Fiscal deficits were exploding and 4.3M jobs had been lost before Obama even took office. Fiscal debt as of Sept 09, 8 months after Obama took office, was already $11.9 trillion. "Trade" deficits subtracted $6.2 Trillion from GDP from 2000 through 2010. Democratic tax increases on the wealthy led to a boom and Republican tax cuts for the wealthy and not-paid-for spending led to a bust.
Debt projected based on the 1st eleven fiscal months (through Aug 10) will be $13.6 trillion as of Sep. There was a deficit of $1.89T for Bush's fiscal year ending Sep 09; this compared to a lower projected $1.68T for the fiscal year ending Sep 10, the first year for which Obama can be held responsible.
"Trade" deficits subtracted $6.2 trillion from GDP from 2000 through 2010. Democratic tax increases on the wealthy led to a boom and Republican tax cuts for the wealthy and not-paid-for spending led to a bust. The Republican-created economic downturn plus unpaid-for Bush tax cuts ($1.8T), illegal invasions & occupations in Afghanistan and Iraq (>> $1T), Medicare Part D with no-competition prescription drug industry gifts (~$1T), and the TARP bank bailout ($700B) explain virtually the entire deficit over the next ten years.
An ignorant "conservative" -- yes, I know that's redundant -- sent what's just below, which can be found on many websites (here, here and here, for example) in an e-mail to my sister. And I know, I know. That sounds unkind, but it's not really. We're all ignorant about many things.
Or is it ignorance? Or that "conservatives" can't admit they're responsible for the destruction of the economy; so they must blame it on someone else.
Such distortions and outright lies require correction. No matter what the facts are, I'm well aware there's not a snowball's chance in hell of convincing those who believe lies like these. Facts are more likely to further close their minds. See:
Article: How facts backfire By Joe Keohane 7/11/10
Researchers discover a surprising threat to democracy: our brains
It’s one of the great assumptions underlying modern democracy that an informed citizenry is preferable to an uninformed one. ... Facts don’t necessarily have the power to change our minds. In fact, quite the opposite. In a series of studies in 2005 and 2006, researchers at the University of Michigan found that when misinformed people, particularly political partisans, were exposed to corrected facts in news stories, they rarely changed their minds. In fact, they often became even more strongly set in their beliefs. Facts, they found, were not curing misinformation. Like an underpowered antibiotic, facts could actually make misinformation even stronger.
This bodes ill for a democracy ...
No kidding! This relates to why "conservatives" stir up religious fervor ... facts don't matter when it's a matter of faith.
Original paper: When Corrections Fail: The Persistence of Political Misperceptions by Brendan Nyhan and Jason Reifler 3/30/10
Abstract: An extensive literature addresses citizen ignorance, but very little research focuses on misperceptions. Can these false or unsubstantiated beliefs about politics be corrected? Previous studies have not tested the efficacy of corrections in a realistic format. We conducted four experiments in which subjects read mock news articles that included either a misleading claim from a politician, or a misleading claim and a correction. Results indicate that corrections frequently fail to reduce misperceptions among the targeted ideological group. We also document several instances of a “backfire effect” in which corrections actually increase misperceptions among the group in question.
Here's the e-mail's Subject and the sender's preface:
Subject: The Problems left behind by Bush ????
I am not bound to win, but I am bound to be true. I am not bound to succeed, but I am bound to live up to the light I have. Abraham Lincoln
From Thucydides, the father of all military History - The society that separates its scholars from its warriors will have its thinking done by cowards and its fighting done by fools.
"Bound to be true"??? Seriously now, any "conservative" invoking these quotes has a lot of nerve, considering that the e-mail contains so much that's the exact opposite of truth.
Here's the main part of the e-mail that holds Obama responsible for the massive fiscal deficits.
The Washington Post babbled again recently about Obama's inheriting a huge deficit from Bush. Amazingly enough,...... a lot of people swallow this nonsense. So once more, a short civics lesson.
Budgets do not come from the White House. They come from Congress, and the party that has controlled Congress since January 2007 is the Democrat Party. They controlled the budget process for FY 2008 and FY 2009, as well as FY 2010 and FY 2011. In that first year, they had to contend with George Bush, which caused them to compromise on spending, when Bush somewhat belatedly got tough on spending increases.
For FY 2009 though, Nancy Pelosi and Harry Reid bypassed George Bush entirely, passing continuing resolutions to keep government running until Barack Obama could take office. At that time, they passed a massive omnibus spending bill to complete the FY 2009 budgets. Remember?
And where was Barack Obama during this time? He was a member of that very Congress that passed all of these massive spending bills. He signed the omnibus bill as President to complete FY 2009. Let's remember what the deficits looked like during that period: (below)
|U.S. debt history & projections presented in the e-mail & on the web|
If the Democrats inherited any deficit, it was the FY 2007 deficit, the last of the Republican budgets. That deficit was the lowest in five years, and the fourth straight decline in deficit spending. After that, Democrats in Congress took control of spending, and that includes Barack Obama, who voted for the budgets. If Obama inherited anything, he inherited it from himself.
