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And America goes nuts (budget): 2/14/2018 00:49:18

Level 59
So, I'm getting fairly worried about the American budget and deficit. Not for the country itself or the politicians which probably deserve what they're gonna get (the first for electing incompetents and the second for being such dumb f*ckers), but for the world. The current American budget is probably gonna amplify the next recession and it's gonna affect the hole world.

But why? We need to talk about some economics.

What happens in macroeconomic theory is that when you're in bad times/recession, the deficits should go up. That's because government will have its spending increase (more people asking for unemployment, rescue plans for companies and extra spending to stimulate the economy) while income decreases (less taxes come in because of reduced activity and you lower taxes to stimulate the economy). Some of these are direct consequences of the crisis while others are government choices (rescue plans, spending/taxes stimulus & rescues).

When you're in good times you shoukd however decrease deficits (and actually even pursue surpluses) so you can pay off the debt you took during good times. For that you'll receive the mechanical benefits (less people asking for unemployment and extra revenue) that come from economic growth. You add to that budget cuts and taxe increases (well thinked as so not to create a economic slowdown) and you balance your budget.

That's called a stop and go macroeconomic policy, and it's something a good share of economists agree on.

So during the crisis the American deficit exploded, that was a normal thing. late Bush and first term Obama had less revenue and more expenses while they had the need to rescue companies as well as spend some more for the economy. Outside of partisanship, that's normal, I won't enter in details about those plans, but personnally I hated that they both prefered to spend trillions to save banks rather than other options like rebuilding infrastructure.

Extra spending in bad times work well because a lot of the economic production is stoped, companies can increase production (hiring unemployed and turning on the machines) but they lack demand.

That comes to today, now the US and the world is going through better times. Common sense tells us to reduce spending and increase revenue to pay for those bad years. And fucking congress first vote tax cuts, which widened the deficit, and then both parties agree to spend more in a pure display of fiscal iresponsability.

The American deficit is now balooning to more than a trillion dollars (double what it was before) in a year of huge economic growth. That's close to early Obama budgets that were done during a crisis. The huge problem for this is that when the next crisis come, the deficit will again increase, and now it's not going to stay in a trillion, but 1.5 or 2 trillions. And that's insane. With a debt at 105% of the GDP you simply can't allow yourself to let it climb in good years or in bad years you're screwed.

The debt cost is also starting to rise again, with the interest rate increasing and overall debt service spending also getting higher. That will increase the chance of America defaulting, and if that happens the world is totally screwed.

But wait, won't that extra spending and less taxes pay for itself with growth? Absolutely not. Fiscal/Budget stimulus works in recessions because the factors of production (workers/machines) are underused. When you have an unemployment rate of low 4%s and production capacity rate at 80% you're dangerously close to economic overheating. Overheating is when you lack so much means of production that the only response of companies to extra demand is to increase prices. Thus this hole tax cut and extra spending frenzy will just create inflation and not real growth.

And extra inflation means the FED will need to increase interest rates sooner than it would've otherwise, and that will cripple american workers, companies and government capacity to pay their debts. Considering that Americans aren't really income savers but rather spenders, those interests will go to foreign countries, further crippling the economy.

While America is doing it's thing, Europe has been cutting deficits at a stagering rate. The Eurozone deficit to GDP ratio is at -1.1% for 2017 (down from 1.5 last year, and more than 2 in 2015), debt to gdp ratios are decreasing in Europe. While that happens, the American deficit is skyrocketing to 5% of GDP in a pure display of economic ignorance.

When the next recession comes it will hit hard, let's hope the world doesn't get too screwed again because of America's reckleness, but we all know that's what's gonna happen again. And worse, you won't learn from your mistakes and keep doing them again and again...
And America goes nuts (budget): 2/14/2018 00:50:28

Level 59
And America goes nuts (budget): 2/14/2018 01:25:33

Level 56
Oddly, I agree with everything you said. That said, recessions usually hit the rest of the world harder than America. Europe still hasn't recovered from 2008.

GB GDP 2007: 3.063 trillion GB GDP 2017: 2.565 trillion

FR GDP 2008: 2.875 trillion FR GDP 2017: 2.574 trillion

DE GDP 2008: 3.752 trillion DE GDP 2017: 3.651 trillion

PL GDP 2008: .533 trillion PL GDP 2017: .509 trillion

IT GDP 2008: 2.391 trillion IT GDP 2017: 1.921 trillion

ES GDP 2008: 1.635 trillion ES GDP 2017: 1.307 trillion

USA GDP 2008: 14.72 trillion USA GDP 2016: 18.57 (I couldn't find numbers for 2017)

The odd thing about global economic recessions is that often times money (investment) floods out of the rest of the world and into America because the money is safer in America even if the recession began in the USA..

Therefore, America has a stronger economy (comparatively) during recessions and it helps fuel the perception that the USA weathers recessions well. This is exactly what happened in 2008.

The long explanation has to do with young demographics, 1 million new immigrants every year, high consumption, ect.

United States: https://www.indexmundi.com/united_states/age_structure.html

Canada: https://www.indexmundi.com/canada/age_structure.html

Germany: https://www.indexmundi.com/germany/age_structure.html

China: https://www.indexmundi.com/china/age_structure.html

Italy: https://www.indexmundi.com/italy/age_structure.html

Russia: https://www.indexmundi.com/russia/age_structure.html

Spain: https://www.indexmundi.com/spain/age_structure.html

Poland: https://www.indexmundi.com/poland/age_structure.html

France and the UK aren't doing nearly as bad.

France: https://www.indexmundi.com/france/age_structure.html

UK: https://www.indexmundi.com/united_kingdom/age_structure.html

Additionally, on a societal level the USA is one of the best countries in the world at assimilating immigrants which helps. Studies show that there is more German blood in America than English blood but nobody speaks German except the Amish.

Only 13.569 million people speak English "not well" or "not at all" in the USA which is only 4.2% of the whole population.

But India has young demographics too right? Yes, but it isn't a developed nation so the short answer it "India's economy works differently."

Investing in developing countries is a higher risk investment than investing in a developed country like the USA. So the USA is one of the only growing, young, developed countries which makes it a safe haven during global crisis.

Edited 2/14/2018 01:41:40
And America goes nuts (budget): 2/14/2018 03:06:08

Level 54
Yep we're fucked. What else is new?

Like, I know this is bad, but we're also getting fucked up the ass in terms of the Environment, Corruption, and Wasteful Overseas wars. Just give up now, America's time is done. I'll see you all in the Free Republic of Greater Virginia (about where I live), when we fight our war of independence against the US, along with or against the Confederate States of America, The New England Federation, and the United States of the Midwest (and them some others farther out)
And America goes nuts (budget): 2/14/2018 04:24:11

Level 48
>hasn't read Hoppe

>still thinks liberal democracies are equipped for long term economic growth

my man..
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