Archive for the ‘GDP’ Category

Federal debt obligations exceed world GDP

February 14, 2009

As  the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.

The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the “2008 Financial Report of the United States Government” as released by the U.S. Department of Treasury.

By Jerome R. Corsi

The difference between the $455 billion “official” budget deficit numbers and the $5.1 trillion budget deficit cited by “2008 Financial Report of the United States Government” is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.

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Stimulus: China Will Fund U.S. Debt But “We Hate You Guys”

A Chinese customer shows off a handfull of hundred-yuan notes ...

Stimulus: Will Some Republicans Join the President?

January 29, 2009

Ronald Reagan didn’t believe in more government spending.  He believed in less.  He didn’t believe in more government money through taxes.  He believed in tax cuts.

And that worked: for America and for Republicans.

Any Democrat can tell you that George W. Bush got America way off track.  But a real Republican would say, the bloated Bush budgets created his downfall and hurt the Republican Party.

Now the question is: can Barack Obama lure some Senate Republicans to vote for his House passed stimulus, to get that “bipartisan” seal of approval.

Every Republican in the House voted against the president’s bill, along with 11 Democrats.

The White House hopes some pork will be romoved from the stimulus in the Senate to win over some Republicans….

Old Republican Mantra May Be the New One Too: Smaller Government Means Better Economy?

From CNN:

Will the GOP Compromise?


If you knew economic growth and new job creation begin to slow when total government spending is larger than about 25 percent of the economy, and you knew total government spending in the United States is about 36 percent of gross domestic product (GDP), would you propose policies to make government larger or smaller to create more jobs and boost economic growth?

By Richard Rahn
The Washington Times

Over the last few decades, many economists have done studies on the “optimum” size of government. A new study just completed shows the optimum size of government is less than 25 percent of GDP.

Optimum is defined as that point just before government becomes so large as to reduce the rate of economic growth and job creation. Governments are created to protect people and property. A government too small to establish the rule of law and protect people and their property from both foreign and domestic enemies is less than optimal.

The American Founding Fathers also believed government had public health functions (as contrasted with spending on private health), such as draining swamps where malaria-infected mosquitos thrived; and some public works functions (e.g. building and maintaining roads, and ensuring basic education – but not necessarily state-operated schools).

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Close to half of the stimulus goes to entities that sponsor or employ or both members of the Service Employees International Union, federal, state, and municipal employee unions, or other Democrat-controlled unions.

 Stimulus: “truly responsible government only a distant echo of our forgotten ancestors”

Economists Say “Stimulus Spending is Dead Wrong” for Economy

Putin and Medvedev Face Trouble: More Authoritarian Control Due From Kremlin?

December 16, 2008

Putin and Medvedev are in trouble – and the result may be the return of the Kremlin’s authoritarian streak…

By James Marson
The Guardian (UK)

Vladimir Putin’s power and popularity in Russia was built on a simple political model: a large carrot and a large stick. The carrot was Russia’s consumption boom fuelled by oil revenues. The large stick was his centralised, authoritarian control over political life, from the quashing of other political voices to the control of the media, which has painted an excessively rosy picture of the country, linking Putin with all the successes and blaming the west or Yeltsin’s so-called democracy for all the problems.

These two factors came together to destroy politics in Russia. No one was interested in options other than Putin’s plan, as people could see on the TV and feel in their pockets what a good job he was doing. Putin didn’t even have to crush all voices of dissent – there are a small number of magazines and newspapers that have critical coverage of the authorities, but hardly anyone reads them. Nor did anyone pay much attention when other voices were crushed. Why rock the boat when it’s sailing along so nicely?

But the crisis is hurting Russia, and threatening this political model. The country’s foreign currency reserves have dropped by a quarter, GDP growth is slowing and there is talk of a budget deficit next year. According to a recent poll, 20% of the working population have been laid off, faced cuts in their salaries or delays in getting paid during the crisis. The carrot is fast disappearing.

Russia's President Dmitry Medvedev (L) and Prime Minister Vladimir ... 
Russia’s President Dmitry Medvedev (L) and Prime Minister Vladimir Putin meet at the presidential residence Gorki outside Moscow, earlier this year. (RIA Novosti/Kremlin/Dmitry Astakhov/Reuters)

The stick is also beginning to look increasingly flimsy. Control of TV coverage is all well and good when what is shown bears semblance to reality. But it’s hard to play down the present crisis, although the Kremlin is doing its best by heaping criticism on the US, while blacklisting certain words, such as “crisis” and “collapse,” from coverage about Russia. But is it possible to believe there is no crisis when your friend loses their job, your salary is cut and your neighbour’s home is repossessed?