In a nutshell, when Obama says he inherited a huge deficit, what he is saying is "I inherited a deficit that I voted for and then I voted to expand that deficit four-fold since January 20th."
There is no way this will be widely publicized,
Unless each of us sends it on!
This is your chance to make a difference.
Gee, that's quite an indictment, isn't it? Problem is, it's full of lies and misrepresentations. Unsatisfied with the amount of prevarication in this post found on the web, the e-mail ends with yet another lie:
And the 2008 economic fiasco was produced by Barney Franks and Chris Dodd and their subprime lending of homebuying money to poor who could never afford to pay it back. There will be 3.3 million home defaults this year. The economy turnaround could take years and will add to US deficits thru 2013, or longer.
Where to start in rebutting this nonsense?
Who's Really Responsible?
So who is responsible for ballooning deficits and the destruction of the U.S. economy? Republicans or Democrats? Bush or Obama?
Answer: Those to blame are economic "conservatives" of all stripes, primarily Bush and the Republicans, but it also includes Obama and too many Democrats (i.e., the DLC Democrats, aka Blue Dogs).
Neither Obama nor most Democrats are liberals, much less socialists as they are being called. The policies they promote are well to the "right", whether it be "free trade", deregulation (read "lawlessness", because that's what deregulation is), or delivering 30M new customers to health insurance corporations instead of having a single-payer system. The recent 8 years of "conservative" economic policies led to The 9/22/08 Economic Crisis.
Think about it. The destruction was well under way when Obama took office and there hasn't been time for him to reverse the destruction. Put an airliner into a precipitous dive and there's a long delay before it can pull out of that dive; even replacing the pilot won't help in the short term.
While Obama and the Democrats have largely, but not entirely, reinstated paygo (no expenditures without paying for them), they have not tried to reverse many "conservative" policies, either because they believe in them or because there are too many DLC Democrats who believe in them and Obama thinks he doesn't have the needed support.
In particular, the main policy that has fundamentally undermined the economy is "free trade". It's "free trade" policies that have allowed offshoring and cost so many high-paying manufacturing & IT jobs. See the devastation at Jobs & 'Trade' Data Update Jun10. this has led to the economy being based on the FIRE (Financial, Insurance, Real Estate) sectors, which are so prone to fraud other forms of theft without adequate regulation.
So-called "free trade" has reduced economic activity in the U.S. and therefore reduced tax revenue from the corporations that have offshored work and tax revenue from those who did have good jobs. And, on the other side of the ledger, the loss of jobs has increased spending on unemployment benefits, food stamps, and other aid programs to help those in distress.
Then there are increased interest payments on the added debt built up in the Bush years. The unpaid-for spending was on invasions & occupations of Iraq & Afghanistan (>$1 trillion), tax cuts primarily for the wealthy ($1.8 trillion), Medicare Part D with no-competition prescription drug industry gifts (~$1 trillion), and the $700B TARP bank bailout (that was by Bush, not Obama). All in all that's about $4.5 Trillion of spending & tax cuts, all on borrowed money. And the interest on that debt is a gift that keeps on adding to the debt.
It's important to know that Bush, not Obama, enacted and signed the TARP Bank Bailout into law, but Republicans have managed to fool half of Americans into thinking the TARP bailout wasn't Bush's, but Obama's.
And we now find that Fed aid in financial crisis went beyond U.S. banks to industry and foreign firms. And it wasn't on $700B; the "Fed launched emergency programs totaling $3.3 trillion in aid, a figure reached by adding up the peak amount of lending in each program. ... The biggest users of the Fed lending programs were some of the world's largest banks, including Citigroup, Bank of America, Goldman Sachs, Swiss-based UBS and Britain's Barclays. ... Foreign-owned banks also benefited from the Fed's commercial-paper facility. The Korean Development Bank, owned by the South Korean government .... Many foreign banks ... took extensive advantage."
Also see: Griftopian thievery, Tea Party ignorance, and the disappearance of the American dream By Richard Clark, 12/5/10.
Reagan insider: 'GOP destroyed U.S. economy' by Paul B. Farrell, 8/10/10
Commentary: How: Gold. Tax cuts. Debts. Wars. Fat Cats. Class gap. No fiscal discipline
ARROYO GRANDE, Calif. (MarketWatch) -- "How my G.O.P. destroyed the U.S. economy." Yes, that is exactly what David Stockman, President Ronald Reagan's director of the Office of Management and Budget, wrote in a recent New York Times op-ed piece, "Four Deformations of the Apocalypse."
Get it? Not "destroying." The GOP has already "destroyed" the U.S. economy, setting up an "American Apocalypse."
... Stockman rushes into the ring swinging like a boxer: "If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation's public debt ... will soon reach $18 trillion." It screams "out for austerity and sacrifice." But instead, the GOP insists "that the nation's wealthiest taxpayers be spared even a three-percentage-point rate increase."
