Current Compromise on Tax Cuts

[mr_genius]

What is preventing corporations from hiring right now is a lack of customers. The business community is sitting on an enormous amount of assets in dollars right now, with no reason to invest it because it's not losing value (no inflation) and there's no gain if they do (already have more capacity than necessary).

 

They still will resist expensive US hiring. US job creation at a pace which can actually cover new entrants into the work force and employ the unemployed, will be the last thing to pick up. We will need to be adding around 350,000 jobs a month for this. Right now we are adding like 50,000 a month. We have even had negative job growth in recent months. The old scenario in which consumer spending picks up and factories re-hire to keep up with demand is true, but those factories aren't in the US. I believe this period in the US economy will be fairly long and is a product of the process of global normalization.

Edited December 10, 2010 by mr_genius

[Balta1701]

They still will resist expensive US hiring. US job creation at a pace which can actually cover new entrants into the work force and employ the unemployed, will be the last thing to pick up. We will need to be adding around 350,000 jobs a month for this. Right now we are adding like 50,000 a month. We have even had negative job growth in recent months. The old scenario in which consumer spending picks up and factories re-hire to keep up with demand is true, but those factories aren't in the US. I believe this period in the US economy will be fairly long and is a product of the process of global normalization.

If you wind up being right and the U.S. winds up being undercut and low on jobs for the next few years...I'd be shocked if we ever got back to quasi-full employment before the next financial crisis hits.

 

(Hence, perhaps, the utility of some additional stimulus now).

[southsider2k5]

What is preventing corporations from hiring right now is a lack of customers. The business community is sitting on an enormous amount of assets in dollars right now, with no reason to invest it because it's not losing value (no inflation) and there's no gain if they do (already have more capacity than necessary).

 

The more money people spend, the more we bring that excess capacity in the economy back on line to produce goods for people to buy. The more money the government puts out right now, if it goes into the hands of people who are going to spend it, the more it brings that capacity online.

 

That's where the jobs boost comes from. The Federal reserve is printing another $800 billion in interest free dollars, handing it to the Treasury dept., saying "find a way to give that to people".

 

The problem is, who are the bond holders in this country? The same people who we keep getting told don't need the tax breaks.

[Balta1701]

The problem is, who are the bond holders in this country? The same people who we keep getting told don't need the tax breaks.

The Federal reserve and the Chinese need tax breaks?

 

Seriously...we're at near record low interest rates on US Treasury bonds and have been for well over 2 years now. That suggests that the global market has yet to satiate its appetite for that particular safe investment. The bond market wants more US treasuries out there.

[southsider2k5]

The Federal reserve and the Chinese need tax breaks?

 

Seriously...we're at near record low interest rates on US Treasury bonds and have been for well over 2 years now. That suggests that the global market has yet to satiate its appetite for that particular safe investment. The bond market wants more US treasuries out there.

 

So what. Demand for bonds is immaterial to its stimulative abilities.

 

The point is, this can't be considered "stimulus" while tax cuts aren't, because it is money going to the exact same tax bracket.

[caulfield12]

Maybe we should ask the corporations who are sitting on top of $2.5 trillion in reserves to pay higher taxes, lol...

 

That's almost 3X what we owe China.

 

And actually, Krugman in the NY Times on Thursday described it as "hostages" that Obama was creating and surrendering on...and that obviously the fight would go into the 2012 election when the White House feels the economy will have turned AND the deficit will have grown enough to at least go down to $500,000 and above, if not $200-250,000, Obama's original intention.

 

Some of the moderate writers like Brooks actually feel this week was quite a victory, even though it certainly doesn't feel like one. The big concern is the triple dip recession hitting at the end of 2011 and going into 2012. The GOP will fight tooth and nail to prevent the Fed and Bernanke from mixing monetary policy with fiscal policy and lowering unemployment to 8.

 

8's the magic number....the only President to survive a number that high in his re-election bid was Reagan, and then it was 8.2 and clearly coming down.

 

The QE Round 2 is expected to bring it back down 0.1 to 0.3, but that's not enough.

 

Not to mention when all these states like CA and NY and IL start defaulting....the Federal government will have to print more money and the fiscal landscape might look worse than Europe after Greece/Ireland/Iceland/Portugal/Spain/Italy/Belgium like dominos, except it will be individual states at the verge of collapse instead of countries, but same net catastrophic effect.

Edited December 10, 2010 by caulfield12

[caulfield12]

The Federal reserve and the Chinese need tax breaks?

 

Seriously...we're at near record low interest rates on US Treasury bonds and have been for well over 2 years now. That suggests that the global market has yet to satiate its appetite for that particular safe investment. The bond market wants more US treasuries out there.

 

But haven't the prices and yields been going in the exact opposite path as intended by the Federal Reserve since QE was announced?

 

It's like the Twilight Zone. No economic theories can be applied here....it's all new territory.

[Balta1701]

So what. Demand for bonds is immaterial to its stimulative abilities.

 

The point is, this can't be considered "stimulus" while tax cuts aren't, because it is money going to the exact same tax bracket.

Huh? What do you mean by "This"?

 

I'm more than willing to accept that the corporate and high income level tax breaks in this are poor stimulus, and are probably worse than usual right now because they're sitting on such large sums of cash already. That part will have some impact, but it'll be very, very small.

