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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Federal debt/deficit
September 30, 2013 at 10:56 AM

Federal shutdowns, then and now

The last shutdown of the federal government, in 1995-96, happened in a very different economic environment than today. In November 1995, when the standoff between President Bill Clinton and the Republican-controlled Congress resulted in major portions of the government suspending operations, unemployment stood at 5.6 percent. Gross domestic product grew at a rate of more than 4 percent. Productivity was strong, and for the first time since the 1970s compensation for all income quintiles was poised to make real gains in the coming years. On Wall Street, the longest bull market in modern history was in high gear. The United States was in the middle of the longest, strongest economic boom of the post-World War II era.

The nation was different then. It was at peace. We hadn’t borrowed heavily to finance two wars.  The. modest Clinton tax increase had prepared the way to leave a federal surplus in 2000. Federal debt as a percentage of GDP was around 64 percent, as opposed to 102 percent in January of this year. That shutdown was felt in National Park closings, not the specter of default. We were recovering smartly from the 1991 recession, which had been brought on by the savings-and-loan scandal and the oil-price spike from Iraq’s invasion of Kuwait. The Conference Board’s Consumer Confidence Index was nearly 102 vs. 79.7 this month. The notion that Americans would come to believe that their children would not enjoy as good a standard of living as they did would have seemed laughable.

The structure and dynamics of the economy were very different, too.


Comments | More in Debt ceiling debate, Federal debt/deficit

April 19, 2013 at 10:12 AM

Vote: The sequester and me

The most dire predictions about the consequences of the sequester, the “meat ax” of automatic, across-the-board federal budget cuts, haven’t materialized. At least not yet. Plans to shut smaller airport control towers, including 5 in Washington, were put on hold. The Department of Agriculture found a way to protect food inspections from the…


Comments | More in Federal debt/deficit | Topics: Austerity, Sequester

February 25, 2013 at 10:36 AM

Making peace with the sequester

It looks as if the sequester will happen. The public doesn’t actually want to cut any government programs. There’s no economic reason to do so: Borrowing costs remain at historic lows, we borrow in our own currency, and cutting government spending in the midst of a slow recovery marked by continued high joblessness will only make things worse. The deficit is almost entirely a product of the collapsed economy, along with the Bush tax cuts and two long wars; it’s coming down. Nevertheless, the D.C. elites, from President Obama to Republicans controlling the House have bought into the idea that the deficit is our most pressing challenge.

So we’re going to embark on an experiment not seen in this country since 1937, when FDR throttled back spending on the New Deal and promptly sent the economy, which had been recovering smartly, into a new recession. Austerity in Europe has proven to be a disaster, too. Still, some good might emerge. Ever since Ronald Reagan, politicians have gotten ahead by claiming that “government is the problem.” Nevermind that the federal government grew under every president, including Reagan, who also added government jobs to help come out of the 1981-82 recession (unlike Obama, who has been cutting jobs).

The initial American austerity is relatively small, amounting to about 2 percent of the federal budget. That’s just for starters. So let’s find out if we really need the federal government.


Comments | More in Debt, Deficit, Federal debt/deficit

February 22, 2013 at 10:07 AM

Sequester and the economy

Where to begin on the sequester? The $85 billion in automatic, across-the-board federal budget cuts set to kick in on March 1 are an entirely artificial crisis manufactured by the Congress, specifically the Tea Party-dominated House of Representatives. The deficit and debt are not the biggest economic problem facing the country. Not by a long shot: There’s persistent high unemployment, slow growth, lack of investment in 21st century infrastructure, bad trade deals, inadequate tax revenues and the hollowing out of the middle-class by an oligarchy that has gamed the system to its advantage. Inflation remains tame. Interest rates are at historic lows. So there’s no evidence — none — that the deficit and debt (which are coming down, by the way) are hurting the economy.

The sequester, on the other hand, has the potential to shock a slow economy back into recession. The slow recovery is already partly the result of federal austerity. These cuts will do even more damage. Austerity is not working in Europe. It won’t work here. To be sure, we need to make the transition from Military Keynesianism to a peacetime economy and invest in America rather than in blowing things up and making more enemies overseas. We need to get control of health costs, which are the long-term threat to the budget. But the House, whose red-state members are in districts that are almost entirely net takers from the taxpayer, seems disinclined to back away from the brink. What do you think? You can make multiple answers.

Read on for the best links of the week and the haiku:


Comments | More in Debt, Defense, Deficit, Federal debt/deficit

March 29, 2012 at 10:00 AM

Our growth problem

It is definitely more profound after the Great Recession, but it’s not new. Real growth of gross domestic product was 51 percent in the 1950s, 53 percent in the 1960s, 38 percent in the ’70s, 35 percent in the ’80s, 39 percent in the 1990s — and just 16 percent in the 2000s (and thanks to Steve Randy Waldman for the research via the St. Louis Fed).

The reasons behind much of the the deceleration aren’t difficult to pinpoint: The economies of Japan and Germany were rebuilt and became world competitors; much of American manufacturing was complacent to threats and didn’t invest enough to meet them, and America hit its national oil peak in the early 1970s and was much more vulnerable to OPEC. The Morning in America decade actually performed worse than the decade of malaise, and the trend was somewhat reversed in the 1990s.

As for the 2000s, my suspects are the rise of China and our unwillingness to protect American jobs and industries; two recessions brought on by corporate wrongdoing; inequality that left more Americans unable to improve their economic conditions and hence productivity; unproductive finance, and the opportunity costs of two wars.