In the past 40 years Republican ideology has gone from solid principles to hype and slogans. Stockman says: "Republicans used to believe that prosperity depended upon the regular balancing of accounts -- in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses too."
No more. Today there's a "new catechism" that's "little more than money printing and deficit finance, vulgar Keynesianism robed in the ideological vestments of the prosperous classes" making a mockery of GOP ideals. Worse, it has resulted in "serial financial bubbles and Wall Street depredations that have crippled our economy." Yes, GOP ideals backfired, crippling our economy.
Stockman's indictment warns that the Republican party's "new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one:"
Stage 1. Nixon irresponsible, dumps gold, U.S starts spending binge
... [Note: See how Nixon's actions resulted in the first of The Oil Shocks of the 70s.]
Stage 2. Crushing debts from domestic excesses, war mongering
Stage 3. Wall Street's deadly 'vast, unproductive expansion'
Stage 4. New American Revolution class-warfare coming soon
Finally, thanks to Republican policies that let us "live beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore," while at home "high-value jobs in goods production ... trade, transportation, information technology and the professions shrunk by 12% to 68 million from 77 million."
As the apocalypse draws near, Stockman sees a class-rebellion, a new revolution, a war against greed and the wealthy. Soon. The trigger will be the growing gap between economic classes: No wonder "that during the last bubble (from 2002 to 2006) the top 1% of Americans -- paid mainly from the Wall Street casino -- received two-thirds of the gain in national income, while the bottom 90% -- mainly dependent on Main Street's shrinking economy -- got only 12%. This growing wealth gap is not the market's fault. It's the decaying fruit of bad economic policy."
Get it? The decaying fruit of the GOP's bad economic policies is destroying our economy.
Warning: this black swan won't be pretty, will shock, soon
His bottom line: "The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing ... it's a pity that the modern Republican party offers the American people an irrelevant platform of recycled Keynesianism when the old approach -- balanced budgets, sound money and financial discipline -- is needed more than ever."
Wrong: There are far bigger things to "pity."
First, that most Americans, 300 million, are helpless, will do nothing, sit in the bleachers passively watching this deadly partisan game like it's just another TV reality show.
Second, that, unfortunately, politicians are so deep-in-the-pockets of the Wall Street conspiracy that controls Washington they are helpless and blind.
And third, there's a depressing sense that Stockman will be dismissed as a traitor, his message lost in the 24/7 news cycle ... until the final apocalyptic event, an unpredictable black swan triggers another, bigger global meltdown, followed by a long Great Depression II and a historic class war.
So be prepared, it will hit soon, when you least expect.
There has been spending on economic stimulus, but that has been a minor factor according to the Congressional Budget Office. See below at The Source of So Much Debt?
And another kind of offshoring is the increasing flight of corporations to tax havens to avoid paying U.S. taxes (Tax Havens; Undermining Democracy). Also see:
Small Businesses Go After Offshore Tax Havens By LYNNLEY BROWNING, NY Times, 7/20/10
... The Treasury Department estimated in 2009 that the international gap between taxes owed and taxes paid ranged from $43 billion to $123 billion a year for corporations and individuals. ...
So, while "conservative" economic policies are to blame, that doesn't let Obama off the hook. Obama haters can rejoice with America haters, because he will fail. Below I explain why. The irony is that, if he were to try to do what's needed, economic "conservatives" would scream bloody murder and not allow it. On this page let's look at
- Who's really controlled Congress
- U.S. fiscal deficits.
- When were the biggest runups in the deficit?
- Who was responsible?
- The problem with "trade"
- Republican plans
- Who's responsible for the subprime home loan crash
The "short civics lesson" is Way Too Short
It states, "Budgets do not come from the White House. They come from Congress, and the party that has controlled Congress since January 2007 is the Democrat Party."
Note: Republican-speak bias is immediately obvious thanks to the illiterate slur that refers to the "Democrat Party". "Democratic" is the adjective that should be used; "Democrat" is a noun.
Fundamentally, this "short civics lesson" is way too short. It omits stating that either the House, or the Senate, or the President can block legislation. Here's how.
President: The president has veto power. He can veto anything he doesn't like. Bush vetoed very little.
House: It's true that legislation must start in the House. The political party that controls the House has virtually dictatorial control of what gets debated, voted on, and passed on to the Senate.
Senate: Thanks to the filibuster, the political party that controls the Senate can block any legislation with a minority of 41 votes. The Senate effectively runs as a dictatorship of the minority. Republicans have used this to block legislation from the House.
The "continuing resolutions", which provide funding for existing federal programs at current or reduced levels, about which this piece complains, are all that Republicans would allow to be passed. Their plan has been, and continues to be, gridlock:
Senate Republicans: Filibuster everything to win in November Senate tied up in knots 2/12/10.
Republicans are using the filibuster as a way to limit or derail the majority Democrats' ability to pass bills with the hope that annoyed voters will elect more Republicans in this fall's election. ...
