PeakTrader.com

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PeakTrader:

What’s sad is the federal government has squandered so much money, and added too many anti-growth policies with the pro-growth policies, resulting in an enormous national debt. I suspect, interest on the national debt will rise substantially.

We need much better fiscal policy and economic policies out of Washington. For example, in a recession or depression, remove or reduce hundreds of billions of dollars of the $2 trillion a year of federal regulations, rather than piling on more massive regulations.

Larger tax cuts and a higher minimum wage would result in less entitlement spending (e.g. unemployment insurance, food stamps, earned income tax credit, and other anti-poverty programs). It’s ridiculous to put restrictions on financial institutions when they’re not needed (e.g. after the crisis) and not put restrictions on them when they’re needed (well before a crisis develops). Fiscal policy needs to be more effective in smoothing-out business cycles, like monetary policy.

Living standards, particularly for low income Americans, can rise much faster with appropriate fiscal and economic policies out of Washington politicians.

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Jazzbumpa, I suspect, banks are holding over $2 trillion of excess reserves (and retarding economic growth), because of the hostile environment, by both Democrats and Republicans (since you want to be political) and “too-big-to-fail” no longer exists.

Substantial tax cuts worked under Kennedy, Reagan, and Bush. Given the much higher level of household debt, a bold tax cut was needed more than ever.

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Creating jobs through lower taxes also reduces government spending on the unemployed.

Over the past few years, we’ve spent and squandered too much fuel (more government debt) for too little economic growth, because one foot has been on the accelerator and the other foot has been on the brake.

The cart has been before the horse. It’s better to promote economic growth and tax it than prevent economic growth and tax it more.

I stated in Feb ’09:

1. Obama should change his stimulus plan to a $5,000 tax cut per worker (or $700 billion for the 140 million workers at the time, including through the earned income tax credit), along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets [i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc.]. This plan will have an immediate and powerful effect to stimulate the economy and strengthen the banking system. When excess assets and goods clear the market, production will increase.

2. Shift “toxic” assets into a “bad bank.” The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost “animal spirits,” and inflate toxic assets.

3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.

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The recoverless recovery.

From UCLA Anderson forecast last year:

“U.S. real GDP is now 15.4 percent below the normal 3 percent trend. To get back to that 3 percent trend, we would need 4 percent growth for 15 years, 5 percent growth for eight years, or 6 percent growth for five years, not the disappointing twos and threes we have been racking up recently, which are moving us farther from trend, not closer to it. It’s not a recovery. It’s not even normal growth. It’s bad.”

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The federal government added over $5 trillion of debt for this:

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

It should be noted, shrinking trade deficits add to GDP growth. So, the “recovery” is actually weaker than reflected in GDP.

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Jazzbumpa, Reagan achieved a V-shaped recovery, unlike the L-shaped recovery at best Obama achieved, and Bush achieved a mild recession, while trade deficits continued to rise to 6% of GDP, or up to $800 billion a year, which subtract from GDP. U.S. living standards improved sharply under Reagan and Bush.

GDP is a poor measure of living standards, not only because of trade deficits, but also because of the mix of GDP. For example, the U.S. not only leads the world in the Information and Biotech Revolutions, it leads the rest of the world combined (in both revenue and profit), while the U.S. shifted from low-end to high-end manufacturing, and also became much more productive (i.e. producing more output with fewer inputs). The E.U. produced more government, which added to its GDP.

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U.S. average annual per capita real GDP growth

1982-2007: 2.30% (height of the Information Revolution)
1946-1981: 2.11% (including rebuilding Europe and Japan)

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It should be noted, Bush inherited a structural bear market beginning in 2000, after a spectacular structural bull market from 1982-00.

Also, it should be noted, the U.S. was on the path to a mild recession with the Bush tax cut in early ’08, until Lehman failed in Sep ’08.

We don’t know if Bush could’ve achieved a stronger recovery, than Obama, because he wasn’t President.

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Mike Meyer, everyone was making money from the housing boom, including low income workers and homeowners, directly or indirectly, until the music stopped, and then the banks and the “rich” lost the most.

And, the bottom half don’t pay much income taxes and certainly receive lots of tax credits and other government benefits.

If you compare the two Bush wars to other wars, they were quick and decisive. The U.S. would’ve spent a large part of the military budget anyway just to maintain an idle military (yes, there was lots of double and inflated counting) rather than on the occupations (and, historically, military spending under Bush as a percent of GDP was very low). Bush also had to spend on the “War on Terror,” and Homeland Security. There certainly wasn’t a “peace dividend,” like under Clinton, including after Reagan won the “Cold War.”

The Iraqi war, cited by some as the “bad” war, not only freed Iraqis and the world of the madmen Saddam and his two sons, when Bush sent them to Allah, it was good energy policy, for the U.S. and the world, freeing-up Iraqi oil, before Peak Oil. Iraq has the largest oil reserves in the world, more than Saudi Arabia. Moreover, can you imagine Saddam and his sons with access to trillions of dollars of oil, particularly at these high prices.

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Also, I may add, oil is the lifeblood of the U.S. and the global economy. The “World Order” has been that the world price of oil, and many other commodities, is priced in dollars. So, foreigners have to sell goods to the U.S. to acquire dollars to buy oil, i.e. exchange valuable goods for worth less paper.

In exchange, for the U.S. consuming up to $800 billion a year more than producing in the global economy and in the long-run (which funds a large part of the U.S. military, at least indirectly), the U.S. will do the world’s “dirty work” (which most countries won’t or can’t do) with its relatively huge and high-tech military.

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Per capita real GDP is over $5,000 a year lower than a long-run trend, since 1960, in this deep depression. However, it’s higher than the 2007 peak. Also, much of the increase in GDP has been exports increasing faster than imports (reflected in the Keynesian consumption function, or identity, Y = C + I + G + NX). Chart:

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

Monetary policy has benefited the top 20% of income earners much more than the other 80% through higher asset prices and lower interest rates. Also, older workers, with higher incomes, kept their jobs longer, and made it harder for younger workers to find jobs. Income inequality has increased.

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