Bush vs. Greenspan

“I'm a bit of a disinterested spectator on this battle, but this celebrity deathmatch is quite delicious.

Today, Greenspan testified that the US has to cut spending and raise taxes to avoid economic stagnation.

Bush, of course, has consistently supported larger government and debt-subsidized reductions in tax rates.

It will be interesting to see which side of the Republican party wins this battle.

Place your bets.”

“Bush made a campaign promise that he would not raise taxes. If he raises taxes it will further show how much of a liar he is.”

“Rather than rhetoric why not compare the growth in the US economy to any other country. The US economy has grown 20% more than the EU since 1999.

I am betting on a winner.”

“Now bbw, let's not cloud the issues with facts.”

“Facts are one thing. But, what does Greenspan's statements have to do with what bbw said?”

“It somewhat dispels the representation that we are headed for an economic Armageddon and that Greenspan is the first and last word on economics. He isn’t the gawd of greenbacks and his word is not gospel.”

“That may be true. But, I am maintining that he, as the Chairman of the Federal Reserve, is very much a part of the economic policy of the U.S. I never alluded to the fact that he is the end-all of the process. Not a once! RL brought up comments Greenspan made and put it into a certain context. bbw, in his inimitable wisdom, took the whole thing out of context. I questioned that. You kept it out of context. So, let's either ditch rl's point, or answer the question. What does bbw's assertion about the EU have to do with Greenspan's comments? This is not rocket science...”

““It somewhat dispels the representation that we are headed for an economic Armageddon and that Greenspan is the first and last word on economics. He isn’t the gawd of greenbacks and his word is not gospel.”


Reread my post carefully Treebeard. I said “it somewhat dispels the representation”. I wasn’t even commenting on your words and never said you were the one making the representation. In the words of Dr. Phil, “It ain’t about you!”. LOL!

It would seem we are having one of our Chinese/Japanese days so what do you say we call it a day right now and save both of us a whole lot of time and grief?
:)”

“You got it. I got a workload ahed of me that is huge today. So, my posting will be rather limited, anyway...


Can I be the Japanese guy today? I may have to commit sepuku after dealing with these deranged lawyers! :)”

“"Oto shumi gotaro."
subtitle ["Zip it!"]

LOL!”

“"It somewhat dispels the representation..."

Yes, it is an attempt to distract from the initial point.

A smoke screen.

Greenspan ain't talkin' about Europe.”

“gurache, sankyu-”

“Interesting! How many times has he changed his tune recently? Three in the last 6 months? Greenspan used to be an objectivist, in line with Ayn Rand on capitalism. He's come a long way from that. Sellout!”

“You know Bush must think highly of Greenspan or he would have replaced him when he became Pres. the 1st time. If there was a sellout don't you think Bush would have gotten rid of him?

BTW Greenspan agrees with Bush somewhat on the Social Security plan BUT he made it clear to be really careful about watching the cost to do it.”

“Greenspan represents the interests of Wall Street. He has a very conservative point of view. Always has and always will. I don't understand how disagreeing with Bush makes him a sellout, but I haven't drunk that particular Kool-Aid.

I've posted stories about the IMF issuing the types of warnings usually reserved for banana republics about our ballooning twin deficits.

Now, it appears that Asian central banks, which hold a huge amount of US debt, are making plans for our impending currency collapse. See: http://sg.biz.yahoo.com/050224/15/3qtq5.html and http://money.inq7.net/topstories/view_topstories.php?yyyy=2005&mon=02&dd=26&file=2

This is very serious business and Greenspan should be commended for speaking frankly about the matter. I disagree with him on the solution, but the problem is very real.

Bury your heads in the sand if you like, but a collapse of our currency brought on by ill-conceived budget policies would likely lead to a global depression and would have a major impact on you and yours. This is not partisan hackery.”

“Dr. Greenjeans is putting the idea of a national sales tax on the table. Not to replace the current system but to be added to a reformed system. My question is what happens to the middle class with this one? Consumption accounts for probably more than half of middle class incomes. I would hope that medicine and food would be exempted so that the poor would not be hit as hard. Looks like good news for those of us who like to invest a large portion of our income. Socially I'm a liberial but when it comes to my money I'm a fire breathing Republican.

http://search.yahoo.com/search?p=greenspan+tax&fr=FP-tab-web-t&toggle=1&ei=UTF-8”

“As Violin stated we are in a serious pickle. If truth be known we are walking the edge of an economic precipice. Should Bush economic policies continue, no country will be willing to buy our bonds (debt) at current interest rates. If he raises interest rates much, the housing market bubble is going to implode and take the rest of the economy down with it.