"Republicans have ratcheted use of the filibuster up to completely unheard of levels. Look at the things that the House (of Representatives) has passed that can't make it through the Senate. The list just keeps growing," said Norman Ornstein, an expert on Congress at the American Enterprise Institute, a center-right policy organization.
The list includes legislation to overhaul health care, which has stalled and isn't a good bet to be revived; global warming legislation; and a bill to overhaul financial regulation. ...
What's unbelievable is that Republicans even blocked a Small Business Tax Relief Act would have provided nearly $20 billion in tax relief to small businesses and eliminated $11.6 billion of tax breaks for companies that ship jobs overseas. They clearly don't care if you lose your job.
Senate Republicans also blocked a Small Business Jobs Bill, legislation to provide tax breaks to small businesses along with a $30 billion lending fund aimed at helping community banks provide loans to small businesses.
It's clear that in pursuit of their failed ideology, Republicans will use their tyranny of the minority to assure there will be no economic recovery. Their goal: "Die, America, die ... and blame it on the Democratic Party."
Here's a chart created based on a table from the U.S. Senate showing Senate Action on Cloture Motions. Note how the number more than doubled when Republicans became the minority party in the 110th Congress. Information on who's controlled Congress when.
|The number of Cloture Votes indicates the number of times the filibuster was used to prevent voting on an issue. Note that in the 110th Congress, Republicans doubled the number of filibusters to stop Democratic initiatives in the Senate.|
On the other hand, when Republicans control the Senate they can get virtually anything they want passed with the help of "conservative" DLC Democrats.
The Fiscal Deficit
Below is the actual deficit picture.
The data is from Public Debt Reports. The yearly data is from Historical Debt Outstanding and recent monthly data is from multiple reports at Monthly Statement of the Public Debt. You can replicate the graphs, if you wish.
Note that, because the deficit numbers for each year are reported as of September, the graph shows deficits for a given year associated with the president of the previous year.
For example, Obama took office on Jan 20, 2009. In the 8 month period from Feb through Sep there's no way any president could turn the "ship of state" to significantly affect an economy in collapse. And it surely takes much longer than that, especially with the accelerated Republican filibustering in the Senate.
|Fiscal Deficits under Republican Presidents have soared.|
As evidence of the timing of the economic collapse, note in the graph below that employment reached its latest peak in November 2007. A total of 4.3 million jobs were lost before Obama took office at the end of January 2009. While the downward trajectory has been reversed, the lost jobs total is 7.4 million as of June 2010.
That's because the economy and employment finally succumbed to the "free trade" deficit drain on GDP (negative net exports subtracts from GDP). From 2000 through May 2010 the cumulative trade deficit (trade debt) has been $5.8 trillion; that's how much GDP has been reduced by this insane policy. Since 1980 it's $7.7 trillion of debt to other nations. While the $787B stimulus helped reverse the decline, there's no possible amount of stimulus that can make up for this drain on GDP.
How could anyone not expect large deficits with tax revenue down accompanied by much greater unemployment and welfare expenses.
|U.S. employment began its latest dive in November 2007, about 14 months before Obama took office.|
Who Decreased the Deficit in the '90s?
Here's the deficit chart again, adding arrows to show Republican control of Congress and the timing of Clinton's tax increases on those with higher incomes, which passed with zero Republican votes. Information on who's controlled Congress when.
This figure shows that Republicans controlled the House, the Senate, or both from 1994 through 2006.
|Fiscal Deficits and Republican control of Congress. Note Republicans controlled either the House or the Senate or BOTH from 1994 through 2006. And Bush was President from 2001 through 2008. |
The "conservative" myth, maintained in the piece above when citing "the fourth straight decline in deficit spending" in the late 90s, is that the Republicans are responsible for reducing the deficit because they controlled both the House and Senate from 1994 through 2000. Their false line is that they held back the profligate spending of the Democrats.
The truth is that the reason deficits declined was the Democrat’s 1993 tax increase on those with very high income, which passed with zero Republican votes. Here are some of the comments from conservatives on the economic catastrophe that would result:
- Sen. Pete Domenici (R-NM): “April Fool, America. This Clinton budget plan will not create jobs, will not grow the economy, and will not reduce the deficit.”
- Stephen Moore, Cato Institute, predicted: “Clinton’s plan will torpedo the economy”.
- Newt Gingrich: “The tax increase will kill jobs and lead to a recession and the recession will force people off of work and onto unemployment and will actually increase the deficit.”
- Sen. Phil Gramm (R-TX), economist: “I want to predict here tonight, that if we adopt this bill the American economy is going to get weaker and not stronger, the deficit four years from today will be higher than it is today and not lower… When all is said and done, people will pay more taxes, the economy will create fewer jobs, the government will spend more money, and the American people will be worse off.”
- Rep. Dick Armey (R-TX), economist: “a job killer”.
- Rep. John Kasich (R-OH): “This plan will not work…. If it was to work, then I'd have to become a Democrat…”
Perfect thinking according to Economics 101. And exactly wrong! What happened instead was the longest period of prosperity in U.S. history. While it's true that the tax increase was not the only reason for the boom, and that the booming economy planted the seeds for much of the later decline when the dot-com bubble burst, "conservatives" were absolutely wrong. There would have been no dot-com bubble had the Fed raised margin requirements to reduce speculation.