The crisis threatens to reveal the glaring failure of Putin’s reign to take advantage of strong economic growth and relative stability to push forward with modernisation and reform. While Putin’s “power vertical” allowed him to take credit for the country’s economic progress in the last few years, the situation is now reversed. As the Kremlin is the only political and economic decision-maker in the country, the blame for the problems could begin to fall on the same man as the praise did.

It is not clear how society will react to the consequences of the crisis. How will the newly wealthy middle class react to losing their jobs, cars and foreign holidays? Will it encourage them to push for economic and political reform? Social and political scientist Yevgeny Gontmakher caused a stir with a recent article in the respected daily Vedomosti, in which he imagined a scenario he called Novocherkassk-2009. (Novocherkassk is the city where protests against food price rises led to a massacre in 1962.) Gontmakher’s scenario begins with the shutting down of a large local factory, which leads to protests that the local authorities are unable to deal with. Moscow – Russia’s only real decision maker in the “power vertical” – is forced to make a decision: negotiate or use force? As a result of the article, Vedomosti was censured by the Federation on the Supervision of Communications and Mass Media for publishing material that may be interpreted as inciting extremist acts. “Extremism” is the Kremlin’s word for any kind of protest or opposition.

An indication that politics may be returning came from an interesting recent spat between president Dmitry Medvedev and Moscow mayor Yury Luzhkov, a leading member of Putin’s United Russia party. Luzhkov recently called for the return of direct gubernatorial elections (under Putin, regional governors were appointed). He was on solid ground, given that a recent survey revealed 63% of Russians are in favour of returning to a system of elections.

Medvedev’s response was to say that anyone who wants to see elections return can tender his resignation.

The censuring of Luzhkov and Vedomosti demonstrates the inflexibility of Putin’s political model and gives us an idea of what to expect in the next few months. There is no space for any voice other than the Kremlin’s. Any differing opinions or protests will be swiftly shut down. No one knows how long the crisis is going to continue or how bad it’s going to get. But the messier things get, the more Putin and Medvedev risk being left with a heavy reliance on the uglier side of their political model: less carrot means more stick.

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Greek fighting: the eurozone’s weakest link starts to crack

December 10, 2008

The last time I visited Greece, I was caught in the middle of a tear-gas charge by police in Thessaloniki – a remarkably unpleasant experience, if you have not tried it. My eyes were in screaming pain for an hour.
Protesters smashed up the shops on the main drag, broke the windows of my hotel, and torched a few cars.

So the latest four-day episode in Athens and other Greek cities comes as no great surprise. The Greeks are a feisty people. This is meant as a compliment – broadly speaking – just in case any Greek readers should take it the wrong way. Hitler was so impressed by Greek bravery that he accorded Greek soldiers full military honours, almost the sole example among captive nations in the East – or at least professed to do so at first.

That said, these riots are roughly what eurosceptics expected to see, at some point, at the periphery of the euro-zone as the slow-burn effects (excuse the pun) of Europe’s monetary union begin to corrode the democratic legitimacy of governments.

By Ambrose Evans-Pritchard
The Telegraph (UK)

Gallery Photo
Protesters throw stones at police in the Greek city of Thessaloniki

Note two stories in Kathimerini (English Edition)

“Athens riots spin totally out of control”

And an editorial: “Greece has gone up in flames and the concept of democracy and law and order has been eliminated”

Without wanting to rehearse all the pros and cons of euro membership yet again, or debate whether EMU is a “optimal currency area”, there is obviously a problem for countries like Greece that were let into EMU for political reasons before their economies had been reformed enough to cope with the rigours of euro life –  over the long run.

In the case of Greece, of course, Athens was found guilty by Eurostat of committing “statistical achemy” to get into the system – ie, they lied about their deficits.

Be that as it may. Greece’s euro membership has now led to a warped economy. The current account deficit is 15pc of GDP, the eurozone’s highest by far. Indeed, the deficit ($53bn) is the sixth biggest in the world in absolute terms — quite a feat for a country of 11m people.

Year after year of high inflation has eroded the competitive base of the economy. This is an insidious and slow effect, and very hard to reverse. Tourists are slipping away to Turkey, or Croatia. It will take a long time to lure them back.

The underlying rot was disguised by the global credit bubble, and by the Greek property boom. It is now being laid bare.

Greece has a public debt of 93 per cent of GDP, well above the Maastricht limit. This did not matter in 2007 when bond spreads over German Bunds were around 26 basis points, meaning that investors were willing to treat all eurozone debt as more or less equivalent.

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Obama’s Challenge: How do you tackle a confluence of crises?

December 9, 2008

US economic activity is collapsing so fast that it is hard to keep up with just how bad things are. The various monthly data releases are ancient history by the time they are published, even the most up-to-date ones.

This was scarily underlined by last Friday’s employment report. The headline number – a loss of more than half a million jobs in November, the largest decline in more than 30 years – was frightening enough, but revisions to the previous two months’ numbers added another 200,000 jobs lost to the previously estimated 500,000 combined.

