlays go toward sound investing. That is one area where Keynes got it wrong.

Just handingout a million dollars without regards to who earned it solves no problem. Try spending "found " money as opposed to earned money. Which one are you more careful with? In the end you would end up with everyone buying lottery tickets with their share of the money handed out by governemnt, afterall, they feel no responsibility towards the money, it isn't "their's".

You make the false assumption that people want tax cuts so they can have more of their money "right now". Most people realize taht tax cuts do not deliver money directly to them. rather it is an accumulated benefit that grows with work. It is not Selfish to wish to have what you earn, it is very selfish to tell others they MUST give up what they earn to those who have did not earn.


From: Between 234 and 149 BCE | Registered: Nov 2003  |  IP: Logged

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