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financial-crunch-economic-collapse by http://arcticcompass.blogspot
Weeks of Congressional budget debate misplaced the objective of resolving the United States unemployment and economic problems. The meaningless discussions, with political cheerleaders and media incitement, played out as a sport, who would win, who would lose, and how to position for the next embarrassing election.
No best minds gathered pertinent data, sifted through analytical expressions, or spoke decisive words. Rhetoric replaced knowledge. Spurious words displaced truths. Demagoguery ruled.
The debate did not resolve any problem. Instead, the stock market response and S&P rating system indicated the debate had engineered an economic downfall. Nobody seemed to realize that the current account deficit and sidetracking of excessive domestic funds have forced government deficits to compensate for the loss of liquidity and purchasing power. The economy does not want a balanced budget. Cut the deficit and the economy stalls. Allow increased deficits and steer the nation towards bankruptcy. The principal solution to the fiscal liability demands decreasing the domestic and foreign balances. This equates to the domestic account acquiring more investment and shifting government borrowing, which is backed by a falling full faith and credit of the U.S. government, to private borrowing, which is backed by assets, and greatly decreasing the trade balance. This solution, described logically by commentators did not enter into any discussion or debate.
The most discussed topic, budget balancing by tax reform, only shifts purchasing power between the government and private sectors. Neither raising nor cutting the income tax increases total purchasing power in the system, which is the purpose of government deficits. Tax reform contains separate issues of fairness, sharing of government burdens, distributing income, and optimizing spending.
Progressive representatives railed against anticipated cuts in social programs and budget failure to reduce defense spending. These representatives spoke valid issues, but not the vital issue. Better to speak of how to induce manufacturers to produce and invest more in the USA , and hire more domestic workers. Better to use rhetoric to determine how to increase exports and decrease imports.
The New York Times gauged the deal accurately.
From Spending to Cuts, While the Economy Stalls
By BINYAMIN APPELBAUM and CATHERINE RAMPELL , July 31, 2011
"Last week brought the disconcerting news that the economy grew no faster than the population during the first six months of the year, in part because of spending cuts by state and local governments. Now the federal government is cutting, too. 'Unemployment will be higher than it would have been otherwise,' Mohamed El-Erian , chief executive of the bond investment firm Pimco, said Sunday on ABC . 'Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise...We have a very weak economy, so withdrawing more spending at this stage will make it even weaker."'
By quoting Carmen Reinhart, senior fellow at the Peterson Institute for International Economics and co-author of "This Time Is Different," a history of debt crises, the NYT demonstrated how accepted economists miss the significant and escape scrutiny by a simple recognition of their mishaps.
"We sure missed a big window of opportunity to reduce our debt in those strong years when asset prices were booming. Instead, we're stuck trying to do it now, when the economy is so weak."
The article's statement by Torsten Slok, chief international economist at Deutsche Bank, clarified the lack of depth in economic textbooks and indicated that economists read the wrong texts.
"It's difficult to find a textbook to tell you what should you do now."
America 's national newspaper balanced its commentary with the usual unproven and non-scientific assertions:
"The Republican authors of the debt ceiling deal say that cutting the size of government will increase economic growth down the road because federal borrowing soaks up money otherwise available to private businesses and federal spending distributes that money inefficiently.
"Some conservative economists argue that even the immediate impact of a deal could be positive. Classic economic theory holds that people respond to the growth of government by spending less of their own money, because they assume that taxes will increase. A reduction in the federal debt therefore should encourage people to spend more of their money.
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