And when the rest of the world starts trading oil in Euros, the United States will be screwed. We'll have no one to blame but ourselves. Our greed to live beyond our means and our "we're the best country on the face of the earth and if you don't like it we'll bomb you back to the Stone Age" attitudes are spinning the wheels of kharma back on us. Nobody out there in the rest of the world is going to cry when we get our comeuppance.
last edited: 3/03/05 12:05:24 PM”

“Sales tax should be left to the states and counties.”

“Sol, maybe it should be called Neo-Narcissism

A psychological condition characterized by self-preoccupation, lack of empathy, and unconscious deficits in self-esteem.”

“MarkO,
I don't think there is a lack of self-esteem in this country. On the contary, IMO there is way too much of it. What we lack is self discipline.

It's funny that Greenspan is now sounding the trumpets of fiscal restrain. For the whole time he has be the head of the Fed he's been pumping the M2 money supply trough full. This is indirectly responsible for most to the debt problems many private individuals find themselves in. They have hocked themselves up to their noses with all the fiat money that Greenspan had printed and put into circulation. Easy credit indeed!”

“How many gallons of goat's milk will I need to get a DVD player?
8D”

“Maybe unconscious is the key word here.

I'm not sure I understand that.”

“What you need is a fall back point. Buy some good farmland and learn how to raise your own food. I grew up on a farm and we raised much of our own food. My family still owns fertile land that is no longer farmed because we all have higher paying jobs now. The land is still there as a fall back point and we know how to use it. I think most of the people who are holding enormous debt are doomed. The real estate market is way overdue to bust. Real wages are going down as inflation is really getting cranked up. Those that have no debt and have a means to support themselves will do just fine. It is all about choice, buy a new gizmo, house or car with debt or pay off your debt and live true freedom. Nothing says freedom like being debt free.”

“One of the things I've been telling people around me at work is to start moving their 401ks out of the stock based mutual funds we are allowed to buy and into mutual funds where you can't lose your principle. All of my 401k money has been in a fixed account fund for about three years now. I sold all of the company stock they would allow and will sell the rest when I can. The only risky mutual fund I have is Vanguard Precious Metals which I bought in 2002. Before that I lost about 33 percent on their S&P 500 and Growth funds which I purchased 1999. Since I bought the gold fund I'm up 81 percent (no bull) and 22.5 percent overall. If you're going to buy stocks buy commodity related ones.

But all the money you have in a bank won't matter if the dollar were to collapse in value. And that is a real possiblity with Bush spending money as if it grew on trees and our trade balance the way it is. The man is taking some very serious risks.

Read the article in the "Iran in the Crosshairs" thread for some insight into why we are possibly fighting all these wars for democracy in the Middle East.
last edited: 3/03/05 1:48:35 PM”

“The S&P 500 is up some 50% over the past 30 months, so if you had left your money in an S&P 500 index fund you may be up more than you are now. One possible reason the dollar is being kept low is to encourage foreign purchases of US goods and services. Some say that our currency policy hasn't helped much, but it has helped somewhat. I would hope that no one would depend on their friends for investment advice, and would instead seek the advice of a reputable investment advisor. M2 money supply is a measure of demand (checking), savings accounts and time deposits (CD's) of under $100,000. It is not a measure of currency in circulation. The current amount of money in circulation (fiat money) is roughly 800 billion, while M2 is 6400 billion. Historically the housing market is tied more to the economy as a whole as opposed to being tied to interest rates. Mortgage rates would have to almost triple to be at the same rates we saw in the 80's. For this to happen during the remainder of Bush's tenure would be unprecedented, and I don't think anyone expects that to happen. Conversely, most people knew the equity market was overpriced in the late 90's and 2000. That the stock market declined the way it did in 01-02 shouldn't have been much of a surprise. But people kept buying and buying overpriced stocks. Some would say that the housing market as a whole is overpriced right now, and as I'm looking for a new home you won't get any argument from me.”

“We have the most robust economy in the world by a long shot. The sky is not falling.”

“I don't think that we are in anything calamitus in terms of the economy.

However, we didn't have to create such large deficits. And the American economy was/is strong enough not to have needed the deficit-subsidized tax rate decreases of the past few years.

