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occrider
Traveladdict



Registered: Oct 2000
Location: New York

quote:
Originally posted by Trancer-X
Deficits Eroding Our World Standing
by John Tanner, Guest Columnist
The (Memphis) Commercial Appeal
October 18, 2003

Some Republicans have long tempted to characterize Democrats as fiscally irresponsible big spenders – at times with merit. However, the Republicans’ budget plan now endangers our economy and our security.

Over the past 2 ½ years, the Bush administration and the Republican Congress have pursued fiscal policies that have resulted in a colossal increase in the federal debt. Increased interest payments mean higher taxes on Americans next year and every year thereafter.

This reckless increase in federal debt has exposed another troubling aspect of the administration’s budget plan, passed by a Republican House and Senate: Asian countries are purchasing our debt in record amounts, and China has registered the most rapid increase. These developments not only adversely affect our economy, they also leave our country susceptible to a potential national security threat.

According to the Treasury Department, major foreign holdings of U.S. Treasury securities total $1.35 trillion. Over the first seven months of 2003, mainland China and Hong Kong accumulated $177 billion of U.S. debt.

Currently, China is the world’s second-largest buyer of our debt, exceeded only by Japan. Furthermore, China’s purchases of U.S. government securities rose 20 percent over the first half of this year and have more than doubled since 2001.

It is a dangerous situation when the administration funds the federal government in part by selling our debt to the Chinese. The Congressional Budget Office (CBO) has estimated that the federal government accumulated a $374 billion deficit in fiscal 2003, not including the President’s $87 billion request for Iraq.

Foreign investment in the United States is financing the U.S. budget deficit and the war in Iraq. We need to borrow approximately $1.5 billion a day from foreign investors to meet these deficits. Increasingly, foreign investors, not U.S. residents, will be beneficiaries of the interest paid by us, our children, and our grandchildren.

The high level of foreign holdings of U.S. securities could have a debilitating impact on our economy and foreign policy. How would our economy respond if China threatened to sell large volumes of U.S. Treasury securities? This action could easily fuel higher inflation and put pressure on the Federal Reserve to increase interest rates, putting our economy at risk of a large-scale recession.

The United States does not always see eye to eye with Beijing on foreign affairs. The mere threat by China to sell U.S. debt could reduce our negotiating position on long-standing issues of disagreement such as national security and trade. The United States should not be put on the defensive when conflicts arise with China simply because the Chinese government can hold the U.S. dollar hostage.

Chinese officials are purchasing U.S. Treasury securities in an attempt to keep the value of their currency, the yuan, artificially low. The yuan has been pegged to the U.S. dollar for almost 10 years, despite record growth in the Chinese economy. Such growth should have increased the value of the yuan if it were a free-floating currency.

Economists estimate China is undervaluing its currency by as much as 40 percent. By purchasing U.S. debt, China can manufacture products that cost 40 percent less to make than they do in the United States. This currency manipulation has contributed to the loss of millions of manufacturing jobs in the United States.

The Republican borrowing program, unless it is quickly reversed, will devastate our economy and diminish our role in the world. We cannot be the world’s leading economic and military power if our government’s financing depends on money from foreign countries, many of which oppose our policies.

A former official of China’s central bank, now a private economist, recently told The Washington Post: “The U.S. dollar is now at the mercy of Asian governments.” The only way to get this problem under control is to stop deficit spending.

Interest payments on the national debt will soon surpass all domestic discretionary spending, including defense, health care, education and infrastructure. Unlike those expenditures, interest is a tax on the American people that cannot be repealed.

The “Blue Dog” Democrats proposed a plan that would have reversed this catastrophic borrowing but it was defeated on a largely party-line vote. We will continue this fight, but to succeed we will need the help of citizens outside Congress.


http://www.house.gov/tanner/press108-oped101803.htm


Although the size of the interest on the debt as a component of our discretionary spending is definetely a legitimate cause for concern, I would place less weight on the fears that we are "at the mercy" of the Chinese or the Japanese since they are buying up the debt. What the article does not go into, is that they are as dependant upon us as we are dependant upon them. Unlike the EU which has kept their rates in a free floating exchange, causing the Euro to rise which have ultimately damaged output and exports, Japan and China are keeping their exchange rates devalued against the dollar specifically for a reason. The almighty US consumer practically drives a huge chunk of the world economy and particularly their economies. If China or Japan were to sell US securities then the renminbi and the yen would increase in value relative to the dollar and thus lose competitiveness in not only US markets but world markets as well. Meanwhile, US exports and output would increase in world markets as well as they gain from the competitiveness of the weaker dollar. The EU has long been complaining of China and Japan's fixed exchange rate because they right now are shouldering the huge burden of the dollar's devaluation. Therefore in order to sustain their export models and ultimately the growth of their economies they MUST keep the valuation of their currencies low and therefore they must retain US securities to do this.

