The cliff

The fiscal cliff, what will happen? Who will lose? Dems, GOP or USA?

They will put America first and reach a compromise.
1
3%
They will put America first and reach a compromise.
1
3%
They will make a deal at the very last second.
4
11%
They will make a deal at the very last second.
4
11%
The R's will be the winners: No tax increase.
0
No votes
The R's will be the winners: No tax increase.
0
No votes
The dems will be the winners: More tax for the rich
1
3%
The dems will be the winners: More tax for the rich
1
3%
They reach a deal that postpones matters, somehow.
6
17%
They reach a deal that postpones matters, somehow.
6
17%
They won't agree, but austerity is what the US needs.
0
No votes
They won't agree, but austerity is what the US needs.
0
No votes
They won't agree: Welcome to a new depression.
4
11%
They won't agree: Welcome to a new depression.
4
11%
Other (please specify).
2
6%
Other (please specify).
2
6%
 
Total votes: 36
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Glaucon
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Re: The cliff

Postby Glaucon » Tue Jan 01, 2013 6:06 pm

Carter wrote:Okay.. I get the principle of Keynes..

but if I follow your train of thought.. Greece, Spain, Italy, Ireland etc should be borrowing more, lowering taxes at both end of the spectrum... increasing spending to stimulate the economy and generally pump priming the economy ....

if the principle works for America.. then why would it not work for them ??

and why do other countries ie France, want to tax the rich at 75% or where I am working at the moment... Sweden, taxation for approx 40% of people is in excess of 65% income tax...

Why are these countries getting it so wrong to want to reduce public expenditure and increase revenue from taxation.. and yet there appears to be no policy to reduce the American debt and Chinese capital investment continues flooding into the country which hides the fact.... taking the household analogy.. they now own the house you are in living in and simply paying rent on, as you will never pay off any capital with the current policies in place


Well... there are quite a few people with impressive academic reputations and convincing arguments saying that Europe is indeed 'getting it all wrong', that the general European approach (significant spending cuts and tax-raises) is the wrong approach. There is no consensus about it, but get the impression that the majority of well-respected economists specializing in this sort of thing tend to lean in that direction. They argue that the crisis in Europe isn't a debt crisis of governments, but a debt crisis of private institutions (banks etc.). That is certainly where it all started, with governments having to step in because those ran into problems.

So, in a sense, it is a bit odd that the European governments, stepping in to solve the problems of the private sector are now forced to tighten things up, under pressure from certain elements of the private sector (like those wonderful credit rating agencies that were at the front row of those heading us into the crisis) about the debts they have to that same private sector, the banks and such (after all, it is mostly banks and such that own & trade government bonds etc.).

A lot of these economists (along with Americans like, say, President Obama) have been arguing that Europe should not go for austerity meassures like they have been doing. That the public sector should be EASING things when there is TIGHTENING in the private sector.

However... the problem is that this may simply not be possible. America pretty sure to pay it's debt. It has all the instruments to make sure it can. It can even print money (or do quantitative easing, etc.). Mass capital flight from the USA isn't possible. And the same may be true for Europe. But only in theory.

In practice, Europe has lots of internal rules about what it's shared financial institutions can do, rules that were set up to be 'conservative', focussed on fighting inflation, on tightening things when things go bad, not on easing them, on stopping countries like France from getting all left-wingy and pursuing Keynesian policies. As leftish as many elements of the EU are, the financial setup is actually quite 'monetarist' and not at all 'keynesian'. Odd, but true.

And for the EU to act more 'keynesian', it not only has to surmount those problems, it also has to get everyone to agree (especially countries that are in stronger economical positions, like Germany). And because the principle behind Keynesian macro economics are counter-intuitive, voters don't typically like that, especially not when this seems to be about the rich countries of Europe having to bail out the poor ones. If Europe was 'one nation under God' in the eyes of it's citizens, that might be easier, but, clearly, whatever confused Eurocrats fighting for a European 'constitution' and 'president' may think, it is anything but that.

