Deficit Cost Declines Give Obama Stimulus Clinton Couldn’t Get

[discocrisco01]

Source: Bloomberg

Aug. 30 (Bloomberg) -- The bond market is giving President Barack Obama the green light to spend more money to boost the faltering economy.

While the government has increased the amount of marketable Treasuries 70 percent to $8.18 trillion the past two years, rising demand has driven yields so low that interest to service the debt has fallen 17 percent so far in fiscal 2010 ending Sept. 30 from all of 2008.

Instead of punishing the Obama administration for running up a budget deficit the Congressional Budget Office said will total $1.34 trillion this year, bond investors are pouring money into fixed-income assets as inflation slows and equity markets stumble. That’s a turnaround from 16 years ago, when Bill Clinton was forced to abandon stimulus plans after his advisers said the bond market would punish him with higher borrowing costs if it sensed swelling deficits.

“The deficit concerns are on the back burner,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida for SunTrust Bank’s private wealth management division. “The bigger concerns are on the deflationary mode and seeing growth slowing in the second half of the year.”


Read more: http://www.businessweek.com/news/2010-08-29/deficit-cost-declines-give-obama-stimulus-clinton-couldn-t-get.html

[Lucky Luciano]

1. This is really list on the teabaggers and deficit hawks:

“The deficit concerns are on the back burner,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida for SunTrust Bank’s private wealth management division. “The bigger concerns are on the deflationary mode and seeing growth slowing in the second half of the year.”. The trillions flowing through the bond market in trading volume are smart enough to know defaltionary issues are more of a concern that the deficit. The deficit is a concern, but is a distant second to deflation.

[Pirate Smile]

2. Alert the friggin Congress and tell those big $$ guys to get all over the Republicans

who will filibuster anything like this because are very happy to let the economy tank.

[JJ]

3. This could be HUGE..

BusinessWeek is giving Obama the cover he needs if he would choose to push a second stimulus package through. Maybe even create some jobs for us "lesser people." What we need is a Manhattan Project for renewable clean energy technology, kill three or four birds with one stone.

[Psephos]

4. Astonishing. The same thing that got us into trouble being pushed as how to get us out of trouble.

Anyone who thinks lowest-in-history current interest rates are going to be stable for the long run is ignorant of 1) economic history, and 2) the global push to move away from the toxic dollar as the world's reserve currency. Add to that OPEC's push to price oil in renminbi or Euros instead of dollars.

Either of those shifts will cause Carter-era interest rates to return. The US government will then have no choice but to print money by the trillion, and try to inflate its way out of debt. Which will end in the de facto bankruptcy of the US and a bitter longing for the good old days of 2009 and 2010.

Hey, Andy Richman, FUCK YOU. Fucker is saying whatever it takes to keep his commissions coming...and they are coming in strong as scared wealthy people shift into exactly what he's selling. When the process server is knocking on your front door because you used up all your credit cards, the answer is not more credit cards.

Deflation of bubble-asset prices is also known as normalization of prices to true value. Government has a role to let the air out of the tire slowly, instead of having a blowout. But government does not have the ability to make a falsely-priced asset such as housing suddenly have more intrinsic value. The ham-fisted "economists" who've been advising Obama have nothing to show for the $800 billion (plus TWO TRILLION in TARP) except a broken-down economy headed nowhere fast, and another perpetual interest payment that further cuts what little discretionary spending is left in future budgets.

[unblock]

5. this is quite wrong.

to your last point, obama has quite a lot to show for his stimulus package, which was recently scored as helping gdp to the tune of 4% or so. not too shabby. shrub & bernanke's trillions that went basically straight into the underserving financial institutions and preserved the financial institutions but did little to help the economy at large, although you have to compare it to some alternative proposal -- simply letting all the banks fail would have been cataclysmic, so cataclysmic that the government wouldn't have let it happen. my favorite alternative would have been to take them all into receivership, immediately recognize the losses, screw the common shareholders, give the creditors whatever they would have eventually gotten in bankruptcy, and reopen with clean balance sheets in a matter of a few months through a gm-style ipo. no moral hazard, problem resolved quickly, and the banks are back to lending. sadly, i'm not in charge.

as for the deficit, we are *SO* in need of demand-push in this economy that a stimulus appropriately aimed to the poor and/or those underwater or otherwise in too much debt would be such a boon to the economy that it would largely cover the cost of the stimulus itself in the form of lower benefit payouts and higher taxes taken in.

sitting idly by with 10% unemployment and a go-nowhere economy is TERRIBLE for the deficit.