An example of the damage being done to an economy due to a weak, competetive dollar can be found in Canada right now:

http://www.reuters.com/newsArticle....storyID=4210229

And already the ECB is pressing for more pro-active monetary policies to curb the dollar's decline relative to the Euro in order to aid EU exporters:

http://www.reuters.com/newsArticle....storyID=4197575

So ultimately although China and Japan could technically sell off US securities, they would be shooting themselves in the foot and you would see a major restructuring of their trade balances and ours.


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Old Post Jan-27-2004 00:46  United States
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NeoPhono
Übermensch



Registered: Sep 2003
Location: In Orbit

Just thought I'd throw in some interesting figures as far as defense spending.





Interesting

Also Interesting


Discuss...

Old Post Jan-27-2004 00:53  United States
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Shakka
Supreme tranceaddict



Registered: Feb 2003
Location:

quote:
Originally posted by NeoPhono
In my opinion, the reason we have such a debt/defecit today, is because our governement (and many governements of the world) have become large, uncontrolled beaurocracies where the cost to "make it run," is as much or more than the services it provides. Our government spends a dollar on paperwork for every 1 dollar spent on a government program. This to me is rediculous and the true cause of the nations fiscal woes. We are a country (and world) so consumed with the fear of litigation, making sure all the "t's are crossed and i's dotted," and the absurd hope of having a regulation or manual for everything, that we have let our madness poison our economy.

This paperwork insanity also leaks over to health care. Today, 31 cents of every dollar spent on health care goes towards administration and paperwork. That's twice what it is in Canada. Just think if we could reduce that by even ten cents. So much more of our money would actually go towards our health instead of in a filing cabinet.

I know I'm sounding like a mad man but this issue goes quiet and I see it as the real reason for our financial troubles. We spend no more today of our GNP on actual government programs than at any other time in our history. What we do spend more on is the paperwork that goes on behind it. It's like we're paying for everything twice, once for the action, and once of the paper trail that comes after it.



Yeah--and if they could get more competent employees to go for public sector jobs.

Old Post Jan-27-2004 00:59  United States
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occrider
Traveladdict



Registered: Oct 2000
Location: New York

quote:
Originally posted by NeoPhono
Just thought I'd throw in some interesting figures as far as defense spending.





Interesting

Also Interesting


Discuss...


Well the factbook puts US spending on defense at 3.2% ... in 1999. What is it now after 2 years of war?

It's still bigger than most comprable european nations.


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Old Post Jan-27-2004 01:01  United States
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Yoepus
Neo-condimist



Registered: Jan 2002
Location: Ketchup fields, Texas

quote:
Originally posted by occrider
Well the factbook puts US spending on defense at 3.2% ... in 1999. What is it now after 2 years of war?

It's still bigger than most comprable european nations.


I saw the author of "Of Paradise and Power" the other day on CSPAN2, he spoke very nice and I'll think all put an order after I'm done with my current tiles -- the argument is European nations are inconcievably weak militarily, they couldn't even collectively muster enough forces to put out the little forest fire right in their own backyards, in the Balkans.

The Europeans live in a state of Paradise - they don't have to spend anything on the military, they have no threat to worry about, but it is only for one reason ---- because of the power of the USA. The military power of the USA and the understanding that the USA will intervene against any threat to peaceful Europe affords them the abilit to use the valuable % of their military budget into benifical social services instead.

I think there is a lot of truth for that, Europe is in paradise due to the power (or the expense) of the USA.


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Old Post Jan-27-2004 01:11  Israel
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NeoPhono
Übermensch



Registered: Sep 2003
Location: In Orbit

quote:
Originally posted by occrider
Well the factbook puts US spending on defense at 3.2% ... in 1999. What is it now after 2 years of war?

It's still bigger than most comprable european nations.


3.3%, at least according to this professor before congress.

LINK

Old Post Jan-27-2004 01:55  United States
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borron
Supreme tranceaddict



Registered: Nov 2003
Location: Portugal

quote:
Originally posted by Yoepus
I saw the author of "Of Paradise and Power" the other day on CSPAN2, he spoke very nice and I'll think all put an order after I'm done with my current tiles -- the argument is European nations are inconcievably weak militarily, they couldn't even collectively muster enough forces to put out the little forest fire right in their own backyards, in the Balkans.

