Obama Problem Simply Defined
 

At the risk of belaboring the issue, I read this article by James K. Galbraith today in Huffington Post:

Obama's Problem Simply Defined: It Was the Banks

For me from afar it summarizes nicely what I have long believed.

I'm not too involved in Obama stuff, being a freshman Canadian. However I'd pay more attention if he dealt with Canada.

I fail to see what difference it makes. He had his chance. He blew it. Now we're in for at least two miserable years of even worse divisiveness and probably little progress at all on any front. The 2012 presidential race has already begun. I intend to firmly wedge my head in the sand for the duration.

Good analysis, I think.

All the Republicans here ran against Pelosi spending and Obamacare.... and they all won. Hard for people to understand the exploding deficit and where the blame goes for causing it.... short memories.

Candidates who support the "Fair Tax," a 23 percent national sales tax to replace the income tax, won. Candidates who support privatizing Social Security won. They are soon to be in DC with a mandate from the electorate to push ahead with those. The far right agenda is now stronger than ever.

So, right, Obama and the Democrats were unable to defend their actions in 30 second sound bites on TV. That's why the Democrats lost.

Agree with the article, the Fed Reserve and Treasury did little but continue existing policy..... throw money into the fire with monetary policy easing and throw money into the fire with a poorly targeted stimulus program. And this week we start throwing even more money into the fire by printing yet more money and throwing it into the economy over an unfounded fear of deflation.

It was time for a change in Washington, I am just not sure we changed for the better. Some where, some time, somebody has to move to protect the value of the dollar. This bunch seems to care little about that.... easier to pay off the national debt with inflation riddled dollars.

Why? A cheap dollar helps the US economy by making exports cheap and boosting employment. (As an American living abroad, I hate a cheap dollar, but overall it's a good thing for the economy.)

Well, yeah, but there's no inflation at all now. Inflation would be a good thing for the economy. But, until people start spending money and boosting demand, there won't be any inflation. The road to inflation starts with spending. As long as both businesses and individuals are loath to spend, it's up to the government to get the ball rolling.

True, unless the rest of the world responds by devaluing their currency to protect their trade in which case we get trade wars and everybody's employment suffers. Agree some adjustment is/was necessary, I just fear we may be overdoing it. I fear we may get ourselves into a position where nobody will buy US backed securities to finance our huge debt, and on and on, and the whole system spirals out of control. A little moderation is in order I think. Let's not price imports out of the US market because that will cost consumers a lot of money and in the long run will not help employment.


Again, true. But taking interest rates to zero and getting no results implies this was the wrong policy.... you can lead a horse to water, but you can't make him take out a loan or expand business. Monetary policy just goes so far.... if people are unwilling to borrow and loan at near zero rates, then clearly the problem is not interest rates but some other sector of the economy that is not being adequately addressed. On behalf of all the senior citizens out there who have saved all their lives to put aside a nest egg and live off the interest in their golden years, may I suggest this policy is devastating to them and made worse by the fact that the policy is not having the intended result. And all the while, the banks prosper with essentially no risk (per the article in OP).

We can print money only so long before it becomes a house of cards with a huge potential for collapse. We are nearing that point and inflation is just around the corner with the Fed betting they can quickly control it with monetary policy and interest rates. I am not so sure they can. I think they are taking a huge risk.

Why is it that every politician talks about change?

Quite frankly, I'd vote for someone whose official policy on nearly every subject was: "Let's just leave things as they are for a bit."

Stuff ain't good enuff…

Or is it that they want it their way?

Mostly, politicians just say what they think their voters want to hear. Doesn't mean they are going to do it.

LOL.. Hopefully they will. I've been promised hi-speed Internet by my neighbor who is also our councilor. And we got it. No wonder they've recently re-elected him :)

I read an opinion the other day to the effect that Republicans always fight like tigers for principles they believe in while Democrats are terminally timid. Is that true?

I'm one of those seniors being hurt by the cheap dollar and low interest rates. When I moved to Thailand five years ago I was getting 44 baht per dollar. I did my research and concluded that the dollar was overvalued by about 10%. Now I'm getting less than 30 baht per dollar meaning my spending power has decline by one third. That hurts.

When I was about to retire my retirement savings were safely invested and earning four or five per cent. Now I'm lucky to get more than one per cent. Another painful blow.

Right now I and the US economy need some inflation. Nothing the overly timid Democrats have done or promised is going to get us there. But I haven't heard any brilliant suggestions from the Republicans either.

