The lost decade

Justin,
How are you going to get median income growth with 10% or better unemployment and underemployment certainly much higher than that?

The only ways out of this debacle are all painful.

1) We can continue devaluing the dollar as the Fed has been doing and hope for the best., or

2) We can do some combination of massive retrenchment in lifestyle by way of cutting social services and/or increasing taxes to cut our deficit.

But the TRUTH is that we owe our Chinese bankers a lot of money. Most of the stuff we bought with the money was spent on consumables and we have nothing left to show for it. We don’t produce enough things of value (physically or intellectually) to ever have any hope of repaying back that money.

I keep hearing Republicans and Democrats talking about putting debt on our children’s back…..and that is just sick.

At some point, the younger generation will rise up and say “We are not going to take it! No More!” You guys are spending us into oblivion and refuse to modify your style of living as un-American or accept higher taxes as un-American! For the love (or probably desperation) of our Chinese bankers, America is de facto 3rd world spending other people’s money that we have no intention of paying back living a lifestyle that exceeds our benefactors. There is something perverse about such an existence. This train ride will end and it will not end smoothly.

[...] http://curiouscapitalist.blogs.time.com/2009/09/10/the-lost-decade/ [...]

[...] From Justin Fox, the Curious Capitalist: The Census Bureau’s annual look at income and health coverage (based on surveys conducted in March) is out today. The rise in the poverty rate and in the percentage of Americans without health insurance got the headlines. But here’s a fact that for some reason the Census Bureau didn’t emphasize: The median household income in 2008 was $50,303. The median household income in 1999, expressed in 2008 dollars, was $52,748. [...]

http://www.salon.com/opinion/feature/2009/09/10/medicare/index.html

With regard to what I mentioned earlier….

My thoughts;
when it comes to presidents overseeing growth/decline, it seems to me there has to be some sort of overlap in how policy from the last president impacts the current pres. With that in mind, calling out George HW seems a bit unfair considering a good portion of his economic policy carried over some baggage from Reagan, as it may be unfair to attribute all of the gain in the 90′s to Clinton.
And then of course there is the reality that Clinton’s presidency oversaw the Tech bubble and the deregulation of banks; both of which led (directly or indirectly) to some of our current woes.

So, all that said, to answer your “observation #2″, no, I dont see one. I would have to say that in order for Barack to claim an “economic victory” for his presidency, his only shot is to hope that we have another bubble asap that carries him through the 2012 election cycle. And if I knew what that next bubble was going to be, I would be investing every dime I could borrow into it and hope I get out early enough.

We always have American Idol and other talent shows to keep us entertained with absolutely(!) no political swings going on!…

God, please, strike my ass with lighting right now. Please…

brak,
You shall not be so lucky….you’ll have to endure it with the rest of us.

The media frequently claim federal deficits spend “taxpayers’ money.” This, as Star Trek’s Mr. Spock would say, is “illogical.” If deficits spent tax money, they wouldn’t be deficits.

The definition of deficits is spending beyond tax receipts. “Ah,” you say. “But our children and grandchildren will pay the taxes.” Wrong again. There is no historical relationship between tax rates and deficits. In more than 50 years, tax rates have gone down or remained level, depending on your income. This, despite huge deficits and even a couple surpluses.

Since it is unlikely tax rates will rise – at least that’s what all the politicians promise — your children and grandchildren will not pay for today’s deficits.

As for being indebted to China et al, this is another myth. The federal government borrows by creating Treasury securities (T-bills, T-notes and T-bonds) from thin air, backed only by “full faith and credit.” It then sells these securities to acquire dollars it previously had created. When the securities mature, the government buys them back, plus interest.

“Full faith and credit” is an intangible collateral. The government has an unlimited supply. This gives the government the power to create unlimited amounts of T-securities. Finding buyers for these T-securities is addressed by offering interest rates high enough to attract investors.

While the government currently creates T-securities from thin air, it just as easily could create money from thin air – similarly backed only by full faith and credit – and eliminate the borrowing step. No longer would we be troubled by federal debt, federal deficits, concerns about China et al or interest payments. The same controls over T-security creation would apply to money creation. We merely would eliminate the one step that causes so much controversy.

Why does the U.S. government create T-securities to obtain U.S. dollars, rather than creating U.S. dollars directly? Borrowing is a relic from the gold-standard days, which ended in 1971. Prior to that, U.S. dollars were backed in part by gold, a tangible product in limited supply. This limit prevented the government from creating as many U.S. dollars as it needed, so it had to borrow these dollars.

When you think about it, the notion of the U.S. government being forced to borrow U.S. dollars – dollars it alone has the power to create – is ironic and inefficient. By creating dollars directly, the government would eliminate deficits, debt and those huge interest payments, along with all the controversy these subjects cause.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

Usual suspects: mass retirement and mass immigration.

