Phil, you’re so right in that low national debt is a good reason to celebrate Finland. If what Bush is doing with the debt is totally incomrephensible anywhere, that must be in Finland. But I believe the Finnish national debt was much lower some twenty years ago. There was much talk of a debt crisis during the early 90s when the USSR collapsed and the Finnish economy was readjusted to the EU. I believe all major political parties in Finland deserve credit for controlling the debt throughout the 1990s and into the new millennium. There were also many dissenting voices saying we paid for keeping the debt down with high unemployment. But I don’t think Finland could have afforded the kind of ballooning debt the Bush administration has chosen as the way forward. A superpower with a gigantic market and a large military has an easier job in finding sources of financing than Finland would have in a similar situation.

Just wait until Finnpundit shows up, he’ll turn this around too.

Phil, don’t get influenced by those who think the deficit is a problem: it is, rather, a strategy. It is a consciously permitted development in reaction to a trade imbalance that benefits others. It has the actually paradoxical effect of lowering the value of the dollar (thus helping exports), while still keeping the dollar as the central reserve currency in the world.

As Helsinkian alludes to, comparing the meaning of a US deficit to any other country’s deficit is erroneous, and misleading. The simple truth is that the entire world has chosen to be dependent on the US economy, through exports to the US. Thus, the health of the US economy is of paramount importance to their own health. To paraphrase the French novelist, Balzac: if the debtor is big enough, the lenders are slaves to the debtor.

Growth rates are what we should be looking at, as that is the key to a healthy economy, – and the growth rates in the US continue to be good. Keep in mind that back in 1992 the US had (proportionally) an even greater deficit than now, and by 1999 had a huge surplus, due to growth rates. (By the way, the chart is deliberately misleading, as it doesn???t depict budget surpluses. At different stages in history, the government had surpluses, but consciously chose not to pay off the debt).

What unnerves people is that the US is the only country in the world that has the capacity to engage in these kinds of strategies. Thus there are precious few models to study as to the consequences. The fact is that the US occupies this unique position due to its consumer culture, which gives it an adroit nimbleness to adapt to change at the drop of a hat. A welfare state, for example, simply does not possess that kind of flexibility (where it is experienced as social pain).

The big challenge is the relationship with China (Europe is economically irrelevant, by comparison). That is what you should be concerned about, because the historical models that could portend that future??¦ do exist (namely, in the Greater East Asia Co-Prosperity Sphere or, as it was also known, the Japanese Empire).

I checked out on the treasury department web site that Secretary Snow has a PhD in economics from the University of Virginia where he studied under two Nobel prize winners. If that’s the case, I wonder when did he last check the debt figures. If he were the minister of finance in Finland, it’s inconceivable to me he would have been reappointed to his job as is exactly what happened last January. Not only Secretary Snow is supposed to be a professional, hasn’t President Bush studied at least some economics? Everytime I look at that US debt figure, it strikes me that Bush and Snow are the real voodoo economists of our time. Just how do they make their budget to add up? If everybody else did what they did, I wonder where we all would be heading. I know their economics must count on everyone else not imitating them.

Large government debt and large trade deficit often occur together. A large trade deficit (also a trait of the US economy) means that the country is actually exporting currency. That means, that they are, in essence, printing money and giving it in exchange for something that is truly valuable.

So, what is actually happening is, that US consumers are robbing the rest of the world blind using an ingenious SCAM called “the dollar”. The US growth rate is also a big bubble that is going to burst as oil gets more and more expensive. Hopefully, for all parties concerned, they have time to adapt so that things just level out instead of a sudden crash.

Pro-bush statements usually sound like the incoherent babbling you hear from mental patients in an advanced state of psychosis. Finnpundit is no exception.

I am certain that deficit spending is not a sustainable strategy. I agree 100 % with Finnpundit that what the Bush administration is doing is indeed a conscious strategy but it is a very problematic strategy and it will be a big problem in the long run. Everyone expects the next president to change the policy and reduce the deficit. That is simply not Bush’s problem, not anymore now that he has secured re-election.