It's clear that somebody has to start spending in a big way. Consumers are afraid to spend. Businesses see no reason to spend (they're already at over capacity). Governments around the world are preaching austerity.

Who's going to get the ball rolling again?

Apparently the Canadian and US dollars are on par. We're going to Watertown tomorrow!

Because I spent roughly half my career in the USA and half in Canada, I receive pensions in both currencies. Living in Canada, dollar parity with the US is not great. With much better luck than good management, all my investments but one are Canadian and all are doing well.

I believe inflation can occur in a number of ways other then consumer spending. For example, if commodities such as oil, gas, gold, silver, food, premium, etc... start to increase, then inflation is occurring but maybe masked due to deflationary pressures. Inflation/deflation at best is a metastable condition where one or the other is always present to some degree.

The problem with inflation is that once it starts to become noticeable, it's may be rather difficult to stop due to having it's own inertia. For example, an increase in inflation may correlated with reducing unemployment or improving the housing market. It then becomes a difficult choice to raise interest rates out of fear of harming the recovery.

Commodity prices spiked in 2007 and then fell rather dramatically in 2008. They have since risen to pre-recession levels. But, that rise has not been met with a concomitant rise in US inflation. Perhaps, as was noted, due to deflationary pressure in the US.

IMHO the near term economic threat is from deflation, not inflation. But, fearing either as an excuse to do nothing is bad policy.

You know, I never considered that. I think the statement is true. Just wish the Republicans had an agenda that included something besides lower taxes.... more specifically, lower taxes on the wealthy/investor class at the expense of social programs like Social Security, Medicare, Medicaid.

Democrats seem to get swallowed up on the far left social issues and never get around to articulating an economic policy. Everybody supports lower taxes, lower unemployment, and better health care, but the Dems never quite get around to telling us how they are going to get there.

The Liberal Party in Canada has the same problem. Too many of them are pie-in-the-sky idealists.

Iggy... not too many of us trust him.

To paraphrase Olof Palme: "Devaluation is like pissing in your pants to keep warm. It doesn’t work as a long-term solution."

Olof has a way with words.

In the meantime, Obama's committee on deficit reduction has put out its proposals to get our house in order.

http://finance.yahoo.com/news/Defici...76174.html?x=0

Sure looks like a Republican committee to me.... proposals are cut Social Security, raise the retirement age, cut Medicare, cut defense spending while we're at war, cut here, cut there, simply the tax code. Fine, but then it goes on to cut taxes, reduce the corporate tax rate, reduce the maximum tax rate, broaden the tax base (tax more poor people while the rich pay less). And on and on.

I can agree cuts need to be made, but why is it always social programs that have to go and why does it always have to be attached to lower tax rates for corporations and the wealthy.... and this from Obama's committee. It is a bi-partisan committee, but Obama is going to take the heat for it.... as he should.

We will never balance anything by taxing the poor more and reducing taxes on those who can afford to pay it.

"We will never balance anything by taxing the poor more..."

Thanks to the 'earned income tax credit program (EITC)' workers reporting less than $30,000 income actually can receive up to $5,020 in a 'tax refund check' for taxes they didn't pay in the first place. Add to that Food stamps (SNAP), national school lunch program (NSLP), medicaid and CHIP, Section 8 rent subsidy, Utility Bill Assistance (LIHEAP) and Childcare reimbursements, the "poor" are doing quite well, thank you. In fact, I have a United States Welfare Analysis chart that shows that in the state of Mississippi a family of three (one parent and two children under twelve) reporting $14,500 income has, with all these "benefits," the equivalent of $37,777 dollars in his pocket, whereas the worker reporting $60,000 actual income ends up with $34,366 in his pocket. This same table shows a worker reporting money earned in a year as $3,625.00 has an economic benefit of $31,630.00. So where is the incentive to work? Or, more accurately, where is the incentive to report income? Money earned "under the table" pays for the fun stuff while keeping the reported income low keeps the benefits flowing. Think people don't know how to work the system? Think again! While the "rich" work the system to keep the money they earn, the "poor" work the system to get money they didn't earn. So who has the moral high ground?
All the while, politicians work diligently trying to find ways to take money away from people who earned it and give it to people who didn't earn it. (And get some for themselves in the process, of course.) They tell everyone they are "watching out for the less-fortunate." And they incite class warfare by speaking endlessly of the "rich," as if these "rich" people were just "greedy," and took "more than their share." It's time to get a handle on some of this!

