Wednesday, November 18, 2009

Obama: Too much debt could fuel double-dip recession

He just doesn't get it. It's exactly the opposite. Deficit spending saved the world's economy from total collapse. Paring back that spending will create the double dip he is talking about.

It's truly amazing how he can say this. We ran up huge debts fighting WWII and the nation prospered like crazy. We cut the debt in 1937 and we went back into a depression.

It's like still saying the world is flat! If you sail too far you'll fall off the edge of the earth.


googleheim said...

deficit hawks are really pulling back on the capacity of our country to promote healthy people, babies, science, religion, and all that is American.

googleheim said...

was there any case studies similar to FDR in 1937/38 but in Japan
during 1990's where by deficit hawks tried to change things during the stimulus period and reverse the gains ?

why is there not more in depth coverage out there ?

also, did the prolonged Japanese recession help or encourage the current crisis even though Japan was "insulated" from the current crisis ( hence Yen rise ) since it did not get into mortgage backed securities ?

are there any Japanese economists or whatever that were putting out the alarms in 2006/7/8 ??

did they see it coming ?

mike norman said...

I am under contract at Fox and appear there often. My contract precludes me from doing other networks.

Snow White said...

Nicholas what in the world are you doing on Mike's blog if you don't like his comments? Some of us like reading his blog.

The Joker said...

Mike, I wish your contract at Fox would allow you to appear on other networks like CNBC, CNN, MSNBC, etc. You may be under contract at Fox, but they don't have you on nearly enough. You and Warren Mosler are the only two economists that truly understand the problems with this economy and have solutions to fix it.

You need to be on as many national TV networks as possible. Our country is suffering from the economic stupidity that pervades our government and business television.

mike norman said...


Yes, I wish I could be on other networks too, but that is the way Fox works. It's an exclusivity thing. I would have to quit Fox in order to be on other networks. Let's see what happens when my contract comes up for renewal in March 2010. In the meantime, Warren must try harder to get on TV. He's not pushy enough. He knows Steve Liesman on CNBC and Liesman has cited Warren several times in his comments, however, Warren needs to make better use of that connection and get himself on. Either that, or he needs to hire a P.R. person that can do it for him.

Ryan Harris said...

If two countries issue debt publicly and privately and one invests in technology, infrastructure, industry and education while the other spends on entitlements, military adventures, depreciables and zero-sum speculation, it is reasonable to expect the former will build wealth to repay the borrowed money while the latter will impoverish itself to repay the money over time. Both will increase employment levels regardless of how the money is spent, but that misses the point of the populist majority's constructive anger toward the government. Chennai vs Detroit or Shanghai vs New York or Shenzhen vs Birmingham, Beijing vs DC.. Which has used debt to increase the wealth of those cities more effectively? I suspect this longer term view is what Obama intended....

Matt Franko said...

Remember it really doesnt matter (economically) what the Fed. govt spends it on as long as it deficit spends enough. The deficit alone creates the net savings of the non-government sector (as W Mosler says: "to the penny"). What we are suffering from is a Fed govt that has not provided enough savings (thru deficits) to successfully fund and operate what is (was) a $14T+ economy.
We are still reeling from the surpluses (taxes higher than spending ie de-funding) of the late 90's, and the deficits became too low in late 2007 (market top) and its been all downhill from there save the small ($160B) fiscal transfer that the GW Bush admin did in 2Q 2008.

I dont see any political possibilty to increase the deficit at this time. The stimulus is structured to dole the deficit spending out in too slow a fashion and it is taking too long to show up. Perhaps this can accelerate over the next few months, but if not, things are going to get even tighter.

googleheim said...

can anyone sum up mosler's position in general on what should happen across all fronts : dollar, stimulus spending, investment etc

googleheim said...

analyze this :

the superconductor super collider which would have been bigger and badder than even the new LHC proton collider in Switzerland
was considered something the USA could not afford in 1992 at a cost of $4 to $16 billion.

Now the Europeans have a strong currency and command the lead in fundemental particle physics with their LHC proton collider which we probably subsidized with direct funding, a low dollar ( so they could buy somethings at reduce rate from USA to comply with intl contracts ), as well as USA subsidizing European factories in the south of USA which have no unions.

The TARP bailouts of banks could have built one of these for every state in the Union including Alaska however remote it is.