Did they learn from the failure of their false predictions? Of course not. Conservative ideology ignores reality, which makes them incapable of admitting they're wrong. They're saying the very same things again now about the potential impact of letting the Bush tax cuts for the extremely wealthy expire. It's pathetic and dishonest that conservatives would push the same false logic in again.
Instead of the top-weighted Bush tax cuts, what should have been done was to cut taxes for those with lower incomes and to raise taxes on those with very high incomes. The economy would have boomed had that been done.
Even some Republicans realized this.
Split in Ranks of Business and G.O.P. on Tax Cuts
11/29/02 By EDMUND L. ANDREWS ... excerpt:
- ... a growing number of business and political leaders, including at least one influential industry group, want to funnel more money to lower- and middle-income taxpayers in an effort to generate more demand for goods and services. ...
The Business Roundtable, an organization of chief executives from large corporations, startled many of its normal allies last week by arguing that tax breaks for individuals would be more helpful than tax breaks for business.
Indeed, the Roundtable’s top recommendation was one favored by many Democrats: bolstering tax relief for low- and middle-income families by temporarily cutting payroll tax contributions for Social Security and Medicare.
There is substantial overcapacity in the economy, so we don't need more capacity right now,” said John J. Castellani, the president of the Business Roundtable. We felt it would be more prudent and effective to stimulate consumption.” ...
No kidding. And this is why Bush's tax cuts have produced such anemic results and so much less investment than conservatives expected ... no demand, no investment.
So Democratic tax increases on the wealthy led to a boom and Republican tax cuts for the wealthy and not-paid-for spending led to a bust. Yet they still maintain that tax cuts do not need to be paid for, they pay for themselves. Here's Mitch McConnell, Republican Minority Leader, on the matter while pretending to care about "small business" in August. Here are Republican Lies about the Bush Tax Cuts.
From Calling out Greenspan and Paulson for Pure Hypocrisy on Bush Tax Cuts vs. Deficits:
... Fareed Zakaria argued on February 4 that the budget Obama inherited was completely broken in the first place, first by the Bush tax cuts and secondly by the prescription drug plan for the elderly and two wars that were "off budget." The Bush Administration set the next several generations up with a massive budgetary mess that will not go away with politics running the governmental show. ...
The Source of So Much Debt?
At right is a great graphic from the article,
|The Bush tax cuts, the economic downturn, and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.|
Critics Still Wrong on What’s Driving Deficits in Coming Years Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers By Kathy Ruffing and James R. Horney, 6/28/10.
The article's bottom line: along with the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.
Note that under George W. Bush, the Republican Congress used the reconciliation process, about which they complained so vociferously this year, to enact three major tax cuts. The 2001 tax cuts were predicted to reduce surpluses by $1.35 trillion between 2001 and 2011. The 2003 cuts were predicted to increase deficits by $349.7 billion between 2003 and 2013. The 2006 tax cuts were predicted to increase deficits by $70 billion between 2006 and 2010.
That's a total of $1.8 trillion in not-paid-for tax cuts. And some wonder why the U.S. has a deficit problem?
Also see this analysis based on CBO data:
America’s Sea of Red Ink Was Years in the Making By DAVID LEONHARDT, NY Times, 7/9/09.
There are two basic truths about the enormous deficits that the federal government will run in the coming years.
The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.
The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. ...
The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.
You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama. ...
Here's a summary of the main points in this article:
37% of the deficit was caused by what the CBO calls the "economic cycle." [Note: that's actually not from a "cycle", but from "long-term structural changes" that have destroyed the economy thanks to "free trade" & deregulation.]
33% is from new legislation signed by Bush.
20% is from Obama’s extension of several Bush policies [those who supported Bush shouldn't complain about the above ... they supported them].
7% "About 7% comes from the stimulus bill that Mr. Obama signed in February.
3% And only 3% comes from Mr. Obama’s agenda on health care, education, energy and other areas. If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits. ..."
The Trade Deficit & Why Obama's Economic Policies Will Fail
Even though the vast majority of the deficits -- fiscal or "trade" -- are not Obama's fault, Obama-haters can rejoice that Obama will fail, but not for the reasons they maintain. It won't be because of his "stimulus" package. And it won't be because he's governing "from the left" and a "socialist".
It's because he's not doing anything about the "trade" deficit that has undermined the U.S. economy. It's undermined wages and purchasing power. No wonder the economy is collapsing due to lower demand and therefore lower investment in the absence of demand. It's mainly for this reason that I'm very critical of Obama.
Here's the "trade" deficit picture; every dollar subtracts from GDP. And that's why the U.S. economy WILL NOT RECOVER until this is corrected.
Is this a big problem? Yes. From 2000 through May 2010 the cumulative trade deficit (trade debt) has been $5.8 trillion; that's how much GDP has been reduced by this insane policy. Since 1980 it's $7.7 trillion of debt to other nations. There's no possible amount of stimulus that can make up for this drain on GDP.