Comments | More in Debt, Deficit, Federal debt/deficit, Great Recession, Income/living standards, Inequality

March 5, 2012 at 9:52 AM

What could possibly go wrong?

The U.S. economy seems to be slowly healing and Wall Street is rallying, although stocks pulled back today and 13,000 seems a tough barrier to stay across. How could things go sideways? Let me count the ways.

1. Europe. The sovereign debt crisis hasn’t been fixed. Even Greece hasn’t been fixed. At best, European leaders and the bazooka infusion by the European Central Bank have bought time. As debt continues to reset at high rates, Germany remains at odds with the rest of the eurozone on a bailout. A breakup of the euro is still possible, with a resulting global depression. Even if the eurozone stays together, most European economies will be in recession or near-recession conditions for years.

2. Israel attacks Iran. Israel is very good at starting wars and reaching its initial goals; not so good at an exit strategy. If Jerusalem tries to take out Iran’s nuclear capability, it might set the program back for a time. But Iran might not be as passive as Iraq and Syria in the face of similar strikes. Iran has the capability to shut down oil traveling out of the Persian Gulf, causing a huge price spike and recession.


Comments | More in Banking, China economy and business, Debt, Eurozone, Federal debt/deficit, Federal Reserve, Global economy, Great Recession, Great reset, International economy, Outlook, Stock market

September 23, 2011 at 9:52 AM

The gain and pain from the dollar

To hear the media echo chamber tell it, the United States is “broke.” The markets see it differently, as investors are fleeing into Treasury bonds, which have the lowest yields in 60 years, and into dollars. This is good and bad news. It means that America remains the world’s safe haven in hard times, with the ability to borrow massive sums (say, for a real, job-creating stimulus) at very low interest rates. A strong dollar allows us to continue to borrow in our own currency — the world’s reserve currency — and for Americans to retain relatively strong purchasing power.

The downside is that the strengthening dollar makes U.S. exports less competitive by making them more expensive. This also hurts employment. It also lays bare the strategy of emerging nations, especially China, that keep their currencies artificially low in order to boost their exports.

Now, however, as the world hovers on the brink of another recession, central banks are having to intervene to prop up their currencies. The alternative: See their own purchasing power and value of assets priced in their currencies circle the drain as investors and companies flee developing economies for the safety of the dollar.


Comments | More in Dollar, Federal debt/deficit

September 22, 2011 at 9:04 AM

The Fed and the markets: What you need to know

Two developments are driving the fear in the markets today.

First, Wednesday’s statement by the Federal Reserve’s policy-making Federal Open Market Committee contained these words: “There are significant downside risks to the economic outlook, including strains in global financial markets.” Second, China’s manufacturing sector is on track to contract for a third straight month, its worst performance since the recessionary trough of 2009.

For months, as the economy has slowed and data have emerged showing the Great Recession was much worse than previously assumed, the conventional wisdom has clung to Ben Bernanke’s measured assurances that recovery was just around the corner. The FOMC statement finally dashes those hopes. (This is the same guy who said don’t worry about subprime just before that explosion).


Comments | More in Bailout, Deficit, Federal debt/deficit, Federal Reserve, Great Recession

September 6, 2011 at 9:33 AM

Stormy September

Today’s selloff on Wall Street is only the beginning of what we should expect from September. The global economy is slowing. The American economy is close to a double-dip recession or is still in one, the old-fashioned metrics no longer useful. Europe is a mess: Behind the so-called sovereign debt crisis are big banks that made bad bets (sound familiar?), and a monetary union on the brink. As the nest-eggs of average Americans evaporate, there’s only so far they can max out the credit cards to keep the vaunted consumer economy going.

Austerity will only make things worse, as has been happening in Europe. Nobody expects a bold move on jobs from President Obama, who is looking more and more like a one-termer no matter what outrageous things are said by the GOP field, especially the front-runners. Obama, a creature of Wall Street and Robert Rubin’s obsession with pleasing the bond playerz, will only add to the rolls of jobless as public-sector jobs continue to be eliminated.

None of these issues can be addressed quickly anyway. That is, even if our leaders were speaking truth to the American people and taking serious measures.


Comments | More in Deficit, Federal debt/deficit, Federal Reserve, Great Recession, Income/living standards, Macro/Big picture, Recovery

July 29, 2011 at 10:50 AM

If the default happens, there’s no place to hide

Forget “safe havens” of gold, corporate bonds and Swiss francs. If a U.S. default really happens in the next week or two, most of us will be trapped in the express elevator to hell. Sorry. There’s just no nice, compromise-ey way to phrase it. A freeze-up in short-term credit and layoffs at Flir are only the beginning.

While President Obama has brilliantly channeled the ghost of Herbert Hoover, the blame for this wholly unnecessary event will lie with the radicals that have taken over the Republican Party. There is no debt crisis. We do face a jobs and growth crisis, which was not squarely addressed by a president in thrall of Robert Rubin and a bought-and-paid-for Congress. As I’ve written before, playing games with the full faith and credit of the United States is as dangerous a ploy as one could imagine. Yet our representatives have done it. The message to the world is that the world’s largest economy can’t govern itself.

The economy has already hit stall speed, with growth slower than at any time since the Great Recession already ended. It won’t take much to push us into a double-dip.


Comments | More in Debt ceiling debate, Deficit, Federal debt/deficit, Outlook

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