TPS

So you're an Austrian. I think we have semantic differences, but we're not too far off. My description is that money is a claim on resources, and when you increase the claims relative to the supply of real things, then the price of those things goes up. However, those claims have to in the hands of people who are buying things. As we agree, most of the liquidity created by the Fed is sitting as excess reserves. What you describe is essentially what I am saying. The difference is that I argue it is the perception/belief that QE will have cause inflation which actually brings it about. Investors reacting to the belief that commodities can act as a store of stable purchasing power, their actions actually make it so. In my case, I argue that the underlying real demand for those resources doesn't justify the investor driven price increases, so the bubble eventually pops when real demand by users declines from the higher prices. Yes, they worked to funnel more money to the 1%. However, with respect to economic growth, the worst performance of any president since WW2.

I could quibble that October would be the appropriate starting date, regardless... Are you really saying all of the massive QE liquidity caused commodity prices to rise on average by 9%/year? If you say you're underwhelmed by my theory, aren't you implying the same when you say that QE is what sparked the rise in commodity prices? If so, where's the underlying supply and demand in your thesis?

You're kidding, yes? The guy uses a cbo projection of a surplus to back his claim, without realizing that same cbo study said the tax cuts would reduce revenues by $1.1 trillion from 2002-11. And the fact that the top 1% paid $84 billion more in taxes in 2007 than they paid in 2000?!!? That's support? In a growing economy it took 7 years to generate an additional $84 billion in taxes paid? Look at the irs data he links to. Look at the drop in taxes paid by the top 1%--it drops 3 straight years, 2001-3. Do you know how much more income the top 1% got from 2000-07? They got an extra $672 billion in AGI! Gee, their income went up $672 billion, so you would hope the amount of taxes they paid over that period went up. Duh! In fact, we can estimate their marginal tax rate paid on that increased income, it was 12.5%. Find something serious next time...

Do you want to give me a cherry-picked date for the start of QE1 which gives you that result? Wouldn't you agree that QE1 starts with the bankruptcy of Lehman? Or are you going to pick a date closer to the bottoming out of commodity prices due to the recession? At least you understand that the other QEs have no impact on demand-side inflation as long as banks aren't lending. As anyone who has been around here awhile knows, my take is that QE2, which began in 20104Q, is that it caused a speculative run-up in commodities as investors believed it would lead to inflation. Instead, the artificial commodity bubble was pricked by the lack of underlying demad at the end of April 2011. No. Bush tax cuts caused the budget to go from suplus to deficit once enacted, and this was in an expanding economy. Go check the numbers; I'm not going to do your work. Though here's a bit....Outstanding debt was $5.6 trillion when he came in and $10 trillion when he left. You can't be that daft to not understand the recessions impact on deficits?

Just like 99% of all analysts do. Do you know what commodity prices have done since January 2011? Zzzzz....Bushes tax cuts are what generated the deficits. Do you know what happens Jan 1? As for OCare, as I said, I've seen reports that contradict each other regarding the impact, so I can't say I know what the impact will be. Hope that's clear. Would you like me to do your homework too?

As I said, if you believe in scary deficits, then why wouldn't you support going back to the tax rates (along with new spending cuts) that generated the last surpluses?Seriously, can someone explain why the long term funding gaps need to be solved by January 1? I've seen estimates that claim both--some say OCare saves money, and some say it doesn't. Regardless, there was a huge gap projected before it took effect.

It seems as if the title "worst run defense in the league" follows him wherever he goes...

The "recent policy" of printing mega money? The Fed has been pumping billions of liquidity into the system for 5 years now, where's the super inflation? So many people here have been squawking about money printing and super inflation over the past 4-5 years, so where is it? The best you get is some conspiracy about fudged numbers. I'm not giving anyone a rosy picture, I'm simply telling you the fact that current deficits will come down as the economy recovers--that's the way the budget works. Regarding the FC, since you conservatives are so worried about the deficits, why are you concerned about the FC which will cut spending and raise taxes and lower the deficit? You guys should be supporting it. The problem with the current argument is that people are using the FC to solve future deficit issues caused mainly by the Medicare gap. Gee thanks for telling us the sky will fall 20 years from now....

The CBO uses expected wages and profits generated each year to estimate revenues, but they also provide the projected u-rate. They project a 5.6% u-rate in 2017 with a deficit of $220 bil (which assumes all changes in the FC take effect). The primary deficit is projected to be in surplus, so it's the growing interest expense that generates the deficit in the later years.

See my other response, but a back of the envelope here, the deficit was $1.55 tril in 09, and is projected at $1.1 trillion this year. Given those numbers, it should be about about $400 billion at 5%. Not too far off my other projections.

