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"GDP growth is surely going to be stifled and unemployment will rise even higher"
do you have any evidence for these predictions? or is it just common (right-wing) sense?
With the tax cuts and spending programs about to expire, GDP growth is surely going to be stifled and unemployment will rise even higher. Does this mean that the fed will counter this contractionary fiscal policy with a little expansionary monetary ie quan ative easing? Where the economists at.
"GDP growth is surely going to be stifled and unemployment will rise even higher"
do you have any evidence for these predictions? or is it just common (right-wing) sense?
Advanced macroeconomics course is my evidence. This is why I want the specific opinion of Scott.
QE1 & QE2, as well as Operation Twist have not brought down unemployment. QE3 might resut in a slight temporary bump in the stock market.
The expiring Bush tax cuts (aka 2012 Obama Tax hike) as well as the mandatory budget cuts, lingering small business uncertainty of Obamacare, mountains of debt and problems in the Eurozone are going to combine to make the next few years very difficult economically.
One could most certainly argue that QE 1 and 2 brought the unemployment rate from 10% down to 8%
That's not to say all those things aren't a problem
The thing that brought it from 10% to 8% are those dropping out of the work force. The actual unemployment rate is in double digits.
taxes were much higher in the 90s when under Clinton 20M jobs were created.
taxes werver VERY much higher in the 1945-1965 period when America boomed at all levels,not just the 1%.
Repugs lowering taxes in 2001 did nothing for job creation and household income thorugh the the 2000s.
http://www.cnbc.com/id/48193471
How Close Are We to New Great Depression?
Published: Monday, 16 Jul 2012 | 8:17 AM ET Text Size
By: Catherine Boyle
Staff Writer, CNBC.com
110
13
Share
The risk of a new depression — a sustained, severe recession — has struck fear into the heart of markets and driven monetary policy in developed economies since the current financial crisis began.
“We’re in a very unfortunate position to be here,” Richard Duncan, author of The New Depression, warned on CNBC’s “Squawk Box Europe” Monday.
“When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression,” he argued.
“If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it.”
The explosion in cheap credit has been widely blamed for the global financial crisis, but the debate about how to fix the problem continues.
In the past few years, central banks including the U.S. Federal Reserve , the European Central Bank and the Bank of England have pumped liquidity into their financial systems through a number of ways, including quan ative easing and the ECB’s long-term refinancing operation (LTRO).
“We could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good,” Roger Nightingale, economist and strategist at RND Associates, told CNBC Monday.
“You can defer, but not prevent.”
Nightingale argued that previous credit booms, for example in Japan in the 1980s, have led to sustained recessions.
Is a Europe-Only Recession in the Cards?Marc Faber: 100% Chance of Global RecessionA Global Recession? The Warning Signs Are Everywhere
“When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors,” he said.
“When the central banks realize what is going on and raise interest rates, it flings the world economy into depression.”
The ideas of Milton Friedman, the Nobel Prize-winning economist who argued that monetary policy should constantly expand, informed some of the Fed’s response to the crisis.
“Policymakers really believe that if we allow credit to contract, we will reach a new Depression,” Duncan said.
“The increase in government debt is making total debt grow, otherwise we would already have collapsed in to a debt-deflation death spiral. This creates great perils, but also tremendous opportunities.”
Duncan argues that governments in the developed world should borrow “massive” amounts of money at the current low interest rates to invest in new technologies like renewable energy and genetic engineering.
“Even if this is wasted, at least we could enjoy this civilization for another ten years before it collapses,” he said.
His views counter those of economists who believe that governments should focus on cutting their debt, particularly where repayments on that debt are threatening to reach unsustainable levels, like in Greece.
http://www.cnbc.com/id/48193471
How Close Are We to New Great Depression?
Published: Monday, 16 Jul 2012 | 8:17 AM ET Text Size
By: Catherine Boyle
Staff Writer, CNBC.com
110
13
Share
The risk of a new depression — a sustained, severe recession — has struck fear into the heart of markets and driven monetary policy in developed economies since the current financial crisis began.