So... it would be up to individual European countries to pursue a Keynesian path on their own. But they can't do that. Because they are borrowing money from the private sector as individual countries, not as the EU. And because they have the Euro (well, most of them), they can be faced with massive capital flight. They may have a single currency, but when it comes to debt, they still compete with each other. Banks with government bonds can move that capital around, no longer offering it to, say, Spain or Portugal, but offering it for zero interest to Germany instead. The EU single currency system was fundamentally flawed from the start. That much has been made clear, by now.

Some argue that Europe should quickly transform itself into a political entity that CAN and DOES act like single economic actor, so that Austerity does not have to be the only choice when a crisis hits, so that the fact that capital can flow freely through a monitary union won't risk crippling individual countries. I am not sure myself. Maybe it is inevitable, and maybe Europe giving up democracy (rule by the people) up (because you cannot say that a place is ruled by the people when there is no 'the people' and there is 'the people' if 'the people' don't see themselves as 'the people') is the only way to go in the name of economic prosperity (seems like a high price to pay for that single currency, in hindsight, but ah well). Maybe not.

But that is beside the point. The answer to your question of why Europe doesn't do it if it is the right thing is: they simply can't. Some right wing parties don't want to (just as in the 30s, there are always lots of politicians that prefer to follow their fiscally conservative intuitions, even if they are wrong) and others may want to, but they just aren't in a position to do things differently, as individual countries.

And as for China... China WANTS the USA to stay on the Keynesian path. Just as Germany wanted Greece to keep importing German products for many years, which is partially why they were willing to overlook the mess of the Greek state finances and let them into the EU... China wants the USA to 'do well', so they will keep buying the stuff China makes. Because China's own consumer market is certainly not going to cut it, not going to be enough to sustain their double digit growth numbers. China has to keep pumping money into the rest of the world, to keep their own currency down, their own wages low, so they can keep reaping the benefits of the market imbalance, on the unfair trade and labor cost advantages.

In short: Europe has no real alternative but austerity. The USA has.
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Re: The cliff

Postby Carter » Tue Jan 01, 2013 6:31 pm

I don't follow why this has become a "Europe" thing.. there is no such thing as Europe other than some lines on a map. Politically, socially, economically, religiously there is no real common framework of political or economical strategy or barely any common banking structure across the countries that are classified as Europe.. ie.. Germany, Estonia, Italy, Portugal, Poland blah blah.. we dont even speak the same language.

So given this Keynesian economic strategy...when will the debt be tackled and how .. because populist politics in America seems to be burying its head in the sand.. in good times we keep spending, in bad times we keep spending.. is that Keynesian Economics ??
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Glaucon
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Re: The cliff

Postby Glaucon » Tue Jan 01, 2013 8:36 pm

Carter wrote:I don't follow why this has become a "Europe" thing.. there is no such thing as Europe other than some lines on a map. Politically, socially, economically, religiously there is no real common framework of political or economical strategy or barely any common banking structure across the countries that are classified as Europe.. ie.. Germany, Estonia, Italy, Portugal, Poland blah blah.. we dont even speak the same language.


When did it become a Europe thing? The moment most EU countries switched to the Euro. That was what created the conditions that made the EU debt crisis that has been going on for years now possible. It seems to be somewhat under control, atm, but it does mean that countries in the Euro-zone have no choice but to tighten things, and very little room for keynesian macro economic policy. And even IF they all tighten stuff, they will be losing money to speculators and banks gaming the flawed system. Yes. We fucked ourselves. :thumbup:

So given this Keynesian economic strategy...when will the debt be tackled and how .. because populist politics in America seems to be burying its head in the sand.. in good times we keep spending, in bad times we keep spending.. is that Keynesian Economics ??


Well, unfortunately, the US have been doing just that since Clinton's second term ended. Running up the debt when your economy is booming is certainly NOT keynesian policy. That is just populism (and plain stupid), as you said.