Hanging out at PPP too long seems to make you unruly and irritable. Hugely in the red--what exactly does that mean? $1.5 trillion per year? $200 billion per year? Here's the issue: When Bush2 cut taxes in 2002-3, he increased the structural deficit by some $150-$200 billion. The structural deficit is the deficit that you'd have at full employment. You can essentially compare the structural deficit under different tax structures by looking at the deficit for similar levels of unemployment. The average unemployment rate during 1998 was about 4.5%, and it was about 4.5% in 2007. With the economy operating at roughly the same level, there was a surplus of $69 billion in 1998 and a deficit of -$161 bil in 2007. There was a swing of $230 billion, and about 3/4 of that was due to Bush's tax cuts, the rest higher spending. So, yes, if or when the economy recovers, and unemployment falls to levels of 2007, then elimination of the Bush tax cuts will create a balanced budget, and elimination of tax cuts for only the rich will lower it, but still leave a structural deficit of about $150 billion; but that's a number that is sustainable as long as the economy is growing at its long run average. (Sustainable meaning the debt-gdp ratio will stay stable or fall over time)

Bit of an exaggeration on his part. About 2/3s pf those days of government spending are already covered by current revenues. Second, once the economy is back at a more normal level of unemployment, say 5%, then we are looking at a structural deficit of about $200 billion (+/-50), which leaves about 20 days of spending yet to be covered. Throw in taxing the rich, and we get it down to 10 days. Taxing the rich reduces the structural deficit by 1/2, and that is the real issue.

Hmmm, if the top 20% earns 50% of all income, please tell me where that "real money in the middle" is hiding... Also, a real doozy from Krauthammer this past week, http://www.adn.com/2012/12/01/2710198/charles-krauthammer-republicans.html Charles, if you admit that the money isn't there, which means that the government views SS taxes like all of its other sources of revenue, then there goes your 47% argument. If income and payroll taxes are viewed the same, then stop the BS about the 47% who pay no taxes! What's worse Charles, if you admit those taxes were used to fund government expenditures all along, then the Reagan-Greenspan increase in payroll taxes in the mid-1980s, supposedly done then to pay for deficits expected in the future, was really done to pay for Reagan's supply-side tax cuts that mainly went to benefit of the rich. Back then, a conservative was a true conservative, afraid of big deficits, so somebody had to pay for the tax cuts. It's pretty clear that there has been a class war going on since the 1980s, and it's the top who is engaging in it. Read more here: http://www.adn.com/2012/12/01/2710198/charles-krauthammer-republicans.html#storylink=cpy

Enough with the Greece analogy. Greece gave up monetary sovereignty; the US has not.

My views have been pretty consistent since first setting foot in TBD land some, what, 15 years ago?

I'm betting a deal gets done: if it does, then I'm in for the rally; if it doesn't, you haven't lost anything if you don't sell.

Countercyclical deficits are always about putting a floor on demand--automatic stabilizers are designed to prevent a recession from becoming a depression. They are always temporary, as the deficit will contract once the private sector picks up spending. Most of the debate now is about whether we should pursue austerity now or later. Any sane economist realizes you need to wait until the private sector becomes the engine again of growth again. (That's what your CEOs seem to think too! They don't want short term austerity imposed by the FC.) Btw, CEOs realize that they "managed fine" precisely because big deficits also put a floor on profits. Wages high in the run up? That's a laugh. Have you seen the data on productivity and wages? Labor has been on the run since 1981. Employment won't come back because the two sectors that facilitated the bubble aren't coming back to where they were in 2007--housing and finance. As long as China, Japan and our other large trade deficit partners continue to rely on the US market for their exports, they will buy treasuries. Once they stop, a falling dollar will help balance the trade account and reduce the need for government deficits. That, along with an improving economy, and the defict will come down to a sustainable level.

Who is talking about QE?

Rob, I would appreciate it if you provided me with a link so I can read up on where you are getting your views from. I'd really like to figure out what religion you belong to.... The most effective policy over the past 4 years has been the permanent stimulus that's resulted from automatic stabilizers and extensions of unemployment insurance that are the largest contributors to the deficits of the last 4 years.. I am sure your ceo's are also all begging for the fiscal cliff to take effect so there's another $600 billion of demand wiped out next year...

Ahhh...the downfall of one of the former saints...Interesting how the former SSers have become such ultra, dare I say, liberals? Bartlett and Roberts...whatever happened to the Reagan conservatives?

You said, I'm not sure why you even think my response is a "counter argument"? You simply wondered when was the last time "my school of thought" predicited an event? I provided you with some memory...

From one of the original supply-siders: http://www.theameric...ased-community/ For some reason this quote reminds me of PPP... This is pretty good too:

I guess you never heard of Nouriel Roubini, Steve Keen, Wynne Godley or the Levy Institute.

As I said, I didn't vote for him. However, I also don't base my analysis on political bias. Had it been McCain, things wouldn't have been much different. Until we have real choices politically, nothing will be materially different in this country...

Yes, there is a reason this one is weaker. The report you include compares this one to all post-war recessions. Here's one that does a better comparison. As i said, it's because of the level of debt that was used to build up this bubble that makes it longer to recover. http://www.voxeu.org...N9of0ptiU.email Their conclusion: Also, regarding the CBO report you posted, here's what they had to say about consumer debt: It's interesting that the CBO report also says that government spending has held back growth. I certainly can't predict war in the middle east but, all else constant, it won't exceed 4% on an annual basis. I'd say 2.5-3%, which is way better than it has been. I didn't vote for him (this time). Ps. That was a lot of work...trying to get you to respond...