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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsThe Deficit Did Not Cause The Recession, The Recession Caused The Deficit
http://www.businessinsider.com/deficit-did-not-cause-the-recession-2012-11Both Wall Street and Washington have lost sight of the major cause of the deep recession and exceedingly slow economic recovery. To hear all the talk, the major concern is about the impending fiscal cliff and the federal budget deficit. Fix the fiscal cliff and make major reductions in the deficit, they say, and all will be ok. We think they've got it wrong.
As we've been writing about for a number of years, the major problem affecting the economy is the credit crisis of 2008, brought on by the preceding housing boom, explosion of household credit and the associated sleazy practices by the mortgage banking industry. Also culpable were the various enablers such as Alan Greenspan, overall Fed policy and the major credit rating agencies. When the boom collapsed, households were left with a severely depleted asset (their homes), record debt and low savings. Since that time consumers have been faced with the problem of paring down debt and increasing savings at a time of extremely limited increases in wages, a process that is still ongoing today. The result is the weak recovery that typically follows major credit crises.
The federal government deficit, far from being the cause of the lackluster economy, was actually a result of it. In 2007, the deficit was a manageable 1.7% of GDP. The non-partisan Congressional Budget Office (CBO) forecast deficits of between 0.7% and 1.5% of GDP for the years 2008 through 2011 and surpluses for the seven following years through 2018. What threw this forecast off track was the deep recession, resulting in collapsing tax revenues, increased unemployment insurance and various stimulative spending programs that wouldn't have happened if not for the preceding housing and credit boom.
The concern over the deficit has now gotten mixed in with the fiscal cliff as the major problem holding back the economy. The fiscal cliff is an artificial problem manufactured in Washington during the debt limit negotiations in the summer of 2011 that caused the loss of the U.S. triple-A credit rating. The stock market is now responding to every statement by our political leaders on the status of the negotiations as both political parties jockey for position. It is perfectly natural, at the start, that both sides would attempt to sound conciliatory without being specific so that they could place blame on the other party should things go wrong.
Read more: http://comstockfunds.com/default.aspx?act=newsletter.aspx&category=MarketCommentary&newsletterid=1682&AspxAutoDetectCookieSupport=1#ixzz2DhhnEi8N

HiPointDem
(20,729 posts)blkmusclmachine
(16,149 posts).
fasttense
(17,301 posts)The Wars
The tax give aways to the filthy rich
the Great Recession.
Fix those 3 things and you have fixed the deficit. Don't change those things, and the deficit will continue.
Kolesar
(31,182 posts)RC
(25,592 posts)Shipping our Living-Wage-Jobs overseas had a lot to do with it. The bank backed fraudulent housing bubble bursting had a lot to do with it. Vulture capitalism had a lot to do with it. Two stock market crashes had a lot to do with it. Firing full time employees, with benefits and hiring them back as part time or contract employees at lower wages had a lot to do with it.
Kolesar
(31,182 posts)sorry
RC
(25,592 posts)unhappycamper
(60,364 posts)The Iraq and Afghanistan adventures were never paid for. Funding invasions and occupations on the credit card AND rewarding your base by cutting their taxes do not a good economy make.
dubya and darth spent their eight years in the White House using St. Ronnie's "Deficits don't matter" strategy. ( http://tinyurl.com/d737g3c )
IIRC they cancelled the M2 (?) Money Supply Report to make deficits not appear 'official'.
Annual 'emergency supplementals' to keep the occupations going kept the Pentagon budget lower and just shifted money to the deficit. The deficit we are talking about now.
BadgerKid
(4,757 posts)I *knew* it was fishy at the time. It just gave a way for profiteers to hide money. Just watch out for any deal in Washington that allows people to bring money back into the US with zero or reduced tax rates.
freebrew
(1,917 posts)privatization, outsourcing(locally and overseas) tax cuts for the wealthy, and our system of giving/getting raises(the percentage deal).
Privatizing necessary services and products costs us double what it should. High energy costs in an energy driven society starts the recession Congress doesn't include this in SS determination of Cost of Living??!!??
Telephone, the airwaves used to be gov't regulated. Satellites seem to have been designated off-limits. No regulations seem to apply to companies co-trolling them, except you can't show titties before 8:00 EST(just kidding there).
It goes on and on. Even to the point if cities outsourcing their water supplies that they already own. Hiring private security firms instead of real policeman.
Outsourcing to China and Mexico, et.al. takes jobs away from Americans. Outsourcing to a local shop can be almost as damaging. Vertically integrated companies, where a manufacturer makes a product and fabricates the parts that make it are almost gone. The companies reduce labor costs by sending these parts to another manufacturer. It may be union or not. The employees may competent or not. What's sure is that manufacturer will make a profit or try to. He may offer benefits, but not if he is to be the lowest cost. So, the original company has fewer laborers(direct labor). It 's paying more for their parts, the end product costs more so the price goes up, sales go down, the company closes. Yet, management gets a good resume and all their bonuses.
As for the percentage system of giving out bonuses and raises, it all sounds good until you figure out what happens after 20 years or so.
Management starts at $100 after years and years of 5 - 10% raises and bonuses, compared to direct labor $10 or even white collar workers $25 - 65. It doesn't take long to figure out we're screwn.
Like I told my boss, "10% of what I make isn't very much".
It's the wealth gap, and unnecessary wars and bought and paid-for politicians.
That's my line and I'm sticking to it, for now...
kentuck
(113,202 posts)rec