Perhaps the relationship between the debt and inflation isn’t as simple as you were led to believe.
May I please hijack this thread to mention a pet peeve?
What does “hyperinflation” mean? In a language where “poison” and “venom” are now synonyms ( 
) and “exponential growth” has come to mean “fast growth, even if linear”, perhaps I shouldn’t complain but …
… I don’t think I see the word “inflation” often these days, without the accompanying prefix “hyper.” :smack:
Phillip Cagan defined “hyperinflation” as inflation that exceeds 50% per month. Are you “baffled” we’re not seeing that now, razncain?
Others define the threshold as 5% per month, much much less than 50%, yet still much higher than the inflation of the Nixon-Ford-Carter era which at its highest point was only 1% per month.
There’s enough hyperconfusion in these threads already. Let us do not go hyper-hyperbolic and add hyper-prefixes to all the hyper-bad words, OK?
[End hijack]
Why? I know that plenty of talking heads and some economists have been raising the specter of inflation for several years, but that’s just because they are pushing an agenda. Since they have been warning about the dangers of inflation, and since inflation has been at about 1.3% or so annually, can we please recognize that THEY DO NOT KNOW WHAT THEY ARE TALKING ABOUT, and start disregarding them?
I mean really, at some point, can we return to a sensible society where we actually disregard people who demonstrate that they are wrong and pay attention to people who are demonstrably correct?
Inflation is a problem when the Fed sells t bills to the banks, and the banks in turn start using those reserves. The banks are not using their reserves now. If they were, that would mean demand was going up, and that would be a good thing!
We would actually benefit a bit more from some higher inflation, like at around 4% or so. It would make all of the debt we’re all holding a little more manageable, and it would give the Fed a little more room to use some of the levers at their discretion to help steer the economy.
What does this mean? Does “us” mean the US? If so, that’s not correct at all. The US is still in a position that it can borrow at very low rates, which is one reason why a focus on the debt and deficits right now is such a stupid and harmful approach. We need to get the economy going and get job production up before we turn our efforts to address debt.
And our present debt is high, but not particularly remarkably so in historic standards. If we got the economy moving again, we could easily manage even higher debts quite easily.
I recommend Krugman’s new book “End This Depression Now!” It’s a pretty easy read, in terms of being clear and understandable to the lay person, but is comprehensive in addressing these issues.
I realize you’re talking about the gold bugs/permabears/doom and gloomers, but don’t throw the baby out with the bathwater. There are reasonable and intelligent economists and fund managers that are concernedabout inflation - though most likely in the second half of this decade.
Plenty of reasonable and intelligent people are nevertheless wrong in their predictons.
I’m concerning myself here with a present focus on getting us out of our current economic mess. I’d rather that we deal with the problems of inflation in five years than deal with five more years of insufficient job growth and economic anemia. If that’s a trade that has to be made.
Generally speaking, nations do not need to have a balanced budget to operate or to manage their debt. While the current debt is growing too large to be sustainable over time simply halving it at this point would be sustainable. Especially if you are an 800 lb. gorilla of a nation like the US. In fact while a few surpluses here and there are good, macro economically it’s better for nations to be running somewhat in the red in order to have a buffer of capital available and to be investing in infrastructure and education and things of that nature to provide a stable environment for growth.
If you want surpluses let’s go back and do what Clinton and LBJ did towards the end of their presidencies and raise taxes to pay down deficits and use some of that money on spending for infrastructure that business won’t or can’t provide.
The one single thing we could do to turn the economy around is to bring wages up about 15% or so over the next election cycle to put money directly into the pockets of the middle class for a direct infusion of spending and capital. Wages have fallen far behind gains in productivity over the last 30 years while wages, adjusted for inflation, have fallen rather than risen in comparison. The govt. could do it’s part by creating a living wage standard and tying it to any increase in congressional wages and raising the wages of public employees and creating a flexible WPA system which temporarily puts people to work on infrastructure and administrative tasks until they can return to even higher paying private sector jobs. All this extra cash in pockets also automatically broadens the tax base without additional raises in the percent people are taxed at as higher wages also mean more goes into govt. coffers.
We should also try to essentially reverse, as much as we can without losing overall revenue, the low rates on capital gains which currently sit around 15% and the rates on payroll taxes which are about double that of capital gains which sit around 30%. The entire point of capital gains taxes to begin with was to force businesses to hold on to capital and develop it until depreciation lowers the rate on it to make it reasonable to let go of it for a lower rate, not to be flipping capital like pancakes. Force people to stand by their investments and make them work.
