US stimulus efforts curbed by deficit: Geithner

Leave it to Geithner to compound the absurdity in new directions:

US stimulus efforts curbed by deficit: Geithner

The massive US budget deficit means the United States will be unable to use deficit spending to stimulate the economy for many years to come, Treasury Secretary Timothy Geithner said Friday.

“It’s not going to be possible in the next decade. We’ve lost the chance,” Geithner told a conference in New Hampshire.
“We no longer have the luxury of that approach.”

Geithner said the $787 billion dollar economic stimulus passed in 2009 by Congress “was absolutely timely” but a temporary effort in response to the economic crisis.

“We’ll have at some point to pay that debt,” he said.

His comments come amid an impasse between the US administration and Republican lawmakers on curbing the budget deficit and lifting the debt ceiling to allow additional US borrowing.

The collapse of the talks on Thursday sparked fears that Congress will fail to raise the $14.29 trillion debt ceiling by an August 2 deadline and force the United States into a default which could trigger global economic shockwaves.

Currently, the US budget deficit is forecast to reach $1.6 trillion this year.

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29 Responses to US stimulus efforts curbed by deficit: Geithner

  1. Art says:

    NYT yesterday:

    http://economix.blogs.nytimes.com/2011/06/28/could-obama-just-ignore-the-debt-ceiling/

    “In the ongoing debate over raising the debt ceiling, one option has not had much prominence: whether the Obama administration could ignore it altogether, and just spend the money it owes anyway. Would that be legal?”

    Reply

    Ramanan Reply:

    @Art,

    Would interest Beowulf.

    Reply

    beowulf Reply:

    @Ramanan,

    I’m only interested in the tricky questions like; why is Led Zeppelin’s song Houses of the Holy not on their album Houses of the Holy? Or, why does the Panama Canal require locks to equalize sea level with… sea level? Of course the debt ceiling is unconstitutional. And its unconstitutional because this isn’t the first time someone has threatened to hold the US Govt’s public credit hostage.

    As legal scholar Garrett Epps noted:
    After the Civil War, political leaders in the defeated South announced their intention of resuming their seats in Congress and of using their power–augmented by increased Congressional representation for the freed slaves–to compel the federal government either to pay off all debts of the Confederacy or to default on the national debt which had been borrowed to finance the Union war effort….
    For this reason, the Framers of the Fourteenth Amendment wrote into our fundamental law an absolute prohibition against defaulting on the national debt. Its language establishes a complete firewall against the misuse of governmental power by one political faction to get its way by wrecking the public credit. Only one other provision of the Constitution–the Thirteenth Amendment’s categorical prohibition on slavery–is as rigid as the language of Section Four. That language is not binding only on Congress, but on all parts of the government, including the executive branch.

    http://www.theatlantic.com/politics/archive/2011/04/the-speech-obama-could-give-the-constitution-forbids-default/237977/

    Reply

    JKH Reply:

    @beowulf,

    holy paradigm, Batman!

    “It was originally set to be the title track of that album but was removed when the band decided it did not fit”

    (unlike MMT and “theory”)

  2. Art says:

    Good point from Bill M:

    “…given that the heightened risk that led to the crisis came from the excess private borrowing and given that private spending has to be part of a solid and sustainable recovery, the policy environment has to be focused on supporting this process of private deleveraging…

    Persistent fiscal deficits (some larger than others) will be required for years to come. Fiscal austerity, which the BIS GM wants, will undermine that agenda.

    Fiscal austerity when there is slow private spending growth and massive pools of idle productive resources is the exemplar of “fiscal incoherence”.”

    Reply

    Art Reply:

    link: http://bilbo.economicoutlook.net/blog/?p=15076

    Reply

  3. Gary says:

    it is very hard to believe that they do not understand what they are doing. It is too suspicious when the whole world does the same thing. It looks like an engineered depression.
    I mean it was believable that nobody knew what is going on before the crisis: everything was going well, so why worry. But the financial crisis and immediate reaction with stimulus’ and loads of cheap loans indicated that they know what to do.
    So it is hard to believe that they forgot it. The politicians hands are forced by the sponsored movements and ideology spread by the media. Those that sponsor movements and ideology must want the depression.