As long as the dollar is the central reserve currency of the world but only as long as that is the case, such a strategy is possible. If there is the slightest risk that the rest of the world (say Asia) decides that America is way out of line and chooses the euro as the next central reserve currency, the effects could be disastrous. As long as we all believe in America and want to invest in America, the lending will continue. But the dependency on America is no longer total. Bush gambles with other people’s money but I don’t think most people are as convinced as Finnpundit that he’s doing the right thing.

As Tiedemies points out, the world is willingly accepting dollars in trade in such mass quantities that to change reserve currencies would precipitate a dollar collapse. However, that would wipe out their accumulated profits from trade. So there won’t be any such drama in the short term, since the idea is not to be stuck with mere paper.

The problem with the euro is that it is not the currency of a consumer society and culture. Why? Because the high taxes of welfare states makes for less consumption, and thus less relevance for the acccumulation of euros.

Again, what unnerves the world is the apparent brinkmanship displayed by the Bush Adminstration. Yet that is the price of freeriding: you???ll always be dependent on the driver.

As to what happens after Bush: the focus right now is the war (and that???s being fought with borrowed money, willingly lent). But by 2008 the Republican Party needs to have the troops home, and spending down. There is still time for some changes, but so far, so good: what matters are the growth rates, – the single most important indicator of what the future portends.

US Treasury Secretary John W. Snow studied at the University of Virginia under Nobel Laureate and public choice theorist James Buchanan. I checked out that one of Buchanan’s works cited as most directly relevant to his Nobel Prize is called Democracy in Deficit.

Anyone interested can check out additional information on “Democracy in Deficit: The Legacy of Lord Keynes” at the online library of liberty web site:

http://oll.libertyfund.org/Home3/Book.php?recordID=0102.08

It says that “The book serves to bolster Buchanan’s central beliefs in the necessity of a balanced-budget amendment to the U.S. Constitution and monetary rules rather than central bank discretion.”

At least prof. Buchanan has not taught that the idea of a balanced budget is ridiculous in itself. I wonder what Secretary Snow makes of all that now that he is making his strategy to reduce the deficit by half (his deadline is conveniently a year after Bush’s second term has ended). Like so many other Bush appointees, Snow was apparently Dick Cheney’s pick.

Sorry about “the year after Bush’s second term has ended” piece of misinformation. Bush’s tresury team is telling the world that they’ll cut the deficit in half by 2009. I believe indeed that they mean that will be done by the time Bush will leave office. That is still conveniently after the 2008 elections but it is theoretically possible to do it before the end of the term. Maybe they’ll do the miracle in the last quarter of the Bush second term.

The problem is that although Bush is not allowed to run for a third term, the Republicans will want to win a third consecutive term. It is still more than likely that the 2008 budget will be an election budget. My guess is that they will spend (and borrow) even more toward the end of the second term. For a long time, the Bush fiscal policy has been saying one thing and doing the opposite. That is called populism. People wanted believe what they heard but didn’t want to know what the administration did. I’m not so sure that the war is the number one priority. That’s just an excuse to ignore the numbers to say that everything serves the war policy. If the war would be such a high priority, I don’t think the Bush team would be spending so much borrowed money on everything else.

In 2004 GDP in US was 12000 miliard dollars and national dept 7700 milliard dollars. It makes 64 % of the GDP. In Finland the percentage is 45 %. In many european countries the percentage is 100 or over.
One trillion = million x million = 1000 milliards.
The same in finnish http://snipurl.com/f44r

What is most alarming in the figure is what has happened since Bush took over. The belief in the US economy was much stronger before him. Trust is a major factor in the behavior of markets and lenders. That the trust in the administration’s fiscal policy is lacking is the major problem.

The US economy has a singular position in the world thanks to the reserve currency. It’s also true that rich countries can afford substantial debts for a longer time and small poor countries can’t afford relatively small debts. I think, too, that eight George W. Bush years will be too short a time to undermine the US economy permanently. The next president, whoever that will be, is less likely to be a populist. Thanks to the stability of the Clinton years, the Bush team knew they could afford their reckless policies for a time.