Clinton raised taxes yet we experienced significant job growth despite warnings by Republicans that it would cause a recession. Bush cut taxes, mostly for the highest income earners and we experienced less job growth followed by severe job losses. I think we can safely conclude that tax cuts do not produce what Republicans promise.

Clinton’s surpluses immediately were followed by a recession.

Every depression in U.S. history (There have been 6) was introduced by a series of federal surpluses.

In the past 50 years we have had 9 recessions. All were introduced by a series of reductions in debt growth.

All 15 of the above were cured with increased deficit spending.

Whether from tax cuts or from spending increases, deficit growth is necessary for economic growth. A growing economy requires a growing supply of money. Deficit spending is the government’s method for adding money to the economy.

For an economy to grow, the money supply growth must exceed population growth, inflation and the current account deficit.

Rodger Malcolm Mitchell
http://rodgermmitchell.wordpress.com/

Rodger,

Neither premise is correct. If your premise were correct, then why did the US just have the deepest reduction in economic activity since the Great Depression, after Bush went on the greatest deficit spending and tax-cutting spree in several decades.

The fact is that every depression in U.S. history has not been preceded by a series of federal surpluses. The current economic downturn (the worst since the Great Depression) stands in apposite to your contention.

While your theory is fundamentally sound re: “For an economy to grow, the money supply growth must exceed population growth, inflation and the current account deficit” the operational causation assigned is not.

There is no correlation between what you espouse and our current situation. In fact, I would argue that we are facing a balance-sheet depression where real incomes, assets, etc. are struggling to overcome the grip of a deflationary spiral. The collapse in balance sheet wealth to the tune of at least $13.5 trillion cannot be eclipsed by U.S. government deficit spending of a $1.6 Trillion a year. The government won’t emphasize this, because it would result in markets taking actions that would ensure the lost decade of Japan….the only distinction is that Japan had actual wealth to cannibalize while the U.S. growth has always been built on mountains of leverage. At some point, our capital market system will reach an inflection point. By then I hope I am getting paid in Rembi or Euros.

United States is observing one of the biggest downturns in the housing market in this recession period. Aggressive efforts are being taken by the government to bail out the homeowners from this situation. But the success of these efforts is still on the grim side. The recession hit in the housing market is still very high as the unemployment rates are reaching its peak day by day.

Read More:http://www.housingnewslive.com/us-housing-news-articles.php

Thanks for your thoughtful comments, Bryan. You misread my post. I said, “Every depression in U.S. history was preceded by a series of surpluses,” which is true:

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

I also said, “In the past 50 years we have had 9 recessions. All were introduced by a series of reductions in debt growth,” which also is true. “Debt growth” is necessary for a growing economy.

To see the relevant graph produced by the St. Louis Federal Reserve Bank, go to http://www.rodgermitchell.com, and page-search the words “the last nine recessions.”

Rodger Malcolm Mitchell
http://rodgermmitchell.wordpress.com/

Roger,
You’re right. I stand corrected. You were referencing depressions. Btw, why wouldn’t we classify the current downturn as a depression lite? Only the Great Depression exceeds its severity in rapidity of wealth destruction and job loss.

Sorry for the length of this post, but when I read that raising taxes and/or reducing spending is a path to recovery, I must respond.

A large economy has more money than does a small economy. Therefore a growing economy requires a growing supply of money, aka deficit spending.

Concern about the federal debt revolves around two beliefs: Someone (often characterized as “our grandchildren”) will have to pay those debts, and large debts cause inflation. For us citizens, personal debt is concerning, because debt must be repaid. People go bankrupt when they can’t repay their debts. But, if you owned a magic printing press, and you had the legal right to print as much money as you wished, debt never would concern you.

Received a bill for a million dollars? No problem. Turn on the magic press and poof!, it’s paid. Unfortunately, you and I don’t own a magic press, so we worry about our debt.

The federal government, uniquely among all U.S. debtors does own that printing press. It can pay bills of any size, which is how today, it easily services a gross debt of $12 trillion. Not even during the current recession has any federal check bounced. Not even close.

Still we worry about federal debt as though it were our own. Why? Partly because so many people tell us we owe the federal debt. How silly. Debt is owed by borrowers. We are not the borrowers. In many cases, we are the lenders, the owners of T-securities. The government is the borrower, and we are not the government. There will be no bill collectors on our doorsteps, demanding that we pay our mythical share of the federal debt.

But won’t “our grandchildren” have to pay for the debt through higher taxes? For the past 50 years, tax rates actually have gone down, despite massive deficits. There is no relationship between deficits and tax rates, which are political, not financial, decisions.

What if tax rates don’t rise, or rise moderately? Let’s do the math. Say in Year One, taxes total $10 trillion and spending totals $11 trillion. Spending exceeds taxes, which causes a $1 trillion debt.

