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On October 09 2008 15:33 ahrara_ wrote:
ok u just got this up as i was editing my last post
anyway
i think we have gotten to the point in this debate where my experience tells me we are pretty much rehashing the same points, so ill keep my response shorter tomorrow and focus on what us forensicators call a closing rebuttal.
i may also think i owe you an apology. i'll consider that for a few.
You don't need to apologize I just came in with sensational statements and I was too lazy to go into what is really a long explanation. But it is relieving to see that it is possible to actually have a genuine debate/discussion about what is a rather heated and controversial issue.
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ya and that led me to severely underestimate you and etc
and im sure i did some of the same
well all's well that ends well
ill try to post tomorrow
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I understand how credit works, and I understand that when you already have unsustainable levels of debt the notion that the economy...
Everybody likes to state that we have unsustainable levels of debt. It is said so often that it has become a cliche and soundbite. However, like a lot of cliches and sound bites, its not obviously correct and may be flat out wrong.
Debt should ONLY be measured with regard to total income.
Example: The Jones' and the Smith's both have $200,000 dollars worth of debt. Therefore they are both holding unsustainable levels of debt.
FALSE. Because, while the Smith's family income is only $36,000, the family income of the Jones' is $1 million dollars. Obviously one family has sustainable debt with no problem.
So when comparing debt, you should only talk about debt/income ratio. That give you more accurate information.
So here is the information on the US (GDP is total income):
As you can see, all measured levels of debt/GDP ratio up to 2004 were lower than at any time during the 90's. Also note how we did not have nay problem pulling out of the post WWII debt. Our problem is much smaller now than it was in the 50's.
How is this possible? Because of this:
Source: http://www.heritage.org/Research/Budget/bg1820.cfm
The whole paper is worth reading and includes citations.
Just keep this in mind whenever discussing the US debt.
EDIT: Also off of http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
The list of countries with higher debt/GDP ratios are (among many others):
Japan, Italy, Belgium, Israel, Norway, Canada, France, Germany and 19 others.
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Ahrara, that was the most amazing OP ever! I finally read the whole thing and understand the whole situation a lot better.
But, holy wall of text man!
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dow is below 9000 right now
LIBOR had a big jump yesterday
we're all gonna die etc...
Edit: jesus down 600 points right now...
that's it, i don't want to play anymore
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Savio, your info is 4 years old (january 31 of 2005 the most modern). Obama used a number $10 trillion in the debates talking about debt, up from $5 trillion when Bush took charge.
Also back in the 40s the government was lending from it's citizens when it was in war: people worked for the governmental debt not cash. Right now USA has huge amount of foreign debt and huge deficit of trade account. Also the world was lying in ruins after the world war so USA was so much ahead in production capasities it could get away with any debt. Also the nation was much more younger than it is now when babyboomers start retiring.
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On October 10 2008 04:11 a-game wrote:
dow is below 9000 right now
LIBOR had a big jump yesterday
we're all gonna die etc...
Edit: jesus down 600 points right now...
that's it, i don't want to play anymore
the market has lost somethign like 1/3 of its value in just over two weeks
shit is hitting the fan...
my prof's home is getting foreclosed on, and i keep hearing stories about people losing their life savings or money saved for their kid's education, etc. etc.
people really have to realize just how much the economy affects everybody's life. most kids are sheltered from it until you're on your own but then you get out on your own and that's when you feel the squeeze.
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That information comes from the CIA factbook and I doubt its accuracy by a wide margin. At least Canada's data I'm familiar with - our public debt peaked in the mid/late 90s and has been dropping ever since. It sits currently at CAD$457bn, which compared to our GDP, at about CAD$1.35 trillion, gives debt per GDP at 33.8%, not the 64.2% the CIA factbook (and wikipedia) uses. Compare now to the US figure of ~$10 trillion debt (they just broke the debt clock in New York today - not enough numbers after rolling over 10 trillion!) compared with a GDP of about $13 trillion, and you get about 77% debt per GDP. Checking numbers helps.