What's needed to understand why offshoring, and what's called "free trade", are sinking the U.S. economy is a lesson in the advanced mathematical tool of arithmetic. When more money is going out of an economy than is coming in ... it FAILS. This isn't rocket science.
|US Trade Deficit ... the upward move in 2010 is not good news for deficits or GDP|
Republicans Propose More Disaster
The main Republican proposal is to fully extend the Bush Tax Cuts, which would increase deficits and debt by $3.8 trillion over ten years. Now Republicans say that not doing this is equivalent to a tax increase, which would crash the economy. Of course, they said the same about the Clinton tax increases on higher incomes. Note their "the sky is falling" comments above.
Here's a portion of Paul Krugman has to say about what will happen if Republicans are again in charge:
Things Could Be Worse By PAUL KRUGMAN 9/9/10
... It’s hard to overstate how destructive the economic ideas offered earlier this week by John Boehner, the House minority leader, would be if put into practice. Basically, he proposes two things: large tax cuts for the wealthy that would increase the budget deficit while doing little to support the economy, and sharp spending cuts that would depress the economy while doing little to improve budget prospects. Fewer jobs and bigger deficits -- the perfect combination.
... the case the president finally began to make in Cleveland this week — is that if Republicans regain power, things will indeed be worse. Americans, understandably, are disappointed over, frustrated with and angry about the state of the economy; but disappointment is better than disaster.
Added 11/23/10: Republicans are determined to destroy the U.S. economy in order to gain power. They depend on the right-wing propaganda machine to assure that voters do not understand what they have done, what they are doing, and what they plan to do.
NONE DARE CALL IT SABOTAGE by Steve Benen
Consider a thought experiment. Imagine you actively disliked the United States, and wanted to deliberately undermine its economy. What kind of positions would you take to do the most damage? ...
The Republican's "general approach has shifted from hoping conditions don't improve to taking steps to ensure conditions don't improve. We've gone from Republicans rooting for failure to Republicans trying to guarantee failure."
There Will Be Blood by Paul Krugman, 11/22/10
The fact is that one of our two great political parties [the Republican Party] has made it clear that it has no interest in making America governable, unless it’s doing the governing. And that party now controls one house of Congress, which means that the country will not, in fact, be governable without that party’s cooperation -- cooperation that won’t be forthcoming.
Added 12/7/10: Axis of Depression By PAUL KRUGMAN, 11/18/10
It’s no mystery why China and Germany are on the warpath against the Fed. Both nations are accustomed to running huge trade surpluses. But for some countries to run trade surpluses, others must run trade deficits — and, for years, that has meant us. ... But why are Republicans joining in this attack? ... Republicans want the economy to stay weak as long as there’s a Democrat in the White House.
The Republican plan to wreck the economy and then blame the Dems. Will it work? By Richard Clark 8/6/10
The Republican Party and its powerful allies in the right-wing news media made it clear from the moment Barack Obama took office that they would demonize everything he tried to do, especially with respect to the economy. ...
Republicans in Congress have decided that sabotaging economic recovery and employment growth is their best tactic for electoral gains in November as long as they can pin the blame for all the joblessness and the bad economy on the Democrats.
Here are the things you need to understand, to clearly see how this Republican plan will work:
1. Economic recessions and depressions almost always result from insufficient "effective" consumer demand for goods and services produced domestically. In economic terms, merely wanting something does not constitute "effective demand." For a want to become an "effective" demand for goods or services, it must be accompanied by the monetary ability to actually make the purchase.
2. Jobs are not created by just having large pools of investment money available, as most big corporations and banks now do. There must also be the opportunity to invest in a business that will have customers who have the money to buy the goods and services. Then and only then will investment money flow into business opportunities and job creation.
3. Over the last 30 years, the Republican-Right economic theory that economic prosperity and employment automatically "trickle-down from the wealthy" has been proven again and again to be fallacious. Tax cuts for the wealthy create huge investment money pools -- but not jobs.
4. Republicans are seeking to extend the tax cuts for the wealthy by falsely stating that increases in taxes for the upper 2% of income earners would hurt demand and prolong the economic downturn. Experience and history prove otherwise. The large majority of buying is done by the remaining 98% of the population. The top 2% invest much of their income, rather than spend it on consumer goods. Besides, compared to the rest of us, there are not that many of them. ...
Every time the rich reach the levels economic concentration that currently exist, we will have a depression. Economic concentration of wealth and income are currently at levels very similar to those just before the Great Depression in 1929. And the current level of concentration is a direct result of increasingly "Republicanized" governmental policies which the political whores of the rich have been enacting over the past 30 years, just as their counterparts did before the depression of 1929. ...
The Repugs believe that most voters, political sleepwalkers that they are, will automatically and thoughtlessly blame whatever administration is in power for a collapsed or failed economy. They understand that most voters simply lack the education and knowledge to realize that this economic downturn was created by "Republicanizing" our economy. And with tons of corporate money to fund their efforts, and a corporate dominated media at their disposal, it might very well work.