Now we are backwaters in the lead to fundemental research in physics.

Mosler / Norman for president.

What a sham of economic spending policy

Anonymous said...

Hey Mike,

Can you tell me how the united states will pay their huge debt when their GDP is 70 consumption?

Anonymous said...

70% consomption ***

googleheim said...

Hey "D" there is theoretically apoint where a further increase in debt to GDP ratio would not be necessary and that the debt would start dissolving itself such that the ration would start lowering by itself.

That is the bell curve of Mike Norman's theory of Capacity.

The playing field of the real economy was exploded last year, and if they want to continue the game they have to fill the dirt back in by spending and creating monies.

If the Debt / GDP is X% and is increased to X+1% continuously, then the functional mechanics of standard macroeconomics apply and the ration will at some point reach an inversion point where by there is a saturation point - an asymptote - a limit by which it was diverge back downwards.

In otherwords, it is impossible to be on top of the world and spend yourself into insolvency with an infrastructure such as the USA.

mike norman said...


Everything that is consumed has to be produced, by definition. If I buy a car, somebody built the car: Ford, GM, Chrysler, Toyota, etc.

Therefore consumption and production are equal by definition.

My payment for the car is income to the carmaker, who then pays his employees, buys equipment, parts, supplies, builds factories and everything else that goes into making the car, which adds to the overall physical capital (and wealth) of the nation.

Eighty-three percent of what is consumed in the U.S. is produced here. The other 17% is imported. Foreigners sell us their stuff to acquire dollars, which is non-convertible freely floating currency . That's all they get. There's no debt that we owe to anyone...Toyota sold you a car and the Japanese get a credit in a bank account, which they then hold in a savings account called a U.S. Treasury to earn a bit of interest.

So, when you say, "how are we going to pay back our debt when 70% of GDP is consumption," I just don't understand what you are talking about. Pay back what debt? And pay it back to whom?

mike norman said...


Of course, we can always stop consuming altogether. We can forego eating, live on the streets and walk around naked.

You see my point? We don't eat merely because farmers grow food. Farmers grow food because we need to eat. We don't wear clothes simply because clothing manufacturers make things to wear. Clothing manufacturers make things to wear because people need clothes.

Production is driven by consumption for the most part, not the other way around. Anyway, they're equal. Your thinking is wrong.

Anonymous said...

I was wondering, why the U.S gov. spent 23 trillions to bail out banks etc...when it would of cost him 11 trillions to bail out regular people with debt..?

mike norman said...

I don't know why they did that. Ask Obama. Ask Paulson and Geithner. Ask Congress. You're right...they're doing nothing to help regular folks.

Dsylexic said...

what does the import of toyotas have anything to do with the fiscal deficit?. are you sure you understand the difference between a trade and fiscal deficit?. trade deficits are doesnt mean much if people prefer to export stuff to you. australia has been in a deficit over 100 years. the richest european states/citiesin the 16th century - in holland had virtually everything imported.

the deficit the govt's budget runs up because it wastes money on stupid wars has nothing to do with the trade deficit.the govt bureaucrates burning up cash on bondoogles dont help production or consumption.just redistribution of wealth from the productive to the non productive.
the japs and saudis and chinese buying up US GOVT debt is the worry because it is the tax payer who is on the hook for these things.not some stupid GDP to debt ratio. the trade "imbalance" is just a rhetorical device

usssaratoga2 said...
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usssaratoga2 said...

(this is an edit of my original) The "deficit" is the means by which the super-rich who own the country transfer debt to 'we the people" period. In a sovereign country, with a sovereign currency, (which we almost had at a few points in time), there is NO DEFICIT...EVER ! The government uses tax and fee revenues to pay it's bills and if there's a shortfall, it just prints the money...which better be for a good purpose, like a properly declared war to save the country...not any of our situations now. In any monetary system I would support, that would be the case, such that when we had the government overprint for a valid reason, and inflate our currency (unless the GNP tracked it roughly), we would all suffer from it, not just those of us at the bottom as now. One remedy for such inflation would be repatriation of resources from the vanquished for all to benefit from...unlike now, where the super-rich take over countries (the ME, one by one) It is but a monetary contrivance to lead us to penury, peonage and serfdom...much more on my small blog..