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Can we not get into the kind of debate where we bitch about each other's sources? Or at least, if you're going to provide an alternative that you claim is more authoritative than the CIA World Factbook, cite something?
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United States22883 Posts
Another interesting article on the debate between mixed socialism and mixed capitalism (they're obviously the same thing, but I'm terming it that way to highlight the leanings of Europe vs. the US.)
http://www.csmonitor.com/2008/1010/p07s03-woeu.html
Do we have any Swedish or German econ majors here?
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On October 10 2008 02:22 Savio wrote:Show nested quote +
I understand how credit works, and I understand that when you already have unsustainable levels of debt the notion that the economy...
Everybody likes to state that we have unsustainable levels of debt. It is said so often that it has become a cliche and soundbite. However, like a lot of cliches and sound bites, its not obviously correct and may be flat out wrong. Debt should ONLY be measured with regard to total income. Example: The Jones' and the Smith's both have $200,000 dollars worth of debt. Therefore they are both holding unsustainable levels of debt. FALSE. Because, while the Smith's family income is only $36,000, the family income of the Jones' is $1 million dollars. Obviously one family has sustainable debt with no problem. So when comparing debt, you should only talk about debt/income ratio. That give you more accurate information. So here is the information on the US (GDP is total income): As you can see, all measured levels of debt/GDP ratio up to 2004 were lower than at any time during the 90's. Also note how we did not have nay problem pulling out of the post WWII debt. Our problem is much smaller now than it was in the 50's. How is this possible? Because of this: Source: http://www.heritage.org/Research/Budget/bg1820.cfmThe whole paper is worth reading and includes citations. Just keep this in mind whenever discussing the US debt. EDIT: Also off of http://en.wikipedia.org/wiki/List_of_countries_by_public_debtThe list of countries with higher debt/GDP ratios are (among many others): Japan, Italy, Belgium, Israel, Norway, Canada, France, Germany and 19 others.
The levels of debt may be sustainable at present it would appear so but its possible we could increase it further but continual increase of that debt will inevitably make it unsustainable one day and the 'come down' will be greater. The level of private sector debt in the United States is slightly higher than it was right before the great depression which is worrying but not by definition a catastrophe.
The main point is that we simply cannot be complacent about the levels of debt in our economy as we have been so carelessly in the past and attempting to solve this problem by increasing debt even more will not be sufficient and will probably prove counter productive.
Measuring debt relative to GDP is a relatively good measure but it fails to take into account the distribution of debt and the distribution of wealth, it can create misleading conclusions. The true nature of the debt bubble will make itself felt but just because nations have been able to sustain high debt 5 or 30 years ago it does not mean that can they continue to do so in the future.
Private sector debt is what counts and while we should look at public sector debt increasing American debt will inevitably increase considerably to deal with this problem, but in my opinion any notion of increasing private sector debt further as a solution is stupidity.
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On October 10 2008 10:02 Jibba wrote:Another interesting article on the debate between mixed socialism and mixed capitalism (they're obviously the same thing, but I'm terming it that way to highlight the leanings of Europe vs. the US.) http://www.csmonitor.com/2008/1010/p07s03-woeu.htmlDo we have any Swedish or German econ majors here?
I would like to see the perspective European economists take on this as well. I pay close attention to interviews etc but I don't get to hear much from anyone other than Aussies and American's.
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But he's talking about federal debt. Which is a seperate issue, and, there is no distribution of debt and wealth since there's only one party holding debt
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Canada5062 Posts
1. It's a bailout. Why call it anything else?
2. The bailout is a half measure at best and will not be effective to the extent originally intended. The markets have already responded to the plan (negatively).