    Reply

    jason m Reply:

    @Gary, I’m not saying there is or there isn’t a desire for a depression by those sponsoring (looking at you kock brothers) but I am curious as to motive for those type of actions?

    Reply

    Crake Reply:

    @jason m,

    Buy real assets on the cheap?

    Reply

    Gary Reply:

    @jason m,
    no idea what are the motives. Something selfish (short term selfish or long term selfish), I bet :)

    Reply

    jason m Reply:

    @Gary, Gary (and Crake), did you see this news headline in democracy now today?

    Greek Government Considers Widespread Privatization

    The Wall Street Journal reports Greece is considering privatizing much of the country including the state lottery, a state horse-racing concession, several ports, a national post office, two water companies, a munitions maker, electricity and gas monopolies, a telecommunications operator, hundreds of miles of roads and thousands of acres of land, including magnificent stretches of Greece’s famed coast.

    Tom Hickey Reply:

    @Gary,

    Of course, this was the plan all along. Historically the wealthy have done best by privatizing the commons. It’s windfall treasure. The same thing is now happening in the US. Have you been following what is going on in Michigan, for example, with the dictatorial power of the state wrt the municipalities? Municipal governments are being taken over by the appointees of the state (governor) and privatizing stuff that the elite have been trying unsuccessfully to get their hands on for years. Naomi Kline wrote a book about this some time ago. It is called The Shock Doctrine.

    jason m Reply:

    Tom, yes I am quite up on shock doctrine and disaster capitalism. And yes I have been following Wisconsin, Michigan etc. (even though i’m up here in Canada :) I am just interested in hearing other’s views on what sort of motives there might be in all this beyond the obvious divide and conquer.

    cheers,
    jm

    Gary Reply:

    yes, I have read The Shock Doctrine.

    I guess one wants to sort of summarize all that misery producing activity and to make some sense of it all by imagining that there is some plan or conspiracy that drives it – instead of it being a result of many self-interested people each trying to gain something for himself/herself

    Tom Hickey Reply:

    @Gary,

    “I guess one wants to sort of summarize all that misery producing activity and to make some sense of it all by imagining that there is some plan or conspiracy that drives it – instead of it being a result of many self-interested people each trying to gain something for himself/herself”

    I don’t think that this can be approached independently of the Marxian concept of class. I say “Marxian” because there are a lot of scholars that use concepts first broached by Marx without being “Marxist-Leninists,” as the people who have an interest in opposing everything that counters their interests would have us believe through the label “class warfare.”

    Sociologically, class is recognized as a factor in the sense that class groups and sub-groups act in predictable ways to further their interests through cooperation and coordination.

    Is this a conspiracy as in “conspiracy theory”? Generally speaking, most people think of a conspiracy as involving a plot or collusion, but the legal definition is much broader with respect to criminal conspiracy. Pursuit of class interest does not itself rise to criminal conspiracy, but it may be in the bais of specific criminal conspiracies.

    Overall, the issue is how deeply culture, convention and institutions affect behavior, and how these are designed implicitly and explicitly. Without getting into the blame game, it is possible to analyze institutions, especially, regarding how they function to create incentives, allocate rewards, determine ethical boundaries, and so forth. What turns up is that class plays a role in institutional design, since the designers setting the rules that define institutional arrangement are most often members of the same class and also of particular subgroups of that class.

    The principal class division is between owners and non-owners, that is, capital and labor, or have’s and have-nots. Institutions are designed by the ownership class to perpetuate the interests of that class on the rationale that capital is scarce while labor is abundant. There is also the “Darwinian” rationale of the survival of the fittest that gets interpreted as winner take all. This is philosophical foundation of neoliberal doctrine.

    See my recent post at Mike Norman’s Thought for the Day: The Pursuit of Happiness for some thoughts relate to this.

    Gary Reply:

    @Tom Hickey,

    no, I don’t consider the role of social institutions – which main function is to defend dominant class’ interests – a conspiracy. That is how society functions. But in this case – if the next Depression (or worse) is brought about – wouldn’t the dominant class suffer as well? There certainly would be more risks to them, than just keeping the current state. So what went wrong? Are they being shortsighted, or did it become impossible to keep the status quo? Or are they sure that everything can be kept under control if necessary – even if desperate social unrest would come?