The Europeans live in a state of Paradise - they don't have to spend anything on the military, they have no threat to worry about, but it is only for one reason ---- because of the power of the USA. The military power of the USA and the understanding that the USA will intervene against any threat to peaceful Europe affords them the abilit to use the valuable % of their military budget into benifical social services instead.

I think there is a lot of truth for that, Europe is in paradise due to the power (or the expense) of the USA.


OH THANK YOU USA! THANK YOU FOR KEEPING EUROPE SAFE!!!!

Please don't cut your military spending! If you do so, what are we going to do when Italy/Germany/France/Norway/Russia/etc start invading their neighbours? I don't wanna die...

Even if your ridiculous comment was true, i couldn't care less. For me, the military in Europe should be reduced to a 50k or 100k elite military units, a rapid response unit.
Oh btw, that's already in motion. Guess who's against the creation of an european army independent of NATO? Good ol' USA.

Get your facts straight before making those shitty comments.

And don't talk about protection from the USA, they have vetoed over 70 security council resolutions against Israel, and you receive over $3 billion a year from your protector. If it wasn't for the USA, maybe half of europe was german now, but then again, there would be no Israel.

Old Post Jan-27-2004 10:54  Portugal
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NeoPhono
Übermensch



Registered: Sep 2003
Location: In Orbit

quote:
If it wasn't for the USA, maybe half of europe was german now, but then again, there would be no Israel.


Holy shit! You're saying that Israel is comparable to Nazi Germany? I've heard it all now. I know people can be a little fanatical about the whole Israel/Palestine debate, but I've never heard anyone go that far. Get a grip, man.

Old Post Jan-27-2004 12:59  United States
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Yoepus
Neo-condimist



Registered: Jan 2002
Location: Ketchup fields, Texas

quote:
Originally posted by borron
OH THANK YOU USA! THANK YOU FOR KEEPING EUROPE SAFE!!!!


Thats the one big difference - you Europeans seem to be completely ungrateful for the sacrafises the Americans have done to keep this world safe.

The Israelis do benfit a lot from the protection and favor of the USA - but we are grateful for it!


You don't have to take my hearsay from the author, I encourage you to read the book, its very short only 100 pages, and many Europenas agree with the author at least on serveral points in his book, On Paradise and Power, buy it, or go to your library, read it, (http://www.amazon.com/exec/obidos/t...=books&n=507846), make up your own mind.



...

oh and let me ask you, what do you guys plan to do with a 50k army?

play soldier?!


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Old Post Jan-27-2004 15:21  Israel
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MisterOpus1
Grumpy Old Fart



Registered: Dec 2001
Location: Kansas City
Interesting Rebuttal from the Left

Krugman sets out a rebuttal to those Conservatives who don't admit that taxes play a role in deficits:

quote:
January 27, 2004
OP-ED COLUMNIST
Red Ink Realities
By PAUL KRUGMAN

ven conservatives are starting to admit that George Bush isn't serious when he claims to be doing something about the exploding budget deficit. At best — to borrow the already classic language of the State of the Union address — his administration is engaged in deficit reduction-related program activities.

But these admissions have been accompanied by an urban legend about what went wrong. According to cleverly misleading reports from the Heritage Foundation and other like-minded sources, the deficit is growing because Mr. Bush isn't sufficiently conservative: he's allowing runaway growth in domestic spending. This myth is intended to divert attention from the real culprit: sharply reduced tax collections, mainly from corporations and the wealthy.

Is domestic spending really exploding? Think about it: farm subsidies aside, which domestic programs have received lavish budget increases over the last three years? Education? Don't be silly: No Child Left Behind is rapidly turning into a sick joke.

In fact, many government agencies are severely underfinanced. For example, last month the head of the National Park Service's police admitted to reporters that her force faced serious budget and staff shortages, and was promptly suspended.

A recent study by the Center on Budget and Policy Priorities does the math. While overall government spending has risen rapidly since 2001, the great bulk of that increase can be attributed either to outlays on defense and homeland security, or to types of government spending, like unemployment insurance, that automatically rise when the economy is depressed.

Why, then, do we face the prospect of huge deficits as far as the eye can see? Part of the answer is the surge in defense and homeland security spending. The main reason for deficits, however, is that revenues have plunged. Federal tax receipts as a share of national income are now at their lowest level since 1950.