But ah well... they fucked themselves too :thumbup: . The USA won't ever 'tackle' the debt in our livetimes. But that's okay. They just need to tackle the deficit (which is way too high). And only three things can help with that, roughly: growth, taxation and spending cuts. They need to raise taxes, cut spending, without hurting growth much. They now agreed to a a modest tax increase (could have been more without hurting growth much), and in a few months, the republicans will force Obama to make spending cuts, I think. So, that will help some with deficit reduction. If the economy continues to recover, that will help even more. And if that happens.... they will have a chance to do even more, still without hurting the economy... and who knows? Maybe in a few years, the deficit will be down to managable percentages... and that is when they should go on and erase it and start on actual debt reduction... which is probably too much to ask for. :D Not ideal, but it still sounds a lot better than another recession in 2013, lasting who knows how long.
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Re: The cliff

Postby Carter » Tue Jan 01, 2013 10:16 pm

The problem I have Keynesian s.. is they always point to the Depression of the 1930's and how massive federal projects lifted the economy.

What they always forget is a certain little event towards the end of the 1930's which created the catalyst for a boom economy in the US ... World War 2... the demand for products, weapons, raw materials and resources drove the economic recovery from the Depression and post war maintained that drive through growth because of the further demand for even more products and resources from America.

So, where is the factual evidence that stimulus packages, tinkering around with populace taxation policies actual creates long term sustainable growth..

If this was true.. the massive centralised investments/grants that poured into Greece, Portugal , Ireland should have seen these countries booming.. instead of living in a false economy of rising house prices, grand infrastructure projects, favourable tax incentives to corporates like HP, Dell, Microsoft who have never paid any corporate taxation to the resident countries

and to draw comparisons... Silcon Valley, the GDP of California in hi tech is comparable to a small European country, but where are the workers, where are the products actually made.. and now who are the largest car manufacturers (assemblers) in the States... Honda, Nissan, Toyota ...

Here is a point of view.. the average american with his income, will not buy american products, because mostly there arent any..... they will buy Iphones from china, japanese or german cars, TV's from Taiwan.. most of their spend over and above the day to day living expense will go out of the country...

So the stimulus package is based on..

a) A debt burden not being addressed
b) A limited taxation policy that does not cover current spend
c) It maintains or increases the spend of Americans to buy products from outside the US.. therefore generating wealth and jobs in other countries

Therefore.... you are going further and further into debt to maintain wealth and jobs to foreign workers and governments, who in turn lend you more money , increasing your debt, to then spend with them

Does that not sound like a drugs dealer.. I give you some drugs, you get addicted, you come back for more, I sell you more, you get more into debt and more addicted.. you need to sell the TV to pay for the next fix and so and so on..

I hate to sound so Republican, because by American standards I am nearly communist in my social and political views.. but on this issue... austerity measures have to be applied.. the party is over for us all I am sorry to say.



PS.. the Euro is not used by the majority of countries in the geograpical definition of Europe, and it is only used by 17 of the 27 member states of the European Union

Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain...

think about it.. Cyprus, Luxembourg, Malta, Slovakia, Belgium Slovania .. I mean.. where the fuck is Slovenia :shock:... the Euro .. take out Italy, Germany, Spain, France .. the rest has a combined population about the the size of New York and has little or no manufacturing or financial bases to impact the overall ecomomic wealth of the Eurozone.. when did you last buy a car from Luxembourg, in fact, have you ever bought anything from Luxembourg :)
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Anarch Allegiere
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Re: The cliff

Postby Anarch Allegiere » Tue Jan 01, 2013 10:47 pm

Carter wrote:think about it.. Cyprus, Luxembourg, Malta, Slovakia, Belgium Slovania .. I mean.. where the fuck is Slovenia :shock:... the Euro .. take out Italy, Germany, Spain, France .. the rest has a combined population about the the size of New York and has little or no manufacturing or financial bases to impact the overall ecomomic wealth of the Eurozone.. when did you last buy a car from Luxembourg, in fact, have you ever bought anything from Luxembourg :)


Got to correct you there though. Belgium is mainly an export country (unlike others), there is massive amounts of exports on diamonds, beer and chocolate, but also cars and dairy products.
Last I head the majority of beer in the entire world is supplied by belgian companies. :P

In your annoyance against the "eurozone" though I think it's swim or drown for the UK. Nobody in the geographical description of the eurozone is going to be able to survive future politics if they remain independent. The EU is the only 'nation' that could rival both the US and China in being a superpower.