In Year Two, tax rates rise, so taxes now total $11 trillion, but spending rises to $12 trillion, and now the debt has risen to $2 trillion.

How much of Year One’s debt did taxpayers pay? None. Taxes weren’t even sufficient to pay for Year two’s spending, let alone pay for last year’s debt. The only time taxpayers pay for debt is when taxes exceed spending, i.e a surplus.

This is why surpluses have caused all six depressions in U.S. history. Surpluses, not debt, cost taxpayers money.

The inflation logic is that federal debt increases the money supply (true), which dilutes the value of money (not true). Money value is based not only on supply, but also on demand.

Money supply can increase massively, and still not cause inflation, if demand goes up as much. Demand is determined by risk and reward. Risk is inflation (which is a result, not a cause), so the key to money value is reward.

What is the reward for owning money? One reward is the ability to buy things with it, but in a massive economy like ours, there always are plenty of things to buy. The real reward for owning money is interest. The higher the rates, the more valuable the money. That’s why the Fed raises rates at even the hint of inflation, and that also is why in the past 50 years, there has been no relationship between federal deficits and inflation. None.

In conclusion, rather than being concerned about federal debt, we should be concerned about economic growth, which relies on money growth, i.e deficits. Surpluses should scare you, because they kill the economy. Always have; always will

Rodger Malcolm Mitchell
http://rodgermmitchell.wordpress.com/

Bryan,
Recession. Depression. It’s all arbitrary. “A rose by any other name . . .” Today’s recession/depression was preceded by a long period of reduced deficit growth, which is a first cousin to a surplus.

The point is:

1. An economy has but two options: grow or shrink.
2. To grow, an economy requires a growing supply of money.
3. The federal government has the power — indeed, the obligation — to provide enough money to grow our economy.
4. It does this via deficits.

Because my philosophy differs from popular wisdom, it often is misquoted. If you’re interested in a very brief and accurate overview, please go to:

http://rodgermmitchell.wordpress.com/2009/09/07/introduction/

I welcome your comments.

Rodger Malcolm Mitchell

How many new immigrant (legal or illegal) families and households appeared in the last 10 years?

GDP has gone up since 1999, and real GDP per capita has gone up since 1999. I suggest that the reduction in median wages reflects the fact that there are more people entering at the low end of the wage scale.

According to http://www.census.gov/popest/states/NST-comp-chg2008.html , the period from 2000-2008 ended with about 14 million births and about 8 million immigrants. I hazard a guess that almost all of them entered near the low end of the wage scale, except for a handful of foreign-born corporate employees. If that’s true, it could easily bring down the median even as the average goes up.

Wow, now that really does make a LOT of sense dude.

http://www.anon-surfing.at.tc

Wow talk about Clouding the issue with Facts, I bet FOX has different facts like its all Bill Clinton’s fault, they seem to blame Clinton through W’s management woes in the US. The success in the US is almost parallel to W’s great management of other companies. Gee the Saudi’s bailed his oil company out, and they sure seemed to help his approval numbers before the end of summer in his first term. But that of course is not the real story, it’s about the fear of the GOP the brutal control of our lives through a lot of smoke and mirrors to make it seem like it”s the Dem’s. The Democrats may not always be the best group of politicians to represent you all the time but they have way more interest in the average joe’s well being compared to the BP sympathizers and lovers of Oil Cartels killing our soldiers, and sending monsters to our shores to kill more.
If the GOP is so about God and Country then why do they love going against god’s efforts to keep the oil buried deep below where we can’t get to the stuff that kills more ways than one? I know I went off on a tangent but I’m tired and seeing more images of non mainstream photos of the Gulf has me seeing red. Seeing Dolphin’s belly up and others just barely alive is sickening, better over site and enforcement on current regulations would have more than likely prevented this horror or at the very least contained it way faster by actually having resources ready to go at a moments notice, not days or weeks for stuff to arrive or be built.

[...] the previous one has been a central tenet in the "American Dream." In the 21st century, that dream is no longer a reality: The Census Bureau’s annual look at income and health coverage (based on surveys conducted [...]

[...] the republicans were behind the first fall of median income ever in the USA. (that statistic has been tracked since 1967) Thanks douches! *sarcasm* Share this Post: [...]

[...] I had seen a similar one back in late 2009 on The Huffington Post. The article pointed out was from Time, and let’s anyone possessed of average intellect or better know that the Republicans have not [...]

[...] to the Census Bureau’s annual survey on income, the median household income fell from $52,748 in 1999 (adjusted for inflation to 2008) to $50,303 in [...]

[...] opposition with facts to back it up. The Myth That Is Falling Real Wages – The Mises Community Census Bureau reports fall in median household income – The Curious Capitalist – TIME.com I suspect that your foaming at the mouth uberright wing source is just seeing that the cost of [...]