It did work!
Who's at Fault for the Subprime Home Loan crash?
The first New York Times article is a must-read. I include only excerpts. An important paragraph:
The report does knock down -- at least partly -- several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.
I disagree about the Fed, as the low and prolonged low interest rates was clearly responsible for blowing the housing & mortgage bubbles. It was an obvious attempt to keep the economy going in the face of profligate spending and "free trade" policies that were destroying the U.S. economy.
Financial Crisis Was Avoidable, Inquiry Finds By SEWELL CHAN, New York Times, 1/25/11
WASHINGTON — The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.
The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.
“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions, which were read by The New York Times. “If we accept this notion, it will happen again.”
While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude or both, some of its gravest conclusions concern government failings, with embarrassing implications for both parties. But the panel was itself divided along partisan lines, which could blunt the impact of its findings. ...
The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.
It also criticizes the Bush administration’s “inconsistent response” to the crisis -- allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help — as having “added to the uncertainty and panic in the financial markets.”
Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 -- wrongly, it turned out -- that the subprime collapse would be contained, the report notes.
Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”
Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now the Treasury secretary, was not unscathed; the report finds that the New York Fed missed signs of trouble at Citigroup and Lehman, though it did not have the main responsibility for overseeing them. ...
The report could reignite debate over the influence of Wall Street; it says regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.
The report does knock down -- at least partly -- several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.
On the other hand, the report is harsh on regulators. It finds that the Securities and Exchange Commission failed to require big banks to hold more capital to cushion potential losses and halt risky practices, and that the Fed “neglected its mission.”
It says the Office of the Comptroller of the Currency, which regulates some banks, and the Office of Thrift Supervision, which oversees savings and loans, blocked states from curbing abuses because they were “caught up in turf wars.”
“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,” the report states. “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.” ...
Financial meltdown in 2008 down to greed and government incompetence, U.S. report finds By Daily Mail Reporter 1/27/11
The government-appointed panel investigating the roots of the financial crisis has said the meltdown occurred because government officials and Wall Street executives ignored warning signs and failed to manage risks.
The crisis could have been avoided, the Financial Crisis Inquiry Commission determined in a final report released today, which was only supported by Democrats on the panel.
Instead, the U.S. fell into the deepest recession since the 1930s and millions of Americans lost their jobs, the congressionally appointed panel concluded.
The Bush and Clinton administrations, the current and previous Federal Reserve chairmen, and Treasury Secretary Timothy Geithner all bear some responsibility for allowing the crisis to happen, the panel said.
It also criticised bankers who got rich by creating trillions of dollars in risky investments.
The deals grew so complex that bank executives and regulators did not understand them, the report found, and banks discouraged aggressive oversight of their activities, saying the government's interference would stifle financial innovation. ...
Beginning of this article:
Was the "subprime lending of homebuying money to poor who could never afford to pay it back" the problem and the fault of Democrats?
No, it was not. It's another lie. And was it "subprime lending of homebuying money to poor who could never afford to pay it back"? No, the major problem wasn't the "poor". This is typical of "conservatives" who seem to always blame the disadvantaged instead of powerful economic interests and the wealthy.
Biggest Defaulters on Mortgages Are the Rich By DAVID STREITFELD 7/8/10
... Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent. ...
The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.
With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.
How about that? For those owning property for housing, it was greater than 1 in 7 (14%) for "lavish housing" compared to about 1 in 12 (8%) for "less lavish housing". For investment property it was 23% for property with mortgages greater than $1M versus 10% for "cheaper homes."
And the "poor who could never afford to pay it back" do not purchase Commercial Real Estate where the FBI says CRE loans are "expected to produce more than $100 billion in losses by the end of 2010."
FBI 2009 Mortgage Fraud Report
The Federal Bureau of Investigation (FBI) has just released the 2009 mortgage fraud report.
The year saw massive increases in the number of pending fraud cases, the dollar amounts and even the number of investigations (up 71 percent from 2008).
Open sources and FBI analysis indicate that the $6.4 trillion commercial real estate (CRE) market is experiencing a high incidence of loan origination fraud similar to that seen during the last few years in the residential real estate market. Perpetrators, including loan officers, real estate developers, appraisers, and apartment management companies, are increasingly submitting fraudulent documents that misrepresent their assets and property values to qualify for loans to buy or retain property. When the loans are funded, the perpetrators often cease payment of their mortgages, resulting in foreclosure. According to open-source reporting, CRE loans are expected to produce more than $100 billion in losses by the end of 2010.
Added 10/20/10: Ratings agencies played a major role in making possible bad loans. There was great financial incentive to overrate complex bonds backed by U.S. mortgages.
Moody's executives say they regret bad mortgage ratings By Kevin G. Hall, McClatchy Newspapers, June 2, 2010
When was that warning? In 2004 when Republicans controlled everything: the presidency, the House, and the Senate. Obviously therefore, it was the fault of the Democratic Party for ignoring the warning.