But overall else I do agree with your economical analysis and the drug dealer comparison.
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Re: The cliff

Postby Carter » Wed Jan 02, 2013 1:18 pm

Anarch Allegiere wrote:
Got to correct you there though. Belgium is mainly an export country (unlike others), there is massive amounts of exports on diamonds, beer and chocolate, but also cars and dairy products.
Last I head the majority of beer in the entire world is supplied by belgian companies. :P



Beer from Belgium , cars from Belgium ?? nah.. that's Germany you are thinking about.. but, in their defence, Wow are Belgian women classy and attractive.. I have perved women around the world.. but Brussels on a summers evening... Phewwww.. hawt women.



Anarch Allegiere wrote:In your annoyance against the "eurozone" though I think it's swim or drown for the UK. Nobody in the geographical description of the eurozone is going to be able to survive future politics if they remain independent. The EU is the only 'nation' that could rival both the US and China in being a superpower.

But overall else I do agree with your economical analysis and the drug dealer comparison.


I think they should have just been honest and open about the Euro and called it the Deutsche Mark ..and as for Europe pulling together.. when you actually delve under the rhetoric look at what you have

1. Italian Prime Minister with a hair transplant who is giving his ex wife $64m pa since he was caught with a 17 year old hooker and is now under criminal investigation/prosecution.. and he is thinking about running again for office and may actually get in !!

2. German Chancellor doing private deals with the Chinese, she has visited China 3 times last year, and all her deals are compromising other Euro Countries deals.. united Europe my arse

3. France reverting to some form of extreme socialism, taxation for those earning over (I think) $1m pa at 75%.. and where are the rich of France going.. Belguim.. must be the beer

4. The UK.. a Prime Minister who so far has changed his mind on every policy he stood for and is best friends with the Bankers who dragged us into the shit.. so no reform of banking there, just simple protectionism of the financial industry from the threat of the French and Germans trying to break up the financial service industry in the UK..

.. I mean.. c'mon.. it makes the Republicans and Democrats look like a band of brothers working together for a common solution ;)

Don't look towards us for Unity.... even the Scottish are pissing off and demanding independence and I personally wish them all the best with their tartan kilts and cute little scotty dogs..when the oil has run out in the next 25 years, I bet they want back in !!!

So the Cliff.. look to Europe and see the Chasm of Unity :D


ooh Added.. saw a political commentator on TV come up with a great line.. "America wont lead the world out of recession, it will spend its' way out of recession for the benefit of other countries"...... see I am not a lone voice in seeing the paradox.

The world needs America to have lower taxes, we cant afford for you to deal with the US national debt, we don't care if your schools are relatively underfunded, we don't care if your health reforms are fucked up,

We have to pay for our own social and welfare commitments, we need you to continue spending billions on your military so we don't have too and we need Americans to have more addressable spend.. we have Porches, Range Rovers, Ipads, Plasma TV's,Gucci handbags and Belgium Beer to sell you

All in jest.... but I hope you see an alternative perspective to Keynesian economics...
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Glaucon
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Re: The cliff

Postby Glaucon » Wed Jan 02, 2013 1:45 pm

Carter wrote:The problem I have Keynesian s.. is they always point to the Depression of the 1930's and how massive federal projects lifted the economy.

What they always forget is a certain little event towards the end of the 1930's which created the catalyst for a boom economy in the US ... World War 2... the demand for products, weapons, raw materials and resources drove the economic recovery from the Depression and post war maintained that drive through growth because of the further demand for even more products and resources from America.


