Dubyah's deficit

(See here) a Washington Times article that describes Dubyah as basking in the credit for his tax cuts.

So that means Dubyah also gets the credits for our federal deficit being 668 billion dollars this past year? Dubyah cut taxes without cutting spending. Actually spending increased. He is not to blame for the spending increases? Well he thinks he is responsible for providing the leadership for the tax cuts, so why doesn't he use some of that leadership ability to cut spending?

Dubyah claims that what little strength there is in the economy is due to his tax cuts. But what happened during the Clinton years, before the tax cuts, when the gap between revenue and spending was narrowed? The economy mushroomed. Was that maybe because it forced investors (including China) to invest their wealth into something other then Treasury Bills? Perhaps they were forced to invest in industry and start up corporations?

Could balancing the federal budget even help narrow the trade gap? Would China be forced to either "buy American" or build a mountain of greenbacks in their backyard if they can't invest in T-bills? They would have to do something with the money!

The Washington Times article describes Dubyah as mocking Congressional leaders who have insisted the deficit is bad for the economy. In my opinion these leaders are correct. The American economy is like a house of cards. Just because the winds have not yet blown that will blow down the house does not mean the potential is not there. What happens if China and/or Japan stop buying T-bills Dubyah? Will you schedule a sudden trip to the Orient so you can humbly stick your hand out? If that does not work I guess you can try groveling.

Deficit spending is good for the economy Dubyah? I am saying it ain't so. If you do not want to believe me, then go ask Mr Greenspan for his opinion on the subject. Mr Greenspan and I might disagree on just how to narrow the deficit gap, however I believe we both would insist that income has to match expenditures.

The same market forces that brought down South American economies hold true for the American economy. One day the chickens are going to come home to roost and the American economy is going to end up smelling like a pile of chicken shit.


Blogger Michael said...

There is a place for increased government spending, even if it causes a budgetary deficit. However, I do not believe that this is the time for the United States.

Arguably, if the US economy is in a recession, targeted government spending can boost economic activity. However, the level of spending has to be judicious so that it can easily be repaid, presumably, in the coming years with increased revenue from the increased economic activity.

Running up a large government debt is generally not too much of a problem unless the interest payments become overwhelming. When I studied economics in high school, they talked about a danger level of around 20% of GDP. Beyond that, there is a risk of "chasing the tail" of the debt. That is, the debt accelerates.

That is seen in many developing nations where a large proportion of government spending is in debt repayments rather than useful spending within the country (or risk defaulting on their debts).

Frankly, the US economy is doing rather well. The Bush bonanza in spending is going to cause problems for the US economy in the medium to longer term.

Michael Tam

1/09/2006 07:00:00 PM  
Blogger Little David said...

America's debt is only manageable today because of low interest rates. America is able to fund the deficit at favorable rates only because China and Japan are in the T-bill market big time.

If either China or Japan step out of the T-bill market, whether it is for economic or political reasons, the interest rates paid from T-bills is going to sore. The effects will ripple through the economy as investors start chasing the improved returns they can obtain from treasury bills.

Look what happens to the stock market when the Fed raises interest rates by only a quarter of a point. Arguably China has more power then the Fed to affect the US economy. All they have to do is close the spigot of funding US deficit spending a little bit to impact interest rates in the US economy.

1/10/2006 09:06:00 AM  
Blogger Michael said...


Market economics follows "mob rules". Reach a tipping point, and everyone tries to flee the sinking ship... which is why stockmarkets "crash". With the large spending and increasingly large government debt, the United States is putting itself in an economically dependent trading position.

Michael Tam

1/11/2006 02:33:00 AM  

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