FBI Deputy Director John Pistole LA Times, 2/12/09
... [FBI Deputy Director] John Pistole said he expected the number of major investigations to rise into the many hundreds, focusing on big-name companies that "everybody knows about," and to be similar in scope and complexity to the massive probe of energy company Enron Corp. after its collapse in 2001. ...
Pistole noted that former FBI Assistant Director Chris Swecker warned Congress in 2004 about the looming crisis posed by fraudulent mortgage practices. ...
And what did George W. Bush have to say about giving loans to "minority homeowners"? He touted a program "designed to help deserving families who have bad credit histories to qualify for homeownership loans."
Bush's speech at the Conference on Minority Homeownership at George Washington University in Washington, D.C. on October 15, 2002. Go to this whitehouse.gov link for audio, video and full transcript. Bush and Republicans branded this initiative as building an "ownership society." Here are excerpts (edited audio of these Bush remarks):
More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a homeownership gap. It's a gap that we've got to work together to close ...
... by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause.)
And, of course, one of the larger obstacles to minority homeownership is financing ...
... Fannie Mae and Freddie Mac ... have committed to provide more money for lenders. They've committed to help meet the shortage of capital available for minority home buyers.
Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. ...
... you don't have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else.
From a previous speech, June 18, 2002: President Reiterates Goal on Homeownership (alternate link) including the
I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.) ...
The second barrier to ownership is the lack of affordable housing. There are neighborhoods in America where you just can't find a house that's affordable to purchase, and we need to deal with that problem. The best way to do so, I think, is to set up a single family affordable housing tax credit to the tune of $2.4 billion over the next five years to encourage affordable single family housing in inner-city America. (Applause.) ...
The third problem is the fact that the rules are too complex. People get discouraged by the fine print on the contracts. They take a look and say, well, I'm not so sure I want to sign this. There's too many words. (Laughter.) There's too many pitfalls. So one of the things that the Secretary is going to do is he's going to simplify the closing documents and all the documents that have to deal with homeownership.
Gee, that was funny, wasn't it?
Naturally, this initiative was popular with Republicans, many of whom are developers enabled to build more homes (and, by the way, externalize costs onto the public by way of implicit subsidies as Republican control in Colorado Springs has allowed ... see the Growth Facts of Life and Taxes: 2C or Not 2C?).
Are Democrats clean in this? No. It found support from Democrats wanting to help minorities. So it is true that Fannie Mae was under pressure to ease credit.
Fannie Mae Eases Credit To Aid Mortgage Lending, NYTimes, 9/30/99
... under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans. ...
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
Unfortunately, too many were encouraged to buy fixed rate, balloon mortgages requiring refinancing, refinancing too expensive to afford when the housing bubble (blown up by the Fed's low, low interest rates) burst. The relaxing of leverage requirements (see the 3X increase in leverage allowed in 2004 below), and the resulting high-leverage speculation in these sub-prime loans, turned a bad situation into a disaster. Along with deregulation that allowed "liar loans".
The explosive charge that led precipitated the crisis was enormous debt driven by a lower margin requirements. It was the SEC that lit the fuse in 2004 by allowing an over 3X increase in leverage. Again who was in charge in 2004?
Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers
'They constructed a mechanism that simply didn't work', New York Sun, 9/18/08
Summary: In 2004 the SEC changed the "net capital rule." created in 1975, from requiring that broker dealers limit their debt-to-net capital ratio to 12-to-1 to allowing the "broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1."
A lot of distraction has laid the blame on the 1977 Community Reinvestment Act ... as if a lending crisis in 2004 to 2007 could have been caused by a 1977 law. Hardly.
Community Reinvestment Act had nothing to do with subprime crisis by Aaron Pressman, 9/29/08
Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.
The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”
Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here). ...
Bush Administration Weakened Lending Rules Before Crash, 12/1/08.
The Bush administration ... ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.
"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.
Bowing to aggressive lobbying _ along with assurances from banks that the troubled mortgages were OK _ regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way. ...
The administration's blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s. ...
Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.
So by all means, go after the "poor who could never afford to pay [loans] back", just know that ignores reality to blame the poor for a national economic crisis.
Only intellectually-challenged fools and cowards would circulate an e-mail so full of prevarication. One wonders if a person who would send out things like this has ever done anything original in their life. It' seems they are only capable of forwarding false information that agrees with their distorted world view. It makes them witless tools of the corporations that have profited so greatly from tax cuts, deregulation, & offshoring.
Only those whose goal is sedition, the undermining of our nation and our government, would propagate such lies. They are the opposite of patriotic Americans. One can rightly ask, "Why do they hate America?"
Exchange with a "conservative" on this post
Below is a graph of deficit history from 1950 through 2010 responding to a "conservative" at Republicans Are NOT Fiscally Conservative. No kidding! Conservatives Aren't and Don't.
|Fiscal Deficits from 1950 through 2010|
|© 2003 Continuous Improvement Associates