DEFICIT BLUES vs DEBT

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DEFICIT BLUES vs DEBT

Postby WalkerARCHITECTS » Mon Jun 18, 2012 6:04 pm

DEFICIT BLUES

Changing the subject is not typically the way we communicate as professionals but like many things there are multiple talking points to engage. A few days ago, I was stuck in the car for a long drive. Because of the complete absence of progressive talk on the airwaves, I had no real choice but to listen to the nasal maundering of Mark Levin on the radio. Levin was very upset about the federal deficit.

Interestingly, Levin was a high-level appointee in the Reagan Administration. We acknowledge that accomplishment. Dick Cheney, who was Reagan's Defense Secretary and later the Vice President, said 10 years ago that "Reagan proved deficits don't matter." We checked and this is indeed an accurate quote.

That being true of course we must concede that it is rather difficult to reconcile the conflicting statements of these two gentlemen, Mr. Levin and Mr. Cheney. Evidently, they believe deficits are a terrible tragedy when a Democrat is President, and a wonderful gift when a Republican is President. Or perhaps they are liars one or the other or both… the point is how can we tell. There never was any trickle down and both supported that idea.

There has got to be a more objective standard than that. To be president or vice president or even run for a seat in congress the standards must be higher than that.

My observation is fair. The federal deficit is a problem when long-term interest rates are high, and not much of a problem when long-term interest rates are low. The Federal Reserve dictates short-term interest rates, but long-term rates still are, pretty much, set by the market, in its usual ruthless fashion.

When long-term interest rates are high, a federal deficit competes against and "crowds out" private borrowing and investment. When long-term interest rates are low, the federal deficit is not taking away from borrowing by the private sector. On the contrary, the federal deficit is acting as a needed boost to aggregate demand in the economy, an action also known as "fiscal policy." When the economy is slack, every dollar of reduction in federal spending takes three or four dollars off of our gross national product.


Long-term U.S. interest rates are at their lowest in history. So what does that tell you about the US deficit? When Ronald Reagan was President, long-term interest rates sometimes exceeded 15% – ten times as high as long-term interest rates today. The market was screaming at the top of its lungs that the Reagan deficit was too high.

Look around the world. The ten-year note in Greece yields a little less than 30%. Pakistan, 13%. Portugal and Venezuela, 12%. In those countries, the bond market is shouting, "Cut that out!"

Not here in the USA.

Thanks to all the deficit-mongering by Mark Levin, Rush Limbaugh, Fox "News," etc., a lot of Americans are scared by the federal deficit. The advice from Democratic pollsters is to go along with this hand-wringing. But there is an alternative: Explain to the American people when a federal deficit is bad, and when it is not.

DEBT IS A REAL PROBLEM

The national debt however is a different problem with $15,750,583,156,370.23 owed to the nations creditors. The US population is 312,939,605 so if devided equally among the population each citizen would owe $50,331.06. The bad news however is that the debt is expanding at a rate of $3.92 billion dollars per day and has been doing that since September 28th of 2007!

Every Architect should understand this economy is difficult because the underlying economic base is very weak.

This disaster was created by policies under the George W. Bush administration and efforts to accelerate an improvement have been retarded by Republican efforts to obstruct employment growth strategies proposed by the Obama Administration. No clear or cogent policy has been expressed by either side regarding the economic recovery. The lack of Design Intelligence to manage the nation business has never been more damaging or more serious.

Political efforts to achieve influence over the government have been down right nasty. The problem with politics is that Design Intelligence, which is aimed at solving the nations problems for all Americans, is not engaged by all parties. Politics is aimed at achieving a position of dominance to serve one political factions interests over the others.

By April it appeared inevitable that neither party’s nominee will accept public funds for the general election or the spending limits that come with them — the likely death knell for a cornerstone of the post-Watergate campaign finance reforms intended to limit the influence of money in federal elections. Well before then, it had become clear just how deeply the campaign finance landscape has been changed by a 2010 Supreme Courtdecision, Citizens United v. Federal Election Commission. In the case, a bitterly divided court ruled 5 to 4 that the government may not ban independent political spending by corporations, as well as labor unions and other organizations, in candidate elections.
WalkerARCHITECTS
 
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