    Tom Hickey Reply:

    @Gary,

    Alan Greenspan confessed he was wrong in his assumption that the financial elite would not kill the goose that lays the golden egg. What this reveals is that there is not only irrationality operative in market but also criminality. Bill Black talks a lot about the failure to recognize criminogenic environments, and not to see that Gresham’s law applies to firms, namely, that the dishonest drive out the honest. This institutionalizes the criminogenic environment.

    Add to this Minsky’s financial instability, and the making are there for what amounts to a vast conspiracy emanating from the top that is run on Ponzi principles. This is one aspect of the current problem. Right now it is the most pressing one, since the country and world are still in the midst of this crisis.

    There has also been historical tension between capital and labor. Since labor is the major expense in production, it is in the interest of capital to keep labor costs low. the strategy for doing this is to reduce labor’s bargaining power. The recent road toward this has been through propaganda, wedge issues, and promotion of anti-labor legislation that creates obstacles to unionization and collective bargaining. This results in a long term problem because it depresses income, leads to demand deficiency, and increasing income and wealth disparity across social and economic classes. A consequence is economic and political instability.

    There is also the political problem. Politics is about power and power is a attractive as money and breeds similar problems. In a representative democracy, power can easily become a function of wealth and connections. In the worst case, this leads to corruption, and corruption is now not only endemic but increasingly being legalized and institutionalized. Corruption is highly inefficient and ineffective, and when it becomes institutionalized, things never end well.

    The problem is that most people acting in their self-interest do not understand the fallacy of composition, that is, that what one or a small number of people do to benefit themselves may be good for them for a while, it is detrimental in the long run because when more and more people do it and the consequences begin to manifest, then the system starts to break down and everyone is poorer for it. In serious cases that are not corrected quickly enough a new system emerges to replace the dysfunctional one.

    It is the fundamental mistake of the neoliberal paradigm based on maximizing utility at the micro level. This does not take into consideration macro effects. Moreover, when the so-called free (deregulated) market is established as an ideal, then openings are created for cheaters, and there are always cheaters who will take advantage of the openings and seek to open them even further. So far, the GFC has simply consolidated the position of the perps.

    Like Minsky, economic historian Ravi Batra has argued that this is cyclical. But instead of focusing on the financial cycle, Batra takes a class approach, involving changes in rulership alternating through the the major classes — warrior, intelligentsia, business, and business combined with labor. He sees the current context in terms of the latter, where the business elite has convinced a significant portion of labor to side with it through clever propaganda and pitting different labor subgroups against each other. He sees this ending in corruption and economic chaos, with the present regime being replaced by a rising “warrior” class that is opposed to corruption and disorder. He does not equate the warrior class with the military, although in many previous episodes in history this has been the case. But now he sees the “warrior” class as those brave enough to risk in order to change and increasingly corrupt and chaotic regime, e.g., in the US where both parties have been captured by the wealthy elite, which also controls the (propaganda) media and other social, political and economic institutions. See Batra’s most recent book, The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos (Palgrave Macmillan, 2007).

    Leja Reply:

    Isn’t all this talk about greed, self- and class-interest just an euphemism?

    Real problem is racist hate. If you hate somebody it is perfectly logical that you would want to hurt them. Their ideal solution would be to torture everyone who they deem looking ‘too different’ slowly to death, but since that is out of the count, they wage a war economically.

    Therefore we have a problem of racist lies: lies designed to depreviate lower and middle classes economically. Economic profession is rife with them, they often dominate our discource, because often these haters are only ones motivated to claim something and they dominate discussions. Non-racists do not do much due dilicange and get easily seduced by these lies.

    I don’t think they even care if they bring down their ‘own class’ in the process, they are just happy to spread misery.

    I think I just described GOP’s party program there…

    Tom Hickey Reply:

    Racism is a sociological categorization of sub-group relationship that is used as a political means to create wedge issues in labor. As Paul Krugman has observed, the conservative attack on the New Deal did not become effective until civil rights legislation drove the Southern white Demorats into the GOP, giving it a white working class base from which to mount political power. Then the economic issues were framed in terms of “the welfare state” with not always thinly veiled racist implications. The Reagan Democrats were similarly peeled off based on getting “values-voters” to vote against their economic interests. This was engineered at the top as a political strategy. The “Southern strategy” was popularized in the Nixon years by GOP operative Kevin Phillips and it remained in effect until recently, when RNC chair Ken Mehlman publicly apologized for it and Michael Steele was elected RNC chair, perhaps symbolically of it. But “Southernization” has become entrenched in the GOP and it will be hard digging out of this hole, and hole it is demographically as whites decline in the percentage of the population.