Debt can grow very fast if you have an administration in power that is not concerned about it. The economic priorities are changing and the statistics for the past three years help us to predict the future. Snow is still talking about reducing the debt and perhaps the mere talk is a good sign. If they were openly talking about growing the debt even more, we could be absolutely certain about the outcome for the second Bush term.

Do we really know what the effects of printing more dollars are for the real economy (both in the US and in the world)? Is everything really like Finnpundit says, as long as there is a demand for the dollar, the Fed can print as much as they want and the statistics will look good. In the past Portugal used to be the poorest country of Western Europe and their endemic problem was the constant printing of escudos (which was permanently cured thanks to the euro) that destroyed the confidence in that country’s economy. But the escudo wasn’t the reserve currency of the world, either. So only if and when there will be a switch in the reserve currency, can the printing presses bring about a collapse.

My argument has been all the time that America is what it is because everyone else trusts in America. Bush is eating away at that trust thanks to his fiscal policies. He may not be able to destroy the trust because there will be a new administration soon enough and his treasury team will be just another footnote in history. Still, there is a fascinating willingness to self-destruct and to test the limits in the Bush team which seems to hold Finnpundit in thrall.

This “freeriding” argument of finnpundit is simply delusional. It is the US that is “freeriding” on the expence of the rest of the world. Their greenhouse emissions amount to some quarter of the total global emissions. They consume more than a quarter of the world crude oil capacity.

This is possible as long as Asian countries keep demanding dollars as payment. They are in a vicious cycle: if they stop, the value of the dollars they have will start to fall. So they keep massing more and more dollars in their vaults just to keep it from falling. When their people stop accepting this green funnymoney courtecy of Greenspan et al, the following things will happen.

1. Asian economies will take a dive, as their exports to the US will no longer be possible, since the greeback-funnymoney offered in return will be useless. Their own money will dive too, alleviating the fall somewhat, since much of their money balances is based on the huge amount of funny money in the vaults of their central banks.

2. US economy will experience increasing inflation and, as a result, skyrocketing interest rates, as the funnymoney will start pouring back.

3. The Euro will skyrocket, Euroland interest rates will rise and Euroland economy will hit a severe deppression, due to falling investment and practically zero export resulting from high-priced euro.

4. Oil prices will rise at an even faster rate. Who knows what kind of calamities this will bring. It might even have a stabilizing effect in the long run, European real price for oil may even fall, as inflation and overpriced euro make it cheaper in comparison.

The magnitude of these effects in absolute and relative terms is unknown, but basically, this is the scenario. If oil production takes a turn for the worse, things may turn even worse.

Phil, here are some graphs showing the deficit depicted with different pertinent information added:

This graph shows the deficit as a percentage of GNP.

http://www.cbo.gov/showdoc.cfm?index=6060&sequence=2#figure1-2

Note that ten years earlier, things were worse.

This one

http://byrned.faculty.udmercy.edu/2003%20Volume,%20Issue%203/balofpayart.htm

??¦ discusses the significance of the deficit in the world economy. I especially like this quote:

This gives rise to two opposing arguments as to the cause of the growing indebtedness of the U.S. to the rest of the world. Is the villain, so to speak, the large and sustained deficit in the Current Account Balance that causes the Capital Account Surplus, or is it the Capital Account Surplus that causes the Current Account Deficit?

2) The effects of the relatively high, real-risk adjusted interest rates, and the resulting appreciation of the dollar has been exacerbated by ongoing intervention in exchange markets by Japan, China and the like, in order to keep the dollar overvalued??¦

Anyway, one can agree or disagree, the point being that there will always be alternative points of view when one discusses the deficit. Google the deficit, and you???ll get an earful.

From the classic libertarian point of view, the government should not be in the business of issuing credit. And that certainly is the case when US state governments are concerned, because states do not control their own currencies, and have forfeited the right to conduct foreign policy to the federal government. Almost all of the states attempt to cover budget fluctuations (due to tax collection fluctuations that are tied to the health of the economy) with debt, – the most notable one in recent history being California, which became so disastrous a Governator was called in to clean up the mess.