Of course, most people don't feel that their taxes have fallen sharply. And they're right: taxes that fall mainly on middle-income Americans, like the payroll tax, are still near historic highs. The decline in revenue has come almost entirely from taxes that are mostly paid by the richest 5 percent of families: the personal income tax and the corporate profits tax. These taxes combined now take a smaller share of national income than in any year since World War II.

This decline in tax collections from the wealthy is partly the result of the Bush tax cuts, which account for more than half of this year's projected deficit. But it also probably reflects an epidemic of tax avoidance and evasion. Everyone who wants to understand what's happening to the tax system should read "Perfectly Legal," the new book by David Cay Johnston, The Times's tax reporter, who shows how ideologues have made America safe for wealthy people who don't feel like paying taxes.

I was particularly struck by Mr. Johnston's description of the carefully staged Senate Finance Committee hearings in 1997-1998. Senators Trent Lott and Frank Murkowski accused the I.R.S. of "Gestapo"-like tactics, and Congress passed new rules that severely restricted the I.R.S.'s ability to investigate suspected tax evaders. Only later, when the cameras were no longer rolling, did it become clear that the whole thing was a con. Most of the charges weren't true, and there was good reason to believe that the star witness, who dramatically described how I.R.S. agents had humiliated him, really was engaged in major-league tax evasion (he eventually paid $23 million, insisting he had done no wrong).

And this was part of a larger con. What's playing out in America right now is the bait-and-switch strategy known on the right as "starve the beast." The ultimate goal is to slash government programs that help the poor and the middle class, and use the savings to cut taxes for the rich. But the public would never vote for that.

So the right has used deceptive salesmanship to undermine tax enforcement and push through upper-income tax cuts. And now that deficits have emerged, the right insists that they are the result of runaway spending, which must be curbed.

While this strategy has been remarkably successful so far, it also offers a big opportunity to the opposition. So here's a test for the Democratic contenders: details of your proposals aside, which of you can do the best job explaining the ongoing budget con to the American people?

http://www.nytimes.com/2004/01/27/opinion/27KRUG.html


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with leaves all crimson conquered,
I yearn to shout,
and dance about,
and stick pickles in my honker...

Old Post Jan-27-2004 16:58  United States
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borron
Supreme tranceaddict



Registered: Nov 2003
Location: Portugal

quote:
Originally posted by NeoPhono
Holy shit! You're saying that Israel is comparable to Nazi Germany? I've heard it all now. I know people can be a little fanatical about the whole Israel/Palestine debate, but I've never heard anyone go that far. Get a grip, man.


If you don't possess the necessary intelligence to understand the posts here, please refrain from commenting.

So let me explain it for you: what i said is that if the USA didn't declare war on germany in WW2, probably half of europe was german AND THERE WOULD BE NO ISRAEL SINCE IT WAS CREATED IN '46 AFTER THE WAR ENDED and the germans would continue their jew-killing. Got it?


Yoepus, 50k or 100k is more than enough for a rapid response unit (ie, intervention in 6 hours in a radius of 5000 km). We're not in war zone like you.

Let's stop the israeli-palestinian comments in this thread, there are other threads for that. I believe this is for discussing the USA budget. Doesn't anyone agree that their military budget is too high?

Old Post Jan-27-2004 17:12  Portugal
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occrider
Traveladdict



Registered: Oct 2000
Location: New York

Leave the Israeli/Pal crap out of this thread ... it already has about 4 or 5 threads on the main page

Now back to the topic at hand.

quote:
Originally posted by NeoPhono
3.3%, at least according to this professor before congress.

LINK


Hmmm well that's definetely a lot less than I thought it would be which is a good thing. Perhaps at a time like this (when involved in two semi-wars) such a high budget is needed to sustain the occupation while ensuring that modernization efforts are maintained. However, I would pose that in peacetime, such a high budget would be completely unnecessary regardless of its comprable expenditures in gdp to other nations. Keep in mind that I am first in line to advocate a strong military, but I think much of military is still a cold war military. Rumsfeld has accomplished some efforts into making it a more mobile army but a lot more can be done. The new seawolf and virginia class subs are a huge drain on the navy budget while one can question the the number of orders for f-22 and f-35 class fighters. Already the fighters they are designed to replace have nearly unmatched air superiority ... meanwhile, very few other countries are pursuing third generation fighters to the degree we are. Anyway, I think there are a number of programs such as that are not needed to the degree that we have and we can cut costs significantly.

Basically, I think that we can have just as much effectiveness with our fighting forces with defense spending capped at around 2.5% as we do now.


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Old Post Jan-27-2004 17:38  United States
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