    Racism is a terrible thing, morally, ethically, and sociologically, and political death demographically, not to mention shifting public opinion and perception. But it is going to be with us for a while longer, and while it is, it will be used as a wedge to divide labor. But the longer it is used, the more difficult it will be for the GOP to overcome the inertia of it due to hysteresis.

    PZ Reply:

    Im not so optimistic about these trends, but I spare you from my toughts. Sometimes it is better to just keep on believing in better future.

    PZ Reply:

    Oops, wrong nickname. I have been using that ‘leja’ name here… I have problems with these nicknames, I can’t think of a good one

    Tom Hickey Reply:

    @Gary,

    Gary, there is evidence that the people running the control frauds knew what was coming down and were relying on their influence in government to save them in the end, which is exactly what happened. Read Bill Black’s voluminous blogging on this, Janet Tavakoli’s warnings, etc. This was brought about by people with no moral compass.

    Were “they” trying to engineer a depression. I doubt that, but they didn’t really care about the consequences of their actions, which is generally the case when criminal behavior is involved. There is clearly something wrong with the selection process in promoting people to this level of power and responsibility, both in finance and politics, which have become intertwined through corruption and the revolving door.

    Reply

    Gary Reply:

    @Tom Hickey,
    I agree – they must have known that the crash will happen eventually. But one could believe that they forgot themselves and chose to disregard that understanding – it was easy – life was good for the majority (at least in the West). But what is going now – is different. It looks like systematic strangling of world economy. Unless they really do not understand what they are doing. But that is VERY hard to believe.

    Reply

    Tom Hickey Reply:

    @Gary,

    Yves Smith, The Musical Chairs Theory of Markets (Chuck Prince Edition) July 10, 2007

    In addition to Bill Black and Janet Tavakoli, Yves dissected this in ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism
    .

    selise Reply:

    @Gary,

    re: “But what is going now – is different. It looks like systematic strangling of world economy”

    from galbriath’s talk earlier this year on “The Implications of Rising Resource Costs for Economic Systems

    The first way to approach it is to break the system, to try to move from a high to a low fixed cost environment. The way you do that, of course, is by destroying the institutions that support the system: government, the social welfare system, the infrastructure. The way you do that is by cutting its budget.

    It seems to us that it is obvious that there is a very powerful movement, perhaps of overwhelming power going on right now, to do precisely that in every advanced country that you can think of, in the UK, in the United States, in Europe.

    Why?

    Is it going to be our argument that this is entirely based upon an ideological predilection or stupidity? It seems to me, that is not necessarily adequate. One has to understand, perhaps, that this is one approach which would preserve, at least, the predatory profitability of certain parts of the private system. Although the cost is forcing everybody to live at a much lower standard and the system effectively being able to support far fewer people.

    Gary Reply:

    Thanks for the links.

    Gary Reply:

    @Selise,
    Thank you for the link to Galbraith’s talk. That is very interesting. Maybe that was what Blankstein meant when he said they are “doing God’s work”…

    @Tom Hickey
    thank you for the book link.

  4. Ryan says:

    Scandalous these guys in power don’t deserve to get re-elected when they know better. The bigger tragedy remains both of the ruling parties in the US are economically misguided and cling to power with nonsensical populist economic rhetoric. This sort of idiocy may go on for a long time yet. Sadly by the time voters realize they were bamboozled and they begin to force the politicians to promote prosperity, it will be too late. Everyone will have lost so much.
    At least with China’s one party system, they keep priorities like employment and raising the standard of living a priority for fear of losing control of the country.

    Reply

  5. Mario says:

    well that’s all well and true Mr. Geithner unless of course another wide-spread bank failure occurs and the “too big too fail” companies are peering over the great abyss of red (balance sheets)…then of course we’ll HAVE TO save ourselves from “financial meltdown” as Obama likes to put it with serious “stimulus” and “bailouts” that came swift and strong. Dear Lord the egregious actions of these men seem heavy to bear in my mind.

    Reply

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