“We’re in a very unfortunate position to be here,” Richard Duncan, author of The New Depression, warned on CNBC’s “Squawk Box Europe” Monday.
“When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression,” he argued.
“If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it.”
The explosion in cheap credit has been widely blamed for the global financial crisis, but the debate about how to fix the problem continues.
In the past few years, central banks including the U.S. Federal Reserve , the European Central Bank and the Bank of England have pumped liquidity into their financial systems through a number of ways, including quan ative easing and the ECB’s long-term refinancing operation (LTRO).
“We could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good,” Roger Nightingale, economist and strategist at RND Associates, told CNBC Monday.
“You can defer, but not prevent.”
Nightingale argued that previous credit booms, for example in Japan in the 1980s, have led to sustained recessions.
Is a Europe-Only Recession in the Cards?Marc Faber: 100% Chance of Global RecessionA Global Recession? The Warning Signs Are Everywhere
“When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors,” he said.
“When the central banks realize what is going on and raise interest rates, it flings the world economy into depression.”
The ideas of Milton Friedman, the Nobel Prize-winning economist who argued that monetary policy should constantly expand, informed some of the Fed’s response to the crisis.
“Policymakers really believe that if we allow credit to contract, we will reach a new Depression,” Duncan said.
“The increase in government debt is making total debt grow, otherwise we would already have collapsed in to a debt-deflation death spiral. This creates great perils, but also tremendous opportunities.”
Duncan argues that governments in the developed world should borrow “massive” amounts of money at the current low interest rates to invest in new technologies like renewable energy and genetic engineering.
“Even if this is wasted, at least we could enjoy this civilization for another ten years before it collapses,” he said.
His views counter those of economists who believe that governments should focus on cutting their debt, particularly where repayments on that debt are threatening to reach unsustainable levels, like in Greece.
But... but...we can print our way to prosperity...
QE3 seems inevitable at this point. The Fed just doesn't want to run out of ammo yet. Of course, a scenario in which the projected spending cuts from the budget deal are allowed to go through and the Bush tax cuts are allowed to expire is not likely. If Obama is re-elected, Republicans will capitulate and extend the middle class tax cuts during the lame duck. I also can not see Republicans allowing the defense cuts to go through. Nothing is going to happen until the election, but I believe there will be a lot of action in the lame duck session.
Advanced? Try principles of macroeconomics (i.e., freshman economics 101). But regardless, it's only a general principle as there are other variables that may or may not outweigh fiscal or monetary policy.
Oh, and the tax cuts aren't going to expire except possibly for those in the top 2%.
no that's not the class i'm in it's advanced macro
there has been talk of the fed stepping in with expansionary monetary policy to offset the effects and i was wondering if scott or someone who actually knows economics thinks this is what's going to happen. I was looking at the LM and the IS conditions graphically and it made sense that they would try to go this route to offset the contractionary fiscal policy we are about to see. aside from the tax expiration only affecting the wealthy as you say, there is still the condition that massive stimulus spending will also expire and this will surely have an effect on equilibrium output and therefore unemployment.
What specific stimulus programs are you expecting to expire and have a meaningful affect on the economy?
Pretty sure the Budget Control Act of 2011 calls for the 2nd of 3 major spending cuts starting at the beginning of the new year, that's what I'm talking about. The use of contractionary fiscal policy is a threat IMO, if you know anything about economics or if maybe that makes sense to you why I'm saying what I'm saying. I'm still iffy on the tax cuts "having no effect because it's on those damn richers!" like some of you seem to think. Sorry folks, but 250,000 as a family or 200,000 if you're single is like upper middle class, NOT rich. Meanwhile all the multibillionaires are COMPLETELY exempt from taxes. I think this will have a bigger effect than some of you think, it's those guys making 200,000 a year who are responsible for much of the consumer spending right now keeping this ship afloat. This also encompasses small business owners. 250,000 is NOT a lot of money for an entire household historically if you adjust for price level I don't think. I don't consider these people rich or think that raising their taxes won't have an effect. It's the multimillionaires and billionares who pay nothing I'm more worried about.