Wendell has a point. Whenever there is a benefit made available to the poor, substantial hoards quickly learn to game the system whatever checks and balances are in place. Here in Halifax, Nova Scotia we have families that are third generation welfare recipients.

"we have families that are third generation welfare recipients."
Same here. At least third generation. And when you are drawing "benefits" that your mother, your grandmother and your great-grandmother drew, it's easy to get the idea that these are your "rights". Good luck to the politician that broaches the idea that these benefits are going to be curtailed. Therein lies the problem!

Don't be expecting me to disagree with you and Wendell because I think there are abuses, too. But, for the record, the average/typical welfare recipient in the US is an elderly widow living in a rural community, not the ghetto stereotypes we hear so much about.

To make my previous point a little clearer.... in 1985 the maximum rate on the US income tax was 50 percent. The proposal from Obama's commission would put the max rate at 23 percent. Clearly what's being proposed is a shifting of the tax burden..... particularly away from those who are fortunate enough to be in that top income tax bracket. Started with Reagan and continued with Bush.... the ones who brought us deficit spending as a way of life. Cutting taxes to raise govt income and get out of debt is, indeed, voodoo economics.

I actually agree with some of what is being proposed and clearly some cuts in spending and some sacrifices are going to have to be made. Those sacrifices have to be shared.

Devaluing the dollar at home and abroad is not the answer. Current G-20 members meeting this week seem to agree with that position, at least some of them, because it is feared other nations will follow the lead and devalue their currencies, too, setting off a chain reaction that will hurt everybody and destroy trade.

While it is true that there are abuses to the welfare system, they are in the minority. As somebody who actually spent portion of my childhood benefitting from such services, I can tell you that it is hardly living the high life. I went hungry when food was scarce, shivered when heat was too expensive, and wore hand-me-downs because that's all there was. And that was with benefits. We never did "quite well" on welfare.

Too many people are unaware that most welfare recipients are whites who receive benefits temporarily (as in my family's case) and spent the years before and after paying taxes into the system that helped support them. Welfare is somewhere between one and two percent of the federal budget, much less than many people believe.

The problem persisting from one generation to the next is relatively rare, although it does happen. But limited eduction and limited prospects are a major factor in those cases.

As for the EITC, to quote the IRS

Did you know that the Social Security Wage Base is currently $106,800? That means that lower income earners could pay a larger percentage of their income to Social Security than high income earners. This is true of other taxes as well. Hence, the EITC.

The system needs to be improved, no doubt about it, but demonizing the poor won't help.

"..who receive benefits temporarily.."
That's what the system was designed for, and no one should be ashamed for having used it that way.
"..I actually agree with some of what is being proposed and clearly some cuts in spending and some sacrifices are going to have to be made. Those sacrifices have to be shared..."
I agree! It's got to start somewhere. I happen to live in a place where welfare abuse is rampant. That may flavor my opinion. I apologize for my words and I don't pretend to have answers.

No harm done. I wish I had the answers. Even if we did, we'd be swimming against a tide of opposition.

And yet, most people are. Partly because it is humbling and stressful experience, partly because of the cruelty and ignorance too often directed towards welfare recipients. I know from experience that some people feel justified lecturing the less fortunate - children, even - about their failings without having any idea what they are talking about.

I know that my experience affects my opinion, although I try to maintain a semblance of objectivity. I lived in low income housing when I was young. Most played by the rules, a few made all of us look bad, and they are the ones remembered, not the rest of us. I know it's worse in some areas than others. The reasons are usually complex.

I can sympathize with your frustration. My neighbors are a white, single income family. The husband has a union job with decent benefits. He worked under the table during a brief period of unemployment to milk the system. They lied in order to receive free school lunch and food stamps and extended unemployment. They borrow their parents' car instead of paying for a dump sticker. And so on. And they refuse to register to vote in an attempt to avoid jury duty. Yet they are quick to complain about unions, politicians, taxes, and welfare cheats. We work hard to live within our means, and don't begrudge our tax dollars helping those in need, but my neighbors' behavior is infuriating. My wife used to be a social worker, helping pregnant and parenting teens. Lower income families tended to work hard to avoid going on welfare. Higher income families tended to complain that they weren't entitled to more benefits. It was infuriating. And yes, I've seen the tiny kernel of truth that gets distorted into stereotypes. It wasn't rampant, but it was no less infuriating.