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You guys are right, the Bush administration sucks! Look at what he's done now. (pg. 7)
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| MisterOpus1 |
| quote: | Originally posted by occrider
I've read numerous articles from BW and the Economist discussing some of the successes of the 2001 tax cut so I'm not completely talking out of my ass (perhaps these economists are but somehow I don't think so :))
Anyway you might want to ask the guy who provided some of those statistics about his sources. I'm a little busy to check right now, but if my memory serves me correctly, the US economy has been in several SERIOUS recessions/stagflations in the 70's, 50's, and late 80's early 90's with unemployment in the double digits from time to time. That would seem to bely the claim that no president in the past has ever had negative job growths.
Anyway, deficit spending is a completely different issue altogether. Are you advocating no deficit spending (no tax cuts OR government spending programs)? If so perhaps we should start a new thread :). I'll just make a minor notation that Hoover's balanced budget doctrine was one of the major contributors towards the depression (or the length of the depression) and on a side note, Sweden was the first country to fully recover from the Great depression after it followed a policy of Keynesian deficit spending.
I agree 100% that the national debt is something that needs to be addressed during times of economic normality and especially during times of economic boom. However in my opinion, maintaining a balanced budget at times of recession will only exacerbate and elongate economic stagnation. What legislatures SHOULD be doing is balancing out the deficit spending during downturns of the business cycle by repaying the expenditures back with gains recieved during economic upswings. Unfortunately Bush has not been placed in such a position to begin balancing the budget (I kind of doubt he would even in such an opportunity though). |
This is a good response. A point on your article that is a very strong counterpoint to my argument is consumer spending. We would be in a very bad predicament if it wasn't for consumer spending. Despite all the hardships, consumers still throw out their dollars, and thank God for that! I must initially disagree with the assessment that consumer spending was due to the 1st tax cut, though I cannot back that up with sources right away. What I do feel strongly about, and what my whole initial post was about is timing on tax cuts. We may disagree on the specifics on when it's appropriate to balance the budget, but it is undeniable what happens when our country continues to spend what it cannot afford, thus exponentially increasing the deficit - interest rates can and will increase - the Fed will eventually have no choice in order to compete with the Private Sector.
Plus given what's happening with State budgets and the debt on the state level - you cannot convince me whatsoever that this is a good time to cut taxes. Because this does eventually sqeeze state funding, which many are now having to increase taxes on their own. Furthermore, cuts in vital programs like Education, Transportation, etc. etc. are very prevalent in State funding, which again can be attributed to the sqeeze the Federal Tax Cuts is contributing to. If for some reason this helps the States, great. However, I am extremely skeptical. |
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| MisterOpus1 |
| I might also add, Occrider, that many economists agreed with Greenspan when he stated that the first round of tax cuts had virtually no stimulative effect on the economy, but rather it was the drastic interest rate cuts by the federal reserve that kept the economy afloat. Of course, this is debatable, but I tend to agree with our Fed Chairman more on this one than Bush's policies (considering he's fired his entire Economics team already). |
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| occrider |
| quote: | Originally posted by MisterOpus1
I might also add, Occrider, that many economists agreed with Greenspan when he stated that the first round of tax cuts had virtually no stimulative effect on the economy, but rather it was the drastic interest rate cuts by the federal reserve that kept the economy afloat. Of course, this is debatable, but I tend to agree with our Fed Chairman more on this one than Bush's policies (considering he's fired his entire Economics team already). |
Oh I'm sure it had an effect on the economy. But from the standpoint of consumer spending, how much of that would be directly affected by fluctuations of interest rates? Certainly for specific industries interest rates have a great deal of importance, but you don't really need to take out a loan to buy a toothbrush. I would say both had stimulative effects on the economy. I would be curious to read said article where greenspan said the first tax cuts had no effect on the economy.
Oh and just to clarify my stance once again, I don't think that this second tax cut is warranted at all. The first tax cut (or some kind of fiscal spending) was needed since the economy had significant reductions in growth forecasts. However, now the economy is somewhat stable and is showing signs of improvement. Additional deficit spending at this point would be fortuitous imo. |
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| Shakka |
I still refuse to believe that the economy has really started to improve yet. It's stagnant. Unemployment #'s this morning still suck. 14 weeks above 400K on initial claims now. Retail comps were terrible. The market is so overbought it's rediculous, yet it continues to chug along.
Just to clarify, I'd be happy if the economy were chugging along and we were back to the glory days of solid, steady growth, but I don't think we're there yet. |
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| MisterOpus1 |
| quote: | Originally posted by Shakka
Just because I feel like I must get one last utterance out...
There is a large camp of people who hold Greenspan personally responsible for the bubble and it's burst. Also, interest rates are at historic lows and could afford to go up a little bit, though that would likely cut the head right off the housing/refi bubble.
Lastly, interest rates rose during Clinton, they fell under Bush. Giving the lag you cited and how bad high interest rates are, wouldn't that pin a lot of the problems we're facing now on the Clinton administration? Also, despite higher rates under Clinton, they still managed to have surpluses?