The very rough and rapidly-being-overtaken-by-events estimate on Wall Street is that gross domestic product in this quarter will have declined at an annual rate of about 3 per cent. That would be a much faster rate of shrinkage than anything seen in the two recessions of 1991 and 2001. If there is any silver lining to be found to this misery, it might be the very speed at which the data are imploding.

Some economists are becoming disturbed by the similarities between the United States today and Japan in the 1990s. Having experienced both at first hand, I am struck more by the differences.

The Japanese depression was a slow-motion affair. It went on for the best part of a decade. Over that time, GDP rarely fell in any quarter by more than 1 per cent; unemployment grew very slowly. It was economic stagnation rather than collapse; that’s partly why it went on so long. It was almost oddly tolerable: not too much concentrated hardship, just extended and broadly spread malaise.

America, in a fashion characteristic of a more dynamic, flexible – but also less socially protected – economy, is descending much more rapidly, but perhaps will get over it more quickly.

The US-Japanese difference is reflected in the response by the private and public sectors to the crisis. Japanese banks were notoriously slow to face up to their bad assets and slower still to do the necessary consolidation. US banks, while far from perfect, have been quicker to mark their problems to what looks vaguely like market value.

The policy response in the United States has been swift and aggressive. The Federal Reserve has cut interest rates in a year by more than the Bank of Japan did in five. The hefty injections of cash into the financial system in the past year contrast sharply with the dilatory, policymaking-by-denial approach taken by the Japanese Ministry of Finance.

But here is the bad news. I put all this at the weekend to an esteemed former Fed official, who has made detailed studies of the Japanese and US crises. He was unpersuaded. In fact, he seemed to think that the depth of the US downturn would not necessarily mean that it would be significantly shorter. Sadly, this makes a sort of grim sense if you think about it.

The US today is not just facing a horrendous credit crunch. It seems to be confronted with a miserable confluence of crises, all coming to a head at the same time: the housing collapse, financial market distress, the credit drought, a global economic slump and a final, unwelcome rebalancing of its long domestic savings/investment dysfunction.

On top of all this, the US Government is in its quadrennial state of stasis caused by the long handover between presidents.

By .
Barack Obama seems at least to be under no illusions about how bad things are. Prodded by Larry Summers, who missed out on a second tour at the Treasury but seems very likely to be playing an active, broad-ranging advisory role at the White House, he has wisely decided to go for broke. Mr Summers has been publicly and privately urging a huge fiscal stimulus for some time and the outline announced by the President-elect at the weekend seems to fit the bill. An injection of more than $500 billion (£340 billion) over the next year and a half is probably the minimum needed. Now the debate will focus on the composition of the stimulus.

President-elect Barack Obama answers a journalist's question ...


In the Bush years the various stimulus packages focused on tax cuts, specifically rebates for taxpayers that were thought likely to increase spending. The effect was mixed, at best. In 2001, it looks as though there was some benefit from the rebates as consumers spent part of them, but last year’s rebates were almost completely ineffective. Americans, confronted with huge declines in the value of their household assets, simply used the extra cash to help to rebuild their balance sheets a little.

What is needed now is a direct impulse to spending. The President-elect is proposing an old-fashioned Keynesian public spending plan – with a modern twist. As well as spending on roads and the usual transport projects, he wants Congress to approve money for green and information technology-based infrastructure. Meanwhile, many Democrats want to pour money into the flailing car industry. And some sort of tax relief is also in the works – at least a suspension of the tax increases for the wealthy that Mr Obama proposed during the campaign.

It might be called a kitchen-sink approach – throwing everything you can at the problem. It is not pretty. But nobody has a better plan at the moment.

Japanese economy shrinks at faster rate than feared
Obama’s Many “Number One” Priorities

China ‘faces mass social unrest’

December 5, 2008

Rising unemployment and the economic slowdown could cause massive social turmoil in China, a leading scholar in the Communist Party has said.

About 500 protesters rioted at a toy factory in southern China on 25 November 2008

Chinese authorities have already had to deal with workers’ protests

“The redistribution of wealth through theft and robbery could dramatically increase and menaces to social stability will grow,” Zhou Tianyong, a researcher at the Central Party School in Beijing, wrote in the China Economic Times.

“This is extremely likely to create a reactive situation of mass-scale social turmoil,” he wrote.


His views do not reflect leadership policy but highlight worries in elite circles about the impact of the economic slowdown.

Mr Zhou warned that the real rate of urban joblessness reached 12% this year and could reach 14% next year as the economy slows.

China’s annual GDP growth has already slowed to 9% in the third quarter, from 10.1% in the second. Some forecasters see growth slowing to 7.5% next year.

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