If you truly believe that America is fundamentally strong, then you shouldn't support making those tax giveaways permanent. Let the private sector and America's economy work out the problems.

Why create problems when we don't have to?”

“Alumcave,
I'm getting towards retirement age. I have about 20 percent of my total retirement funds in stock mutual funds. If I were young maybe I would have made more money putting money more in the S&P 500 but I can't risk it. In general stocks are way over valued.
>
M2 or M3 or M007, it don't matter! I don't care which column you put it in. IMO the whole economy is floating on fiat money. All I said was that Greenspan has fueled credit card binge spending and easy credit that is getting many people who lack self-discipline into trouble. Maybe I'm wrong but that would put it in the M2 money column wouldn't it?”

“If I wanted to learn something about backpacking I would not go to a financial web site. If I wanted to understand the economy and investing I would not go to a backpacking site.”

“If I wanted to understand the economy and investing I would not go to a backpacking site.”
bbw
5:18:51 AM
3/04/05

You spend a lot of time here and it shows.”

“I just wonder why the Republicans have such little faith in the private sector.”

“I think Krugman really nailed it in today's column: Deficits and Deceit

(sign in as Karlo Kranzke, password= gremunchen if you need to)”

“If you truly believe that America is fundamentally strong, then you shouldn't support making those tax giveaways permanent. Let the private sector and America's economy work out the problems.

Why create problems when we don't have to?”
reformed lurker
6:17:43 AM
3/04/05

There are no tax "giveaways" when you are taking something from someone, and you take less than before you are not giving that person anything.
You are taking less.

The government should be taking only enough to perform its functions, no more.
The govt prepares a spending plan, then works out how to fund it in a manner that causes the least impact. Spread the payments over the greatest number of people, some immediate, some deferred (borrowing), and for every person who cannot pay, they have to spread that load among others that can. The trouble comes when the additional load causes those others to drop the load also.

The Bush problem is excessive spending not tax rebates.

Clinton had a boom period. What do you do when you get a bonus ? you increase services, buy a nicer car, go on vacation, we did that.
But then the econ took a downturn. What do you do when you get a pay cut ? cancel the cable channel, forget about the cruise to Hawaii, defer re-tiling the roof ubtil next year. You cut back on spending.

The (Bush) Government did not do that and we have a cartload of debt.

BTW the tax reduction did work to lift the econ. If we took the socialist approach and kept raising taxes on fewer and fewer working people we would be in a much deeper hole.”

“Manuka!

There are a couple of difficulties I have with your logic.

First of all, Bush has INCREASED spending. And not just on items like the military that can be traced to terrorism. He created a major giveaway with the senior prescription drug benefit. Bush used the bad times to spend lots, lots more. Now, he proposes a system of private accounts that will cost trillions of additional dollars.

Consider also that social security, medicare, college loans/grants, sba loans are middle class benefits. These cost mucho bucks. Middle class tax payers are getting the benefits of these things. Then, even though all of the money they paid in taxes has been spent on their own benefits, they also get additional money from the government in their tax returns or reduced withholding.

If the government doesn't have the money to give back in a tax cut because it has already spent money on you and then gives you additional money back, then what has happened is essentially a government grant. It is an INCREASE IN SPENDING.

Individuals are not getting back money that they gave to the government. That was already spent. They are getting back their children's money. That is not a tax cut. That is a major injection of government into the private sector.

Also, did Bush push through welfare reform? No. That was Clinton. Now, I have mucho problems with where that dude put his privates, but he did cut benefits in ways that Bush has never done.

Now, to get back to the original point, the United States is the strongest, most vibrant place on God's green Earth, by far. We had boom times with the tax levels of the Reagan years. We had boom times with the tax levels of the Clinton years. We could have had boom times with the tax levels that Bush came in with and without the massive debt that we are now amassing.

I, personally, believe that the power of the federal reserve and government is limited in terms of economic growth. Massive injections of capital through absurd interest rates and government grants (er, tax cuts absent spending cuts) betray a fundamental distrust of the free market to correct itself.

Let the free market reign!”