Ultimately... WW 2 was a huge boom in government spending (and borrowing) for the USA. So, effectively, it WAS government spending that provided that 'catalyst'... even if it was not meant as Keynesian policy.

But... if you look at the actual details of the great depression, at how deeply countries were affected, for how long, etc... then the evidence does suggest that those countries that were quicker to drop the old gold standard, and 'ease' things a little (like the US) did much better than the countries that didn't. Roosevelt's new deal didn't SOLVE the depression. But the previous policy certainly didn't help any either. And I think that the overal impression of the 'New Deal' is that it probably helped the economy SOME, and helped a lot of people, besides. And of course, in hindsight, it would probably have been a lot better if they had acted right away, or at least shortly after the crash. Government intervention can make a huge difference, in a good way.

The same thing is true for a lot of other similar financial crises that came before. A classic example is how the UK handled the bursting of the South Sea Bubble (early 18th century) vs. how the other economic superpower of the time (France) handled it: The UK had a certain Robert Walpole take charge. He sorted out the financial mess. (A mess that left many people without their live savings, that led to stocks losing their value, that led to banks going under, to many suicides... all that stuff). He was made Chancellor of Exchequer and he divided the National Debt that had been the South Sea Company into three, between the Bank of England, the Treasury and a 'sinking' fund. This did cost the UK a lot of money, but it worked... and the UK recovered, to become the first industrialized nation in the world, with London as it's financial capital. The Government of France didn't take this interventionist approach: many people lost all of their savings, including the nobility. And the public finances of the Capets never really recovered during that century... the French Revolution itself sparked largely as a result of the government trying to raise new taxes (on the priviledged classes) so as to do something about the ever-lasting debt issues.

So, where is the factual evidence that stimulus packages, tinkering around with populace taxation policies actual creates long term sustainable growth..


There is none, and they don't. The idea behind bailouts and stimulus packages is that they halt the downward trend, so that you don't drop down to a level that is so far down that it would take decades to crawl back up. I think that the bailout certainly worked for the USA, 4 years ago. The stimulus probably did too. And I am not saying that they should keep on trying that. There should be some tightening. This deal is one step towards tightening. Going over the cliff would have been 'throttling', not tightening.

If this was true.. the massive centralised investments/grants that poured into Greece, Portugal , Ireland should have seen these countries booming.. instead of living in a false economy of rising house prices, grand infrastructure projects, favourable tax incentives to corporates like HP, Dell, Microsoft who have never paid any corporate taxation to the resident countries


I was never a supporter of any of that. But this EU 'investment' isn't solely to blame for the 'boom' in house prices etc. that led to the crisis. Much of that was the financial markets itself, just as it is silly to blame Acorn and such for the boom and bust of mortgages in the USA. It is easy to blame governments when capitalism fails you, but it isn't accurate.

and to draw comparisons... Silcon Valley, the GDP of California in hi tech is comparable to a small European country, but where are the workers, where are the products actually made.. and now who are the largest car manufacturers (assemblers) in the States... Honda, Nissan, Toyota ...


In a modern economy... 'manufacture' isn't the only way to make money.

Here is a point of view.. the average american with his income, will not buy american products, because mostly there arent any..... they will buy Iphones from china, japanese or german cars, TV's from Taiwan.. most of their spend over and above the day to day living expense will go out of the country...


And go right back in... thanks to China lending to the USA. ;)

But this isn't all fair. Sure... Iphones are manufactured in China. But guess where most of the money on every sold Iphone goes?

So the stimulus package is based on..

a) A debt burden not being addressed
b) A limited taxation policy that does not cover current spend
c) It maintains or increases the spend of Americans to buy products from outside the US.. therefore generating wealth and jobs in other countries

Therefore.... you are going further and further into debt to maintain wealth and jobs to foreign workers and governments, who in turn lend you more money , increasing your debt, to then spend with them

Does that not sound like a drugs dealer.. I give you some drugs, you get addicted, you come back for more, I sell you more, you get more into debt and more addicted.. you need to sell the TV to pay for the next fix and so and so on..