But the US government has a special position because the entire world freeloads off of the American worker-consumer, due to the extraordinary openness of the American consumer society. This freeloading causes so many imbalances that some safeguards have to be taken. Tariffs would be the worst (thought some still clamor for that). Floating the currency is a solution, but even that can be a problem when the US success is so dynamic that the currency becomes way overvalued.

The best measure to take is to bring down the value of the currency, by running a deficit. And since no nation in the world is ready to match the US in the degree of openness, the world has no choice on the matter, – except, of course, if they would open up their markets to match that of the US.

That, by the looks of things, ain???t happening.

Let’s try pasting that link again:

http://byrned.faculty.udmercy.edu/2003%20Volume,%20Issue%203/balofpayart.htm

It has a number of very interesting graphs.

Tiedemies counters with arguments that are basically of the nature that have been heard before: America will, ultimately fail, sometime in the future, because it must: it simply does not fit in with the model presented by our ideologies…

These arguments have been used by Europe since… oh, well… since 1776.

Helsinkian:

Still, there is a fascinating willingness to self-destruct and to test the limits in the Bush team which seems to hold Finnpundit in thrall

I think the notion of American willingness to self-destruct is hyperbole, yet there is a willingness to test the limits, which I like seeing in the Bush team (or, I should say, the Cheney team). You don’t know how refreshing that is to hear after the disappointing show of the Democratic Party since 9/11.

Far from being in thrall of Bush, I’ve been a life-long Democratic Party member (I left the party in 2004, and registered as an Independent). The Democratic Party is the one with all the problems, with its reversion to the failed social policies of the sixties and seventies in answer to the crises of today. That, above all, eroded its voting base.

The Democratic Party (just like the Republican Party) is a big tent party that includes both liberals and conservatives (social as well as fiscal). I think there are still many people like Zell Miller in the Democratic Party – it was his aim to score points for Bush last summer when he tried to show that the Democrats have become a monolithic Northeastern liberal party. The idea that the Democrats are finished is similar hyperbole as the idea in 1992 that the Republicans were somehow permanently out of touch.

George W. Bush appeals to many Democrats, he’s after all a big spender. Hillary Clinton has already started moving to the right, John Kerry has also adjusted many of his positions during the years. That is called pragmatism and at the end of the day pragmatic politics tends to appeal to the broader mass of people. More significantly than what Hillary Clinton and John Kerry have done, Bill Clinton brought new life to the Democratic Party during the 1990s. Someone with his charisma could very well reach back to that part of the Democratic voting base that is temporarily pro-Bush.

I bet many fiscally conservative voters feel uncomfortable with all the Evangelical Christians and their creationist and anti-stem cell research positions, whereas many social conservatives are not necessarily anti-state, for many it depends on where the state decides to invest. I’m sure more Americans are conservative than liberal but there’s also a tendency toward centrism (in the American sense). People like John Aschroft and John Bolton are not exactly mainstream. People like that are heroes in the conservative talk radio. For example, many young Americans are tolerant, even if they tend to be fiscally conservative. The lack of tolerance can be the undoing of the Republican majority in the future.

When it comes to tolerance, I tend to think that Democrats have displayed the least of it, disparaging as they are of the working classes in America. The Democrats have ceased to be the Labour Party of the US; rather, they’ve adopted the tone of the Liberal Party, should we use UK models. And liberals have been surprisingly intolerant of diverse political and social opinion, at least in the US. It has to do with class snob appeal.

But you’re quite right that everyone eventually aspires to the center; that can be seen in all the democratic political processes the world over. What surprised me was the lack of that in the Democratic strategy in 2004.

There was one overriding factor that suprised me the most: the Achilles heel of the Republican Party was energy policy, – or lack of. Just concentrating on energy issues (not social ones) would have, I believe, paid off for the Democrats. Energy policy is progressive, – social welfare issues regressive – in American politics today. Yet the Democrats rarely mentioned that, choosing instead to talk about spending on welfare, co-operating with the UN (big mistake), and Kerry’s war record.