, my grandpa always historically made that much with his business for years and years and we were never considered rich, just regular working class people. It's crazy how far we've fallen if this is what we think is rich and we're now jealous of our neighbors. This is exactly what the richers want, the middle class to foot the bill and total class warfare. Turn us against our neighbor while they offshore billions.
Ok, about 2% of households report $250K or greater in adjusted gross income. That's not upper middle class, that's rich. If you have 6 kids, then maybe it doesn't go as far as it could if you were married and didn't have kids, but raising the marginal tax rate 3% or so on those people isn't going to have a meaningful affect on their spending habits or the economy.
I'm not sure what you're suggesting regarding monetary policy. If the fed increases the money supply, then interest rates may decline slightly, but built into that premise that it will meaningfully help the economy is the assumption that interest rates are so high that they are preventing borrowing and thus investing -- which of course they are not. Interest rates are already extraordinarily low. Certainty about keeping the tax rates low and more importantly a stabilization of the European economy will help get us out of our stagnant growth. We're living in a globalized economy in which American company's are now largely at the mercy of foreign markets to sell their products and services.
according to the LM condition, expanding the money supply would cause equilibrium output to increase, or at the very least offset the damage done by the contractionary fiscal policy hopefully. that's the thinking behind it and why the fed keeps talking about it and holding on to it as a last resort. i wish scott would get in here and tell us what he thinks they will do and what we're looking at.
i was looking graphically today at the unemployment rate over time. only a couple times in history since 1950 has it ever been over 8%, and it was always short lived. back down in the normal range in under a years time. we've been at 8-10% for 2.5 years now. the last time the unemployment rate took this shape graphically and didn't recover quickly was the Great Depression. Not trying to sound like an alarmist, just throwing that out there.
Do you see how historically, whenever it has peaked out it usually falls sharply as opposed to recently where it's sort of flat? And that was 2010, it's 2012 and still maintaining those same levels. It's NOT recovering like it's supposed to, this is NOT an economic recovery. This is the dreaded double dip.
The dead cat bounce.
Do you see how historically, whenever it has peaked out it usually falls sharply as opposed to recently where it's sort of flat? And that was 2010, it's 2012 and still maintaining those same levels. It's NOT recovering like it's supposed to, this is NOT an economic recovery. This is the dreaded double dip.
I'm no trained economist but we will see QE3 in the next month IMHO. The Fed has become politicized.
You are right. The cash take from soaking the "rich" will be in the low billions. . Under 100 per year. CBO says 40. I heard Obama say today that the Republicans wanted to give the "rich" a 5 trillion dollar tax cut. I am constantly amazed at the audacity of his outright lies and the that press gives him a pass. Maybe he picked 5 million because that's how much the deficit has grown under his presidency and he is just assuming the stupid ones like Botuox will just gobble it up and vomit it back.
You are making a common error. Those making right at or right above $250,000 won't pay much more in income taxes. The first $250,000 is not taxed at the top rate, only the money earned above it. So if a married couple made $260,000, they would only pay a higher rate on $10,000. The only way the tax will sting is if you are making a good bit above $250,000 a year, and if you are, then a 4% increase is not going to hurt.
And for the record, $250,000 is A LOT of money for a household. My family started off poor, but by the time I was a teenager my father was making around $170,000 a year. At that income level he basically had whatever he wanted. If someone is having trouble making ends meet at $250,000 a year, then they are worse with their money than the US government.
According to cpi, 250,000 in 1975 dollars is equivalent to 1,079,925.65 in 2012 money. I still maintain that my grandfather was NOT rich, just well off. Times have really changed and living standards have slipped since then.
He did that owning a freakin roofing company. Not even possible today.
So the tax cuts we've been running on deficits for years that were supposed to put more money at the middle-top so they would 'trickle down' and prop up the economy, haven't done jack . Well, we already knew this back in '08... the barry keeps doing?
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