I would not call this the 'stimulus' package... because I think most of that has already been spend, but... overall, I agree. Americans live on borrowed money. Have been for a long time. Long-term, they have to try to solve that issue. Short-term, they simply CANNOT solve that issue. When you live in heavily mortgaged house, your only choice is to keep on going. What else are you going to do? Sell it, run away from your debtors and go live on the streets? Going Cold Turkey isn't always the solution. Ask Amy Winehouse... well, if she was still around.

I hate to sound so Republican, because by American standards I am nearly communist in my social and political views.. but on this issue... austerity measures have to be applied.. the party is over for us all I am sorry to say.


You DON'T sound republican. Because republicans don't want Austerity. They aren't like UK torries or continental European right-wing fiscal conservatives. US republicans may talk about fiscal conservatism, about reducing deficits, but that is just talk. If it were a choice between lowering taxes or lowering government deficit, most European right wing politicians would opt for the second. In the USA, 'conservatives' have and continue to be willing to let deficits run up in exchange for lower tax-rates. They did that when introducing and prolonging the Bush tax cuts, and they did so now, in making this deal. And that is partially because they are keynesians too, and partially because they are populists, wanting to please their voters and, more importantly, their financial backers.

PS.. the Euro is not used by the majority of countries in the geograpical definition of Europe, and it is only used by 17 of the 27 member states of the European Union


When talking about the debt crisis in Europe, we are talking about members of the monetary union, aren't we? That is why I was talking about the Euro.

think about it.. Cyprus, Luxembourg, Malta, Slovakia, Belgium Slovania .. I mean.. where the fuck is Slovenia :shock:... the Euro .. take out Italy, Germany, Spain, France .. the rest has a combined population about the the size of New York and has little or no manufacturing or financial bases to impact the overall ecomomic wealth of the Eurozone.. when did you last buy a car from Luxembourg, in fact, have you ever bought anything from Luxembourg :)


I think I have bought gas from Luxembourg... because taxes on it are lower, there (that is their primary 'export'... being a tax haven). :)

ooh Added.. saw a political commentator on TV come up with a great line.. "America wont lead the world out of recession, it will spend its' way out of recession for the benefit of other countries"...... see I am not a lone voice in seeing the paradox.


Ultimately, this is true, though.

The USA has made itself a borrow and spend economy. It has been living beyond it's means. Austerity is hardly an option for it, because it is has an ecomomy that runs partially on hot air. Europe has been a lot more sensible (a lot more private savings in Europe, most governments having far less debt), but it has fucked itself up with the way it set up the Euro, and now it has no option to 'stimulate' itself. So... all Europe can do is choose austerity at home and hope Americans start living it up again, funded by the Chinese eager to sell to them, so we can sell to them too. :mrgreen:
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Re: The cliff

Postby Carter » Wed Jan 02, 2013 3:12 pm

Glaucon wrote:. So... all Europe can do is choose austerity at home and hope Americans start living it up again, funded by the Chinese eager to sell to them, so we can sell to them too. :mrgreen:



Hey.. hurry up and buy more stuff.. my private pension is looking really horrible at the moment

and btw.. also tell Starbucks to pay some corporate taxes to the UK government on its £400m sales of coffee in the UK.... what is it with you Americans not paying us British the taxes on hot beverages ?
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Re: The cliff

Postby Glaucon » Wed Jan 02, 2013 3:27 pm

What? You expect FAIRNESS when it comes to corporate taxes, internationally? If you wanted that, Britain should have joined the Germans during WW2. :popcorn:
Carter
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Re: The cliff

Postby Carter » Wed Jan 02, 2013 10:46 pm

Glaucon wrote:What? You expect FAIRNESS when it comes to corporate taxes, internationally? If you wanted that, Britain should have joined the Germans during WW2. :popcorn:


Yah didnt pay your tea taxes in 1776, you wont pay your coffee taxes now... deja vu :)

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