3. A more effective "bailout" would be for the US government to capitalize the financial institutions directly instead of stubbornly hanging onto their hopelessly juvenile idealogical obsession with "free market" mechanisms. How does buying such dilapidated securities in the context of the current global meltdown have a hope in hell of convincing financial institutions to free up liquidity into the wider market? I doubt this will jump-start lending at all. Apart from the grotesque effect of most rewarding those institutions with the greatest exposure to the toxic securities (i.e. the entities that are least deserving of a lifeline, the very institutions that the market has determined should be wiped from the commercial gene pool), most financial institutions, having won a reprieve from their misfortunes by the good grace of the US Government, will undoubtedly be, over the short/mid term at least, conservative in their lending practices. By the time those lenders begin lending like their former swashbuckling selves again, there may not be much of a business community left to lend to.
4. If Paulson wants a faster, more effective fix to the credit crisis, the Fed needs to start taking equity positions in those financial institutions that are best equipped to survive (leaving the rest to sink). This means picking winners and losers (which, by the way, those idealogically tunnel-visioned morons at Treasury hate to do). This gives the government some measure of control over the recovery and gives taxpayers an upside commensurate with their risk.
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The european markets are already down 8%. We are watching history being made right now.
I think today is pretty critical. Every day this goes on we are stepping closer to the edge.
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Canada5062 Posts
By the way, ahrara, great lead post and follow up discussion.
Your reasoning and conclusions are generally too textbook (I assume you are still in school) and I do not believe you are applying your information correctly (the reason why very few economists are actually successful at making money to the degree proportionate to their knowledge of the field), but it's clear you're ahead of the curve on this subject.
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On October 10 2008 16:40 mensrea wrote:
4. If Paulson wants a faster, more effective fix to the credit crisis, the Fed needs to start taking equity positions in those financial institutions that are best equipped to survive (leaving the rest to sink). This means picking winners and losers (which, by the way, those idealogically tunnel-visioned morons at Treasury hate to do). This gives the government some measure of control over the recovery and gives taxpayers an upside commensurate with their risk.
This plan in combination with expansionary fiscal policy to stimulate the real economy I am reasonably confident would be successful at achieving the best outcomes and as fast possible, which may not be very fast at all.
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On October 10 2008 09:28 ahrara_ wrote:
Can we not get into the kind of debate where we bitch about each other's sources? Or at least, if you're going to provide an alternative that you claim is more authoritative than the CIA World Factbook, cite something?
If you were referring to my post, it's publicly available financial data, simply manipulated with elementary school arithmetic. It didn't seem like the sort of thing one cites. At any rate, public debt figures are generally published on a government's website. A cursory search would bring you here :
http://www.canadianeconomy.gc.ca/English/economy/index.cfm
where the Federal debt is given clearly. Our GDP is no secret either.
Alternatively, you can look up fiscal reports like this one :
http://www.budget.gc.ca/2008/plan/ann1-eng.asp
Here it shows net-debt/GDP, which is a different figure, but chart 1.8A shows Canada well ahead of the US and other European countries. Anyway, I was just making the point that those figures could be mistaken and I was under the impression that I showed quite clearly why - it wasn't a random, unjustified slam of someone's sources. It was just a correction I felt should have been made.
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Excellent post ahara, I knew there would be a thread about this so I headed off to the internet cafe and now I stand (slightly) educated!
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On October 10 2008 16:50 mensrea wrote:
By the way, ahrara, great lead post and follow up discussion.
Your reasoning and conclusions are generally too textbook (I assume you are still in school) and I do not believe you are applying your information correctly (the reason why very few economists are actually successful at making money to the degree proportionate to their knowledge of the field), but it's clear you're ahead of the curve on this subject.
that's completely fair criticism. and i would tell anybody the same. my knowledge of the crisis far surpasses my knowledge of general economic theory. i'm more of a current events geek than an econ geek. i'm not an expert but i do know what's going on. just don't cite me, don't quote me, but use this as a platform to help you understand the basics.
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EPT![[image loading]](http://www.heritage.org/Research/Budget/images/26087752.gif)
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