But ideologically, the neoconservatives will have none of this since it is only their way or the highway without even trying to compromise which at least Obama and the Democrats are trying to do. Again, we need to look at the solutions of the late '40’s and 50’s at the blueprint that made the US the most successful nation in the history of the world. Which is pretty much diametrically opposed to the neoconservative economic ideology. But inexplicably, the Democrats who should be all over that example of how even insane levels of taxation do not slow down a capitalist economy when spending is properly directed aren’t doing that as the money in Washington is preventing many possible solutions from becoming reality. After all, you have to pay the masters of the universe to play if you want a seat to do your ‘public’ service in Washington
Ha! I just came across this from yesterday regarding the 2009 stimulus. Even that weak-tea stimulus, which was on the low side of what would have been more effective, shows that in a crisis government spending is part of the solution to getting out of it according to a majority of economists polled as to its results.
I wish more of the money had gone to Main St., especially providing a subsidized way to bring as much housing and business property up to 100% energy efficiency standards or something useful like that which would have provided work for laid-off housing builders in a market which nearly came to a halt in 2009. That should also be the first step in a greener economy whereby we start by reducing how much energy we need to run things in the first place. But even what we got seemed to help provide growth, as slow as it was. Which was to be expected as any time there is a depression or recession job growth is always, always, always the last part of the economy to recover. Had it been bigger and better spent we might have already be down a percentage point from where we are now.
Not being an economist, and not knowing hyperinflation had a specific meaning where to most economists it meant or exceeded 50% a month, yes, I was definitely off base using that term. :smack: So, I’ll say, I’m surprised we haven’t started seeing some serious annual double digit inflation already with the trillion dollar debts we have been running. Is that better? 
Thanks all for the correction.
All true.
This is a statement of faith.
Nobody knows the point at which creditors lose their faith in the US; it almost certainly won’t be tomorrow, and it may not come for fifty years. But so long as there is a deficit, that point is drawing closer. Based on historical precedent, economists say that when debt as percentage of GDP approaches 100%, the danger gets greater and greater, but there is no way of knowing until it happens. In much the way that “global warming isn’t a problem because Miami isn’t underwater yet” is an unpersuasive argument, so too is “our debt isn’t a problem because we aren’t seeing a spike in interest rates yet.”
Everyone knows the current trajectory is unsustainable, including the administration. But neither the Democrats not the Republican leadership have proposed plans to do anything more than make the problem less bad, because they think probably rightly, that voters don’t have the stomach for it.
Quite frankly, in the early years after 1946 we didn’t rely on creditors to take care of our problem. We paid the debt down ourselves. In face, part of the additional spending we invested in along with paying down the debt was creating new and better markets with the Marshall Plan. And by the time they were ready to buy and sell we’d pretty much were very much open for business. I should also add that by the mid-50’s, because about 1 in 3 jobs were unionized, to keep unions out of other shops everyone was more or less paying the same or better wages and benefits than the unions. And the top tax rates were still at 91% and obviously we created previously unheard of prosperity.
But all I hear about is the so called pain and economic slowdown we’ll incur raising the rates 3% on the wealthiest and closing enough corporate loopholes to squeeze something like 1/2 of what’s owed in annual taxes on the biggest corporations in the US. One would think that with the free rides some of the largest corporations get paying no taxes while winning huge subsidies, and with the wealthiest ‘job creators’ earning 93% of income gains going to the top 1%, all that would have produced plenty of jobs to have turned around the economy after 12 years. Nothing like that has remotely happened. The Republican model is a complete bust for everyone else in the nation.
Rather, we could raise the top rate to 6% and given about 3 or 4 years of that, with spending and legislation targeted at putting more money in public employee’s pockets and hiring more could while creating much needed projects for private industries we might once again help Europe regain its footing at the same time. We don’t need the most extreme measures of the late 40’s and the 50’s. Half measures will do just fine. And I’m not taking this on faith. We’ve rarely had a balanced budget, and spending came down overall through the 50’s to the 70’s under a top tax rate of about 73%. And we remained the world’s most prosperous nation throughout that time.
If the conservative plan of ever lower taxation and ever smaller government and less regulation was based in reality over the last decade it would have produced a booming economy. Instead we grew enormous deficits, the slowest job growth in decades and an economic meltdown. The evidence is clear comparing the booms of the early post war era and the collapse of the last decade. We won’t make big dents in the deficit until we dig deeper and pay them down out of pocket. Fortunately, since governments work on somewhat different economic principals than businesses and individuals, with adequate revenues we can simultaneously grow our business environment. And that is not based on faith, that is based on historical evidence.
What are you, a Socialist?
Other than the ‘both parties aren’t sane’ bit, I think this is a great statement.
Anybody who can do arithmetic can see that tax increases are necessary. The GOP clearly isn’t sane on their insistence on tax cuts under all circumstances. But the notion that tax increases will not be used to actually solve the problem seems sound and reasonable to me, and I don’t care if that position puts me in overlap with XT or Shodan or whomever.