All the other issues, – Christian morals, abortion, stem-cells – those to me are mere trifles. Inasmuch as they are domestic issues, they will eventually be worn away by domestic politics, – meaning that eventually they’ll inspire the kind of ankle-biting advocacy that winds up (unfortunately) being the most effective way to transform a democratic society. What really mattered to me was the grand, international strategy. And in that sense the Cheney team was more prepared than Kerry.

In hindsight it’s easy to find plenty of reasons why the Democrats lost last year. Kerry was close to winning, had he taken Ohio, that would have been enough. In many key urban working class districts of Ohio, the Kerry campaign did a good job. Normally Kerry’s margin of victory in urban Ohio would have meant the whole state going Democratic. The Evangelical pastors in rural Ohio did a tremendous job in mobilizing disaffected voters on an anti-gay marriage platform, exactly as Karl Rove had planned.

But it wasn’t just Ohio. The social issues were not decisive on a nationwide scale. I actually believe Kerry lost Florida and became uncompetitive in key states like Arizona and Missouri because his international strategy was a bit fuzzy. At times he was tremendous in criticizing Bush but he was bad at presenting the alternative. Perhaps the Democratic Party was so divided that Kerry calculated he keeps more people on boat by staying fuzzy.

Yes the Democrats lost in 2004. The Democrats can win in 2008 by learning from their mistakes in 2004. All in all Kerry was a good candidate (not the best ever but good, although he played safe too much) but the party wasn’t ready to win yet. Exactly because the Republicans won, they will be less likely to learn anything from the previous election. Tides always turn, at one point one party goes out of office and is replaced by the other. Because there are only two national parties, the next party in government will be the Democratic Party. The party after that will be the Republican Party, again.

By the way, look at this graph:
http://www.rahatieto.fi/kodinrah/valtiovelka2.gif

In 1990-1998, the economic depression caused by the 1980′s careless crediting and the collapse of the Eastern trade forced the government to gain debt to maintain the welfare state. But, in 1998, this worrying development was halted. Thanks to Niinist?¶, debt was paid.

But, in 2003, Kokoomus was left out of the government coalition. See how the curve turns?

One thing is for sure – the Dems are NOT going to win in 2008 with Hillary Clinton. They’re hoping and praying she loses in the primary.

Like George W., Hillary has the right last name. If anything helps, it’s name recognition. She has a head start.

Some Hollywood people are apparently raising money for Evan Bayh, hoping that he’d have a broader appeal than Hillary Clinton. But even though the Bayh family name is well known in Indiana, a national reputation is harder to build.

If Angela Merkel can become the Chancellor of Germany (I bet she will), Hillary Clinton has a fair shot at becoming President. The first woman thing is a significant factor. For the Dems to win it is absolutely essential to have a larger majority among female voters than the Republicans achieve among male voters. John Kerry did not appeal to women in the way Bill Clinton did. Because she would make history, Hillary could. She would have to adapt some of her positions in a convincing way, which will be very tough. But she’s quite tough so I wouldn’t write her off. Then I wouldn’t write anyone off at this early stage.

Contrary to popular belief, John F. Kennedy actually won because he achieved a majority among male voters. Women favored Nixon in 1960. There were periods when women were more Republican than men (1920 some Democrats thought woman suffrage could lead to permanent Republican rule). Winning big among women will be important in 2008.

The gender gap is one thing. The Dems need to reach out to Hispanics, Jews and the working classes of the Rust Belt. There is no Catholic block vote anymore but like in 2004, if the Dems can’t offset the Republicans’ dominance among Protestants by winning more Catholic votes, they’ll lose again. I don’t really see why Hillary Clinton couldn’t do better than John Kerry among all these groups. She could also do worse. Like Kerry, she would polarize Americans geographically and she wouldn’t probably be competitive in most red states.

What about the previous post? I think that’s an important note as well.