 

The remainder of the bill will likely have a much more solid impact.

[Rex Kickass]

So what. Demand for bonds is immaterial to its stimulative abilities.

 

The point is, this can't be considered "stimulus" while tax cuts aren't, because it is money going to the exact same tax bracket.

 

If that's the case, why wouldn't a tax increase then be acceptable for people in that tax bracket, because they're getting a break on those bonds?

[southsider2k5]

If that's the case, why wouldn't a tax increase then be acceptable for people in that tax bracket, because they're getting a break on those bonds?

 

The answer is, because it does stimulate the economy. Both of them do, at an equal rate, because the money is going to the same spenders. At worst the argument goes to "not letting things get worse" which is exactly what would happen if you took lots of money away from the group of people in this country who do most of the hiring.

[Balta1701]

The answer is, because it does stimulate the economy. Both of them do, at an equal rate, because the money is going to the same spenders. At worst the argument goes to "not letting things get worse" which is exactly what would happen if you took lots of money away from the group of people in this country who do most of the hiring.

Of course...there is a difference between "Taking money away" from the people who do most of the hiring and "having the people who do most of the hiring earn less".

[southsider2k5]

Of course...there is a difference between "Taking money away" from the people who do most of the hiring and "having the people who do most of the hiring earn less".

 

And they wouldn't earn anything if they didn't have a job.

[Y2HH]

I keep hearing people repeat this "we owe China" garbage, and they need to learn how markets work before they repeat this nonsense more than they already do. We never "borrowed" anything from China in a traditional way. I say this because from what I see and how I hear people talk, I believe most of you think we asked China for some money so we could do X. We never asked China for anything. We put bonds on the open market and they bought them.

 

Anyone can buy these bonds.

 

You.

 

Me.

 

China.

 

Germany.

 

Anyone.

 

If Greece decided to buy 100 billion in American bonds tomorrow -- they CAN. They're openly available to anyone who wants to buy them. While this is technically being "lent" money, it doesn't work quite like a lot of you seem to think. If bonds are available (and they always are), ANYONE can buy them. Nobody talks about how much America owes other countries...just China, as if China buying American bonds is special.

 

The only way to stop China from being able to "lend" us money, is to pull the bonds off the open market. Which we cannot do.

 

The reason this is done is simple, if done properly. Selling cheaper future money (with the expectation that inflation continues to rise), for more expensive money now = you make money. Bonds have low yields, and that money can be used for other things that have greater future returns than the 2% you promise to pay on them. Now don't get me wrong, I'm not saying it's being done properly.

 

China owns something like 850billion dollars worth of American treasuries. Less than 1 trillion of the 13 trillion we "owe".

 

80% of what America "owes" is owed to the American people.

 

That said, China doesn't sell bonds on the open market, otherwise they'd have debt, too. They can't do this because they'd lose the ability to manipulate their currency, because if they did sell bonds, the street would then gain some control over what these were worth.

 

What China does is much more awesome.

 

They do whatever they want, because if you don't do exactly as they say, they'll just kill you.

Edited December 10, 2010 by Y2HH

[Balta1701]

Wow, Y2HH just wrote a long post that I generally agree with.

[Y2HH]

Wow, Y2HH just wrote a long post that I generally agree with.

 

William Bell showed me how to cross to a parallel universe where we actually agree on stuff.

[Soxbadger]

So are you the Walternate?

[Balta1701]

Senator Sanders has been staging a mock-filibuster against the tax deal today. Supposedly he's been talking for about 4 hours so far.

[Rex Kickass]

Senator Sanders has been staging a mock-filibuster against the tax deal today. Supposedly he's been talking for about 4 hours so far.

 

I wish if Senators truly thought the Filibuster was warranted that they would actually do something like this. If you're gonna hold up business in the Senate, bring the drama and bring the pain to bear. And make the argument the right way. Filibustering by actually filibustering is something I can respect.

[chunk23]

I really hope everyone that has the chance to is listening to Sanders right now. I've been watching since he started, haven't heard a thing I disagree with.

[Balta1701]

I've been watching since he started

This tells me a lot about you...

[mr_genius]

Bernie Sanders is a principled man.

[kapkomet]

I know, right? If only the Senate Republicans weren't such s***heads, maybe something could actually get done.

 

Actually, I was serious. I just think it's pretty sad that they are all buying one vote for another for another for another... and they are ALL in it because the Repubelicans are about to cede some power, too... which is pretty ironic in and of itself. So they're all buying off one another in the lame duck and tying it all together. It's incestuous.

[Balta1701]

Actually, I was serious. I just think it's pretty sad that they are all buying one vote for another for another for another... and they are ALL in it because the Repubelicans are about to cede some power, too... which is pretty ironic in and of itself. So they're all buying off one another in the lame duck and tying it all together. It's incestuous.

If there's no electoral penalty and there's a strong electoral reward...there ya go.

[NorthSideSox72]

Bernie Sanders is a principled man.

Not sure if this was sarcastic, but, I actually agree with it. I've always like the guy.

 

[kapkomet]

Not sure if this was sarcastic, but, I actually agree with it. I've always like the guy.

 

 

I actually respect Sanders and another one I respect is Kucinich... because they tell you straight up what they are and they don't deviate from their beliefs. I totally disagree with them politically but they don't play games like the rest of these turds do.