If the national debate could turn to this question, “How can we be assured that your proposed tax increases won’t just result in spending increases?” it might be possible to hammer out some kind of agreement. Actually identify a problem (long-term debt) and takes steps to address it directly instead of the relentless repetition of ‘tax is bad!!’ or ‘government itself is bad!!’ and solutions can be hammered out.
I do have to disagree with XT’s vision of how rigidly uncompromising both sides are. Personally I’d be willing to eat a tax increase if it meant eliminating the Bush tax cuts for everyone. In fact I promote the idea. Some super-rich dudes (like Warren Buffet) with very different political opinions than me share my view on this. In Washington however I see the GOP as the party that will simply Not allow a reasonable, central part of the solution (tax increases) to come onto the table, nor will they allow onto the table much of anything that isn’t precisely their agenda. The Dems seem to allow plenty onto the table but the conversation cannot go anywhere because the GOP is so rigid.
But neither side trusts the other. How can we craft a solution that both sides can be comfortable isn’t a trick to simply soak the rich, or else simply provide handouts to poor constituencies for votes, but simply and only addresses the problem?
That’s the wrong question to ask. The question is “how can we be assured that your proposed tax increases won’t just result in a greater rate of spending increases than would occur under no tax increases.” The answer is they won’t. When revenue goes up we tend to spend more. When revenue goes down we also tend to spend more. The two are not correlated.
If tax decreases led to reduced spending then they would be something to consider. But they don’t. Because starve the beasters believe that deficits don’t matter when you are in power. Only as a tool to regain power.
Well ok. The fear that I am regarding as perfectly reasonable is the notion that tax increases will be pitched as a solution to the deficit, only to be gobbled up by spending hikes that equal or exceed the tax hikes.
Yes, we tend to spend more over time. But many people don’t trust the government to not blow any and all revenue increases. How can we reassure people that tax increases will be applied to the debt and not diverted to program XYZ instead?
By pointing out that this would be ahistorical. Revenues and expenditures are not correlated. It could very well be that our spending will rise but it will not be because we feel free to spend it due to our increased revenue. My cite is the 2000s. Lack of revenue didn’t rein in our spending then.
Or do you mean how to get the public to believe that? I’m not sure it’s possible because it goes against logic unless you know the history of our spending over the past 30+ years. The public might not be willing to have it explained to them and may be content with a gut feeling especially if it supports the people they already want to support. You can’t have silly stuff like a “super extra special no take backs lockbox law” because it’s easily broken: the public would be cynical about that, and rightfully so.
Enact a form of pay-as-you-go legislation, as was done in 1990. (It was extended in 1993 and 1997, allowed to expire in 2002.)
Oh I am sure that if you just laid it out and explained it step-by-step, people would naturally see how reasonable it is and change their minds 
But seriously, the public would have to be convinced but I have mostly seen this raised as an objection to tax increases by congress critters. It is one of the few lines that hasn’t struck me as rigid ideology- I mean, realistically one should only trust politicians/the government so much no matter who is in control. How Do we make sure the tax increases, once in hand, don’t get re-purposed? You say it just doesn’t work that way so maybe this objection is merely a piece of rhetoric that ‘got me’, but OTOH maybe addressing this objection loudly and with a lot of fanfare might help overcome knee-jerk resistance to tax increases.
How does that work?
Well the Wikipedia entry for PAYGO is a start.
And there are links to the various ways it’s been enacted over the years (including in 2010, and still in effect).
It’s far from bulletproof. The 2010 version has a number of exceptions (didn’t check the others). And when Congress passes a law governing their behavior, they can pass another law taking it away. But, as we’ve seen lately, it’s harder to do something than to not do something, and with a law like that in place the institutional inertia (the tendency to not get things done) will be working towards a lower deficit. It’s a step in the right direction.
Decades before the republican plan would succeed
If you want to argue that higher taxs are the way to get the deficit down, go ahead. If Obama or any other prominent democrat were advancing a plan to get the deficit down to zero, or even close to it, by massive tax hikes, I’d disagree with the method and maybe his forecasts, but I’d certainly concede that at least they were taking the issue seriously.
AFAIK, they have proposed no such plan. Ergo, they are not taking it seriously. And no, most Republicans aren’t either.
All the deficit hawks in the thread have agreed that tax hikes will probably be needed to end the deficit. Nobody here is advocating a cuts-only approach.
Lower taxes, by themselves, don’t affect the deficit. Higher taxes, by themselves, don’t affect the deficit. To state the bleeding obvious, what makes a deficit is the *gap *between revenue and spending, and George Bush was an enormous spender. Sincere small-government people said so at the time; if you didn’t hear it, it’s because there aren’t really many of us.
This is not a red-team/blue-team issue: from the standpoint of the deficit, Bush sucked. Obama does, too. So do the vast majority of the people in office, and frankly a lot of the voters.
Meanwhile, while we argue donkey-vs-elephant, the CBO’s realistic forecast now has our debt approaching the perilous 100% of GDP level in about a decade.