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How Our Debt Rose to $14.3 Trillion: Blame Congress

One thing our politicians don't seem to take into account is that the average voter (and I include myself in this group) has no idea about the financial big picture because we don't understand it. We only understand when it gets personal....when they threaten to cut something we expected to get (like social security or Medicare), when our health insurance premiums become obscene or when the Government makes us pay for something we had no voice in and opposed (like a few wars, here and there.) The result may be that we take our frustrations out on incumbents in 2012. All of them. Too bad for them, but they all deserve it.

We may not understand the spin and fancy words that the Government and journalists use, but when the numbers are listed by themselves, all in one place, the picture is becoming clear: Our Government is robbing us blind.

In 2001, our debt was $5.3 trillion. It's now $14.3 trillion. What did we do with the $9 trillion we borrowed in the last ten years and who lent it to us? [More...]

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Raising Medicare to 67: Not an Acceptable Option

I don't care whether the debt ceiling lift is temporary or permanent. I care that I have paid into a system my entire adult life knowing I would get Medicare at 65 and social security at 66. Republicans want to steal the money I've already paid in and put it somewhere else, making me wait another two years for Medicare. And raise my taxes at the same time.

If President Obama backs raising the age of medicare, which won't save the Government money in the long run due to the huge numbers of 65 and 66 year olds who will shift to Medicaid and who will break the backs of small businesses providing health care to elderly workers -- and which will force middle class elderly workers who don't have employer paid health care to pay premiums of ten thousand dollars a year or more for two more years, with huge deductibles and out of pocket costs, he doesn't deserve a second term as Democratic President. Let him run as as Republican or go home to Chicago. He will have sold us out.

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Budget Talks Fall Apart, Obama Reveals Some Details

President Obama on the failure of the budget talks:

Obama said he had demanded $1.2 trillion in additional revenues over 10 years, in exchange for spending cuts, including cuts to Medicare and Social Security. He said the revenues had been structured in a way that marginal tax rates would not be increased, and no Republicans would be forced to cast a vote that would violate the Taxpayer Protection Pledge, which most Republicans in Congress have signed. Boehner said that the additional $400 billion in revenue would have amounted to a tax increase that would hurt small businesses.

Even though Boehner ended today's talks, he says he will attend tomorrow's White House meeting on the debt ceiling. From ABC: How Negotiations Broke Down.

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Goldman Sachs: 8.8% Headline Unemployment By Year End 2012

Krugman:

Everyone in the forecasting business is scrambling to mark down both their estimates of second-quarter growth and their forecasts for later in the year. Goldman Sachs (no link) was pretty optimistic a few months ago; now they’ve grown quite pessimistic[. . . .] At this point, GS is predicting an unemployment rate of 8 3/4 percent at the end of 2012 — five years after the Great Recession began.

The New Normal:

So, terrible growth prospects; low inflation; oh, and low interest rates, with no sign of the bond vigilantes. Ordinary macroeconomic analysis tells you very clearly what we should be doing: fiscal expansion and monetary expansion by any means we can manage[. . .] And what are we talking about in policy terms? Spending cuts and an end to monetary expansion.

I am supporting President Obama for reelection because the alternative is worse. But there is an argument to be made that it is a terrible precedent for a President to win reelection with terrible economic policies that treat 9% unemployment as the New Normal.

Speaking for me only

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Printing Money Is Not Enough

Matt Yglesias again trots out his tired trope that "the Left" does not understand the importance of monetary policy:

Part of what I think goes wrong in the contemporary left’s understanding of this is that people have a kind of romance with the idea of the Works Progress Administration. [. . . H]owever, [. . .] lurking behind this fiscal measure is a monetary one. Under the fiscal system that prevailed between the wars, the government’s ability to spend money on public works was limited by its ability to get its hand on gold. This is why leaving the gold standard is so crucial, both here and abroad, to launching recovery from the Depression[.]

"The Left" fully understands this. But it understands something more - that printing money is not enough in a liquidity trap. In 1938, Keynes explained it to FDR:

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Meanwhile, Back In The Real World

In the Beltway, they have the luxury of playing stupid Debt Ceiling Kabuki. But, via Atrios, in the real world, things are bleak, and they will get bleaker:

In Arizona, where there are 10 job seekers for every opening, 45,000 people could lose benefits by the end of the year, according to estimates from the state Department of Economic Security. Yet employers in the state have added just 4,000 jobs over the last 12 months.

Some other states will also feel a disproportionate loss of income unless hiring revives. In Florida, where nearly 476,000 people are collecting unemployment benefits, employers have added only 11,200 jobs in the last year. In Michigan, employers have added about 40,000 jobs since May 2010, but about 267,000 people are claiming jobless benefits.

[More. . .]

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Unemployment Rises To 9.2%; 18K Jobs Gained In June

Reuters:

U.S. employment growth ground to a halt in June, with employers hiring the fewest number of workers in nine months, dousing hopes the economy would regain momentum in the second half of the year. Nonfarm payrolls rose only 18,000, the weakest reading since September, the Labor Department said on Friday, well below economists' expectations for a 90,000 rise.

Revisions to April and May also were negative - "The government revised April and May payrolls to show 44,000 fewer jobs created than previously reported." What to do? Slash government spending of course. We are f*cked.