“I think Manuka stated that Bush has increased spending. You don't "get" money from the government in tax returns, that money is money the government has overcharged you. If you went to REI or some other gear store tomorrow, paid 100 bucks for something, and a year later got a check back from them with a note saying "Oops, sorry we overcharged you", you would be pleased. But if that happened every time you shopped there, you would quit shopping there if you had any sense. Essentially, the money the government "gives" you back in your return has constituted an interest free loan you have given the government. I agree that the government is overspending excessively. However I don't follow reformed's logic that tax cuts are "grants". With regard to Violin's post, Paul Krugman is as biased as Rush Limbaugh in my opinion, certainly not an impartial view. Now to Solitary's response to my post, I agree that if you are close to retirement then you should consider moving money into less risky investments. But to tell all your friends the same is a disservice to them, unless their situation is the same as yours. Sure some stocks are overvalued, some stocks always are. Large Caps were in the late 90's, and it showed in 01-02. M2 does not include credit or loans, only monies that have "existed". People that have gotten themselves into trouble with credit misuse have only themselves to blame, not Greenspan or anyone else. If I loan my neighbor 10 bucks and he fails to make his house payment, is it his fault or mine? I've got to respectfully disagree that we have a "fiat" economy, by definition that would mean our economy has no intrisic value.”

“"The US economy has grown 20% more than the EU since 1999." bbw

Assuming that is correct, it is very interesting that 1999 was the cut off date chosen - as opposed to, say, January 2001, when Bush took office.

Secondly, Bush's massive borrowin and deficit spending has resulted in some economic stimulus. Borrowing and spending works well in the short run. If I ran up a huge credit card debt and bought all kinds of things, would you say I was better off than before I ran up the debt?”

“I didn't say I was telling all the people around me. I said I was telling people around me. My immediate friends, most of which are near or around my age. Still I would tell anyone to reduce their exposure. Increasing numbers of babyboomers (like me) that bought all those stocks in the 90s are beginning to reach retirement age. We are collectively, as an age group, beginning to seek safer investments. As we move our portfolios over, the sheer volume of those trades is going to drive stocks prices lower.
If I was a young person I'd think about that.”

“According to this chart which is dated March 03, 2005

http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

M1 is currency, travelers checks, demand deposits and other checkable deposits.
M2 is a combination of M1 + retail MMMFS,
savings, and small time deposits.
M3 is M2 + large time RPS, Euro-dollars, and institution only MMMFS.

Anyway you look at it(seasonally adjusted or not) the M1 supply is not 800 billion. It's no less than 1350 billion. As you stated the M2 is about 6400 billion.

So my question to you is why is there so much "money" floating around at low interests rates and where did it come from? And if it's not reflected in the M2, what or where does the government measure private indebtedness. I know it's a number that gets talked about on the tube. Who compiles the data and where is it listed?

BTW this chart goes back to 1959 and I don't know how long Greenspan has been the Fed chairman but if anyone can tell me we can very quickly figure out the increases in M1, M2 and M3 under his watch.

And finally out of curiousity, are you a financial adviser or do you work in the brokerage business?
last edited: 3/04/05 8:47:44 PM”

“Let me rephase my 3rd paragraph. I want to clarify.

So my question to you is why is there so much "money" floating around at low interests rates and where did it come from? And if it's not reflected in the M2, which includes M1, where does the government list it? And are these funds not a sort backward measure of private indebtedness? This "money" is being lent to someone”

“The US economy has grown 20% more than the EU since 1999." bbw

Assuming that is correct, it is very interesting that 1999 was the cut off date chosen - as opposed to, say, January 2001, when Bush took office.

Secondly, Bush's massive borrowin and deficit spending has resulted in some economic stimulus. Borrowing and spending works well in the short run. If I ran up a huge credit card debt and bought all kinds of things, would you say I was better off than before I ran up the debt?”
pedxing
7:19:50 PM
3/04/05

Actually the data I quoted was from 1999 to 2003. It did not include 2004 which puts the number closer to 25%. I just could not find a source that included the growth in 2004.

http://www.worldbank.org/data/countrydata/countrydata.html”

“"As we move our portfolios over, the sheer volume of those trades is going to drive stocks prices lower." Sounds like the perfect buying opportunity to me! In my post I was referring to the amount of currency (coin and paper) in circulation. Banks don't hold money, they lend it out. Theoretically, a dollar can be in multiple places at once. Greenspan has been chair of the Fed since August 11, 1987. Using the table and a time value of money calculator (if I'm using it correctly, not familiar with this one) M1 grew from 1959 to 2005 at 5.19% annually. Under Greenspan, from August 1997 to 2005 M1 has grown at 3.3%. Before Greenspan, from 1959 to August 1987 it grew at 6.17% annually.