I'm too tired for this! |
The only criticisms that I think hold a little merit against Greenspan is his unwillingness to act quicker after the economic bubble was clearly bursting. However, I tend to feel that there's only so much the Fed really plays into this equation in the first place. The reason why the bubble burst was not because of the Fed, though it may have played a role mentioned earlier, but of the stock prices being completely overvalued for what they were truly worth, amongst other issues involving the Private Sector (okay, how far am I off on that assessment? I told you my econ. sucks!).
Also, I might completely miss the boat on this, but I believe interest rates rose during the Clinton years to fight off inflation. Consumer spending was going through the roof then. Interest rates have fallen during Bush Jr. years in order to keep the consumers spending while experiencing this economic "dip". |
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| occrider |
| quote: | Originally posted by Shakka
I still refuse to believe that the economy has really started to improve yet. It's stagnant. Unemployment #'s this morning still suck. 14 weeks above 400K on initial claims now. Retail comps were terrible. The market is so overbought it's rediculous, yet it continues to chug along.
Just to clarify, I'd be happy if the economy were chugging along and we were back to the glory days of solid, steady growth, but I don't think we're there yet. |
It's not great and it's not back to normal yet ... but it's not in dire straits.
http://www.reuters.com/newsArticle....storyID=2884316 |
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| Shakka |
| That article didn't give me much comfort! ISM still below 50--not so good, though yes, it did improve more than expected. That was the only highlight in the article. I think they kind of glossed over the retail #'s a bit. But, if the Fed manages to maintain the liquidity bridge they've propped up the market with, perhaps the market can avoid a retest of last October's lows. I'm not holding my breath though. |
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| Sternburn |
| BUSH ROCKS! one of the best presidents we have had |
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| rupert |
| quote: | | The reason why the bubble burst was not because of the Fed, though it may have played a role mentioned earlier, but of the stock prices being completely overvalued for what they were truly worth |
And they are still overvalued. Only when the stock prices return to realistic levels and the debt build-up from the boom years will the US be able to recover. The current stock market rally is an dead-cat bounce, ie people putting there money back in the Stock market thinking it will rally and then other people following suit when the fundamentals just arent there. The best example of what will happen to the USA is Japan (if the US is lucky)
Here is a summary of what has and will probably happen. This is essentially a generalisation but it should suffice
1990's
New Technology and wage restraint leads to increased profits
Low interest rates enables corporations to make investments to capitalise on new technologies.
Strong american dollar makes US assets attractive to foreigners and enables americans to exercise greater purchasing power.
Corporate profits increase entices people to buy stocks and to borrow money on margin to buy stocks.
Stocks go up
Original productivity gains dry up, but executives whose pay is tied to the stock price need to keep making the price go up.
Layoffs, restructures, leveraged buyouts, share buybacks and corporate fraud, blackmail of Wall Street analysts used to keep the truth from coming out that real corporate earnings had topped
Stocks go up
Easy credit and the hype of new technology enables any businessman to float an internet company. People see stocks go up and buy into hype
Stocks go up
Many companies dont deliver real profits, people get suspicous and exit stocks
2000
Crash of the Nasdaq and decline of the S and P 500
There is still an oversupply of credit
Corporations dont need credit, they dont need to invest because there is a manufacturing overcapacity caused by overinvestment. There is an overhang of debt which means corporations cant drive growth. Banks still need to loan money. Who gets it. The consumer.
The consumer with access to easy credit can maintain there standard of living. Stock Market doesnt seem attractive People move into buying houses.
Housing price goes up.
When people buy houses they need televisions, computers, furniture.
This spending props up corporate earnings.
Housing prices go up. People see housing as the new way to get rich quick.
Corporate earnings are still weak, corporations need to boost profits to make their stock more attractive. They cant increase prices so the only way to improve profitability is through productivity gains. In real peoples language. Lay offs.
Easy credit in the housing market leads to people who cant really afford it buy houses. Many get laid off as the corporations try to improve profitability. People default on their house repayments.
Foreigners who hold american assets sell them as no real turn around seen.
This forces the currency down. Increases indebtedness of those dependant on $US- foreign currency transactions.
Imports from China extremely cheap, neverending supply of cheap labour enables producers to continually cut costs. China imports deflation. Deflation affects US corporations, worsens ability to improve profitability as prices continually fall.
More lay offs.
Increased household debt.
Housing bubble bursts and further falls in the stock market inevitable.
Deflationary recession. |
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| Shakka |
| ...and the unemployment rate hits 6.1%. When is the market going to catch on? |
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| occrider |
The markets are improving because jobless claims were less than forecasted for May despite the .1% increase in unemployment. Most investors sense an iminent rebound and are egged on by better than expected data plus the guarded optimism of Greenspan. Not to mention some of the earnings data for some mega-companies have been relatively positive. If you graph the trend of jobless claims over the past 6 months I'm sure you would see a bottoming out effect and what investors are anticipating is an eventual rise.
You don't make money by looking at where the market is at. You make money by anticipating where it's going to go. |
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| Shakka |
| Sure. Bottoming out, but it's not getting any better. The underlying fundamentals still stink. Certainly doesn't justify the rally that's been going on since the war started. |
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