Speaking for me only

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Debt Limit Strategies

Paul Krugman discusses debt limit strategy:

Failure to reach a debt deal would have very bad consequences. But here’s the thing: Mr. Obama must be prepared to face those consequences if he wants his presidency to survive. [. . . W]hat’s really going on is extortion pure and simple. [. . .] And the reason Republicans are doing this is because they must believe that it will work: Mr. Obama caved in over tax cuts, and they expect him to cave again. [. . .] Republicans believe, in short, that they’ve got Mr. Obama’s number, that he may still live in the White House but that for practical purposes his presidency is already over. It’s time — indeed, long past time — for him to prove them wrong.
]More . . .]

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New Jobless Claims 428K

CNN Money :

The number of Americans filing for first-time unemployment benefits slipped only slightly last week, falling short of economists' expectations for a bigger drop. There were 428,000 initial jobless claims filed in the week ended June 25 -- 1,000 fewer than the week before, the Labor Department said. It marked the 12th straight week initial claims have stayed above the 400,000 mark -- and was worse than the 420,000 claims economists surveyed by Briefing.com had expected.

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The Fine Print In BoAs $8.5B Settlement With Mortgage Bond Holders

PIMCO & Co. get $8.5B. Homeowners probably get harassed:

In addition, the deal will require Bank of America to improve its payment collection process by hiring specialists to focus on high-risk loans, and do a better job of tracking whether the bank is adhering to its own internal loan-servicing standards.

As long as Wall Street's happy, no problem? Consider Sheila Bair's comment in the article:

“Unresolved legal claims could serve as a drag on the recovery of the housing market,” Ms. Bair said. “The healing of the housing market is essential to the recovery of the broader economy.”

I respectfully disagree. Unresolved legal claims like the ones BofA settled are not the major drag on the economy that the homeowner crisis is causing - it is the depressed housing market and balance sheet problems homeowners face. That is what is depressing aggregate demand. PIMCO & Co. getting these billions will have no discernible impact on the economy or aggregate demand.

Speaking for me only

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New Jobless Claims: 429K

Reuters:

New U.S. claims for unemployment benefits rose more than expected last week, a government report showed on Thursday, suggesting little improvement in the labour market this month after employment stumbled in May.

Maybe somebody should do something.

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Reaping What They Sowed: Americans Believe Cutting Spending Will Create Jobs

Digby and Greg Sargent lament that Americans have come to believe the Obama Administration's parroting of Republican talking points on the relationship between economic growth and cutting government spending. Digby writes:

It's fairly clear that the administration long ago bought into the deficit trope and threw in its lot with the confidence fairy to create growth.

Indeed, Obama proved me an idiot when I thought he would use the "deficit trope" to fight against renewing the Bush tax cuts. Instead, The Deal was born. I'm with Kevin Drum - this is the policy the Obama Administration wants.

Speaking for me only

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Should Greece Default?

Atrios says yes:

I really don't know why Greek leaders aren't telling the EU to suck on it. They're actually the ones who seem to be holding the cards, but they just don't realize it. Or pretend not to.

The EU seems to believe the alternative to Austerity Now! for Greece is worse:

The EU's economic and monetary affairs commissioner Olli Rehn said he was "certain that Greece will be able to take the decisions needed because the alternative is so much worse".

Not knowing the specifics, I can't say, but it seems to me the Euro-types have more to lose than Greece, who probably needs out of the Euro anyway. Last November, we had a similar discussion regarding Ireland. I think the Argentina model is worth studying here.

Speaking for me only

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Tax Cuts Are Not Effective Fiscal Stimulus

Since December, you have read me rail often against The Deal. My objection was not, per se, to the tax cuts, but rather to the fact that the tax cuts would be "paid for" by spending cuts in the following months. The efficacy of government spending as opposed to tax cuts is beyond dispute. Trading spending for tax cuts is terrible policy if your are trying to stimulate the economy in a zero bound environment.

As in December with regard to The Deal, Ezra Klein tries to make lemonade from this lemon of a policy, this time citing Larry Summers' endorsing more tax cuts as fiscal stimulus (and, to be fair, arguing for no spending cuts, good luck with that now). As for The Deal, Klein treats the proposed tax cuts as effective fiscal stimulus with no spending cuts tradeoff:

This election will be won or lost by governance and the economy, not by candidates and campaigns. Another $200 billion in economic stimulus will mean a lot more to Obama’s reelection effort than $200 million in ads.

(Emphasis supplied.) To imagine that spending cuts will not be traded off for those tax cuts is simply absurd. Obama and Dems need to argue for something better than this.

Speaking for me only

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Business "Confidence" And Obama

Apparently Paul Krugman faced some Chamber of Commerce hack this morning on TV repeating the missing confidence fairy argument about the economy:

So I didn’t have much time to take down the Chamber of Commerce guy on This Week today [--] you’ll see a lot of businesses complaining about the political climate — hey, a lot of them watch Fox — but very few actually saying that this climate is deterring expansion[. . .] It’s the weak economy that’s deterring growth, not the atheist Socialist secret Muslim Kenyan Hawaiian in the White House.

It reminds of me what former Bush Treasury Secretary Paul O' Neill said last August:

I must say I'm kind of amused by some of the conversation about companies hoarding $1.5 trillion worth of cash, or something, because I had a rule when I was in the private sector for 25 years, including 13 running Alcoa, and that is, don't hire people unless you have somebody demanding goods that you can't produce with the people you already have. Right? So it seems patently unrealistic to me to urge people to spend money unless there's a demand that they're not able to satisfy with their existing resources. [. . .] Why would you? I mean, it's crazy. It's not a charitable function if you're running a business to say oh, my goodness, we have so many millions of people unemployed, I should rush out and spend my cash and hire more people if there's no demand for the goods. It's crazy to me. [. . . More]

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