[Psephos]

6. disagree

You seem to have replied only to the last sentence in my post. I'm a practical person. While a Keynesian stimulus may very well have done what it was supposed to do, we did not have a Keynesian stimulus. Less than 4% of the money went to so-called "shovel-ready" infrastructure projects. Most of it went to prop up foolish and nearly-bankrupt local and state governments, and large chunks were allocated based on political, rather than economic, objectives. None of the promised objectives were met. Instead we're left with Biden telling us it's a recovery summer, and administration economists telling us to trust them, the stimulus worked, even though there are no numbers to support it.

We control House, Senate, and White House. After looking at how the stimulus was actually crafted and spent, one can only conclude that the political process is a morass of fiefdoms, and not able to provide any actual Keynesian stimulus legislation.

Disagree with me? Then explain Germany, which avoided massive spending on a stimulus, and instead tightened its belt and focused on making it attractive and efficient for its export industries to rev up. German GDP growth is currently around 9%.

Take a look at a line-item analysis of the stimulus. Tell me what's Keynesian about it.

[zipplewrath]

8. Well, slow down

I'll agree that the stimulus was poorly focused, and too small. However, much of the stimulus that was aimed at the states was merely to avoid them laying off huge numbers of employees. States can't really run deficits at all, and many were caught in very short term troubles. So in order to avoid them being a prime source of lost jobs, we used stimulus money to help them. I agree that not enough money went to "shovel ready" projects soon enough, but hiring them to build roads while laying them off from the schools and police forces wasn't going to go well either.

Germany was in a very different place than the US, especially their banking system. Their "stimulus" money is mostly going to Greece.

I'll agree that the stimulus wasn't nearly as Keynesian as it needed to be, not to mention as large as it needed to be. I'm aware that some of that is a consequence of the politics, although I think the administration came into the process with a self defeating attitude.

[zipplewrath]

7. What's the difference?

"my favorite alternative would have been to take them all into receivership, immediately recognize the losses, screw the common shareholders, give the creditors whatever they would have eventually gotten in bankruptcy, and reopen with clean balance sheets in a matter of a few months through a gm-style ipo."

There's little difference between the economic implications of this and "simply letting all the banks fail". What was needed, and is some of the intent of the banking reform, is the authority to take them over BEFORE they fail, straighten out their balance sheets, protect the creditors to whatever degree one can, and then issue new stock, or possibly just sell them off to healthy institutions. It still costs us money, but avoids total economic collapse. Instead, we have banks that have been "rescued" but are still limping along.

[unblock]

10. the main difference is promise that the government will keep the bank operating and reopen it fresh

simply letting the banks fail would have left a vaccuum and would have destroyed confidence, which would have caused all manner of havoc. in theory, yes, some enterprising capitalists could look at the ashes and say now is a great time to open a giant new bank, but in practice no one would dare. moreover, the government effectively takes the existing infrastructure, software, people, and so on entirely and puts it to work; someone new would have to assemble all that practically from scratch.

i agree that the banking reform law lets this process happen earlier and faster, but it still was possible before (just not as fast and easy).

what actually happened, especially from shrub & bernanke's bailout, was to simply pour trillions of dollars into the giant bank debt hole. that plan does nothing except shorten the length of time needed to bring the banks back to semi-reasonable leverage ratios. that's why it didn't appear to do anything immediate -- it was a simplistic plan with a LONG activation time. great for preserving the institutions, not so great for the actual economy.

[truedelphi]

9. I just read Matt Taibi's account of the Financial 'Reform' Bill

And how it got watered down and then enacted, and I am scared shitless.

In the same issue of Rolling Stone, there was another article about some wild child hackers who parlayed their intimate knowledge of using Wifi to scan the credit card information from the debit card hardware at every convenience store counter they knew of. This gave them access to millions of credit card authorisations and let them make as much as $ 370,000 a day.

The master mind of this plot will do over twenty years in jail. (He probably should, too.)

But the real thieves are sitting pretty in their board rooms, and their executive offices at Goldman Sachs, and AIG, and Chase, and Bank of America, Wells Fargo, et al.

Setting up the house of cards so that it will fall apart once again, in another two months to five years.

And that thievery is called "politics."

[SpareChange]

11. Economics question

This is not a political question, just an economics question.

Is there some point where government spending goes beyond stimulating the economy and becomes harmful to the economy? If so, how do we know where that point is, and if not, why not?

Thanks!

SC