As expected and warned, the cessation of stimulus is leading to global destabilization of the economy. Can you believe the Europeans were trying to tighten monetary policy and raise taxes? http://www.nytimes.com/2010/08/12/business/12markets.html?_r=1&hp Article basically talks about how the recover seems to be faltering and the stock market crash today.
<iframe src='http://video.economist.com/linking/index.jsp?skin=oneclip&ehv=http://audiovideo.economist.com/&fr_story=418e83e62a2bea334f2ca8ca9da3765ed3268ff4&rf=ev&hl=true' width=402 height=336 scrolling='no' frameborder=0 marginwidth=0 marginheight=0></iframe> Nouriel Roubini explains where the global economy is likely to go. Dr. Gloom is not being gloomy enough in my opinion...
on one hand...i think we need to face up to the fact we're going to need to raise taxes. on the other, i am becoming more and more sure that now is not the time to do that.
That this is your first reaction is a remarkable testament to the power of the Reagan/supply side voodoo to alter the way people think.
Because tax increases (especially tiny increases to the top marginal rates that is probably what's going to happen) empirically have very little impact on GDP/output - it's not going to appreciably impact GDP or the employment picture at all. I'm not even going to mention the fact that it's not really a tax increase so much as the expiration of a previously scheduled tax cut, which a supposedly rational actor should ahve factored into their behavior anyway. But it's the first thing that people think of. Meanwhile the government's borrowing costs are at record lows and deflation is on the horizon...hmmm....
European debt ratios are higher than our own. Japan is even higher. I think the hopeful were banking on some miraculous Chinese stimulus and customer spending.
oh you shouldn't have mentioned Europe, now you're going to get some yahoo in here lecturing about Greece. Meanwhile the Treasury can't keep short or long T-bills on the shelves.
i am completely in favor of raising taxes for the upper brackets. however, its not even necessary to increase spending. we can borrow for nothing. and we should.
I'm not sure the global economy is tanking as much as it just slowing. And that's not terribly surprising. Countries with high savings rates and emerging market countries are doing just fine - their economies appear pretty strong and growing. Countries like the US where we have had negative savings rates and grew on leverage are struggling. And that's neither surprising, nor something that can just be fixed. The only way to de-leverage is for households to generate income to catch up to their debt - spending has to stay flat. In terms of stimulus, I have mixed feelings. I'm all for smart stimulus - for example, let's look at all the construction projects scheduled for the next 5 years and accelerate them to this year - it has no real net additional cost. Things like that are fine. But the primary reason for the stimulus was to avoid a depression, and I think we accomplished that. Getting out of a recession is part of the business cycle - we have to fix the underlying finances of the American population if we want a sustainable recovery, and that really just takes time. Anything else is just a bandaid.
Everyone needs a good Hoover Manuever. Tighten Credit and Raise Taxes. That did so well for us in the past, why not do it again?
Ok, I'm not talking about tiny tax increases to the top marginal rate. I'm talking specifically about allowing the tax cuts to expire (an effective tax hike from one year to the next) which affects more than just the top marginal rate.