According to the Federal Reserve Bank of NY in August of 2004:
"There is about $730 billion of U.S. currency in circulation; the majority is held outside the United States.
The Federal Reserve Banks distribute new currency for the U.S. Treasury Department, which makes it.
Depository institutions buy currency from Federal Reserve Banks when they need it to meet customer demand, and they deposit cash at the Fed when they have more than they need to meet customer demand."
http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html
last edited: 3/04/05 9:30:29 PM”

“According to recent statistics, the demand for US Government bonds is down dramatically, this is in large part due to the low dollar and low interest rates. Auctioning these bonds is how the government borrows money. So, according to those statistics (if they're accurate) the governments interest rate and currency rate policy is actually causing the government to be able to borrow less.”

“In response to Solitary, you're right, there is entirely too much personal debt in this country. But is the government to blame for that? I don't know if the government keeps statistics on the amount of personal debt in this country. The "money" that you're referring to only exists as an account receivable on someones ledger sheet. BTW I'm all for interest rates going up (after I buy my house).”

“If you believe in dollar-cost-averaging, (I bet Warren Buffet doesn't employ DCA) by all means buy the downs. But IMO there is a long gradual down coming, and one shouldn't expect any big ups until the 2020s when all the BBers have finished retiring.
>
I said Greenspan and the government were INDIRECTLY responsible in my first post. I have also talked about the lack of self-discipline in private individuals who bear direct responsiblity for the finacial problems they are getting themselves in. You're preaching to the choir on this detail of the discussion.
>
My point it that the government has pumped the Federal Reserve. The Federal Reserve has pumped the lending institutions. The lending institutions are sending out offers to you and me every day for a new credit card or an housing e-loan. Some of this money is being lent to individuals who in the old days could have never had gotten loans. And when they lose their jobs, or the credit card folks raise their interest rate for that still unpaid off expensive vacation they took last summer, or the Fed has to raise the prime and their home ARMs move to a level of interest that they can't bear. Well you know what happens.
>
Something is fueling this kind of excess. And the Federal Reserve and government had a hand in it. Where it is reflected in the "big warehouse of government finanacial statistics" I don't know. I still think it's in the M2 somehow, someway. But where ever it is, Greenspan et.al. had a hand in it.
>
Finally, this government would probably never devalue the currency. But our government in a way loves inflation. If they had a inflate switch in a back room somewhere in Washington they would use it. In a roundabout way the government would try to pay off those Treasury Notes the Asians are holding with the fiat paper (short definition - no real assets ie. gold silver behind it) they continue to print. But the Asians won't be fooled this time around. They'll want real payments. And eventually they will own many of the real assets this country possesses. And in the inflation that ensues because of government excess, everything I've saved for retirement will be worth a whole lot less than it is now. I can tell you I'm kinda spooked by what I see going on.
last edited: 3/05/05 8:50:05 AM”

“SH makes good points, most especially about the fiat dollar and the global economy. Yes, the weaker dollar is a boon to some exports (and a huge real pay increase for American oil companies), but the downside of it is that our bonds are worth less and that anything the government borrows is going to be more expensive.

Consumer interest rates are being kept artificially low at a deferred price. We'll pay it eventually.”

“How is a weak dollar a pay increase to American oil companies? Our bonds (new bond issues that is - bonds created 5+ years ago are expensive) are not in demand because of low rates. How are interest rates being kept artificially low? If you follow mortgage rates, that market hasn't moved very much considering that the discount rate (the only rate the fed has direct control of) has more than doubled over the last 18 months. As I said before, I'm all for rates going up.”

“Inflation has not kept pace with the drop of the dollar except in the global economy, Alum - ie the price of oil. The domestic strength of the dollar and the consumer price index should point out that the cost of producing oil has not gone up for American companies as fast as the price of oil has. This generates a greater revenue and greater profits for the oil producers.

It's generally reflected in their stock prices - I did a quick yahoo search on Conoco Phillips and found this chart for the last year:

chart”

“Regarding our growth rate compared to the EU: The euro countries are required to keep deficit spending to less than 3% of GDP to limit inflation and protect the value of the euro. I wonder how we'd be growing if we'd had any limits at all on the size of our deficit (forget about the balanced budget that was part of Newt's 'Contract on America').”

“Remember that government purchases are a part of GDP.”