Tuesday, December 4, 2012

Paul Krugman — Psychodrama Queens, Revisited

...another poll – internet-based, but by a firm with a good record — finds that, by a margin of almost four to one, people think that going over the fiscal cliff will cause the deficit to increase.
And the ironic thing is that they are probably right, if the economy slips back into recession, tax revenue will decrease and automatic stabilizers increasing, adding to the deficit endogenously due to existing law without a bill or a vote.

The New York Times | The Conscience of a Libera
Psychodrama Queens, Revisited
Paul Krugman | Professor of Economics, Princeton University

11 comments:

Dan Kervick said...

Total cock-eyed public confusion on this issue. It's dreadfully depressing. Total media failure. Total politician failure. Americans no longer know which end is up.

Crake said...

The script has already been written.

The Deficit Reducers will gain power, either with currently elected officials or in future elections, then their spending cuts make the economy worse and therefore deficits bigger, instead of thinking the cuts failed, as they did when the stimulus was too small, they will instead claim the cuts were not big enough and go for even more spending cuts, causing a worse economy and larger deficits.

This is not going to end well.

Matt Franko said...

Crake,

That quote from Norquist in the Bartlett piece Tom posted up below is the nightmare scenario.

We will be worse off than Europe as at least the European deficit countries dont have a hard "debt ceiling" and can let their fiscal balance adjust even though the Euro bosses may not like it...

If these morons do what Norquist proposes, we WILL NOT be able to do even that...

Many in the non-govt sector with net liabilities will be forced to start to liquidate assets to be able to service debt.... or go straight to BK...

rsp,

Matt Franko said...

Tom,

" tax revenue will decrease and automatic stabilizers increasing, adding to the deficit endogenously"

I believe only if they raise the "debt ceiling"... hitting the cliff without raising the ceiling will not allow Treasury to exceed expenditure over revenues plus pre-existing Treasury redemptions... if this is insufficient to account for needed automatic stabilizer expenditure, those stabilizer expenditures CANNOT be made and the deficit will not be allowed to adjust to non-govt sector $NFA savings desires...

iow the way I look at it, let's say they are at the ceiling, and have 30B in their Fed account, and on a Monday they redeem $30B of USTs with the 30B in the Fed account taking that account down to zero..

That opens up 30B of ceiling so on Tuesday they can sell another 30B of USTs and use those balances from those UST sales plus tax receipts from Monday for expenditure but no more as they would be right back at the ceiling again and the Fed account would be at zero...

The other thing is that the TGA looks like it is depleted:

Here is the DTS from May 16, 2011 when we hit the cieling last time:

https://fms.treas.gov/fmsweb/viewDTSFiles?dir=a&fname=11051600.pdf

Table I has about 75B in it... today is here:

https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=12120300.pdf

down to just 23B.... if we hit the ceiling with just 20B in the TGA we may just have to use that to handle redemptions only, it look like the liquidation will hit faster after the ceiling is reached than back in 2011...

this does not look good...

If we hit the "debt ceiling" with ZERO in the TGA we are basically toast as we wont even have balances to handle redemptions much less all needed expenditures... only tax revenues will be available...

What morons, correct me if I'm wrong ... rsp,

Tom Hickey said...

I'm discounting the ceiling, figuring that the GOP leadership would never be so stupid as to cut of SS payments, payments to military contractors, etc., all of which would result in a firestorm. Their approval numbers now are absolutely abysmal.

If they did something like that, it would continue to haunt the party for fifty years. Talk about tarnishing a brand.

Actually, I wish they would be so stupid. We wouldn't have to suffer the indignity of seeing them making fools of themselves for very long much longer.

paul said...

Tom, Matt

It's kind of amazing we can sit here and watch the apocalypse unfold in front of us while eating popcorn.

It's almost like a near-death experience.

And I'm with Crake, the scenario he's outlined is the one I fear the most. Stupid squared.

Matt Franko said...

Paul,

Check my math on this please...

If we are at the ceiling and tax receipts fall below the rate of required UST redemptions... we are "bankrupt"?

Here is the DTS from the end of last month:

https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=12113000.pdf

Check out Table 2 Withdrawal column. We redeemed 655B of USTs last month. On the Deposit side We issued 792B. (debt increased over 100B)

Tax receipts Table 4 were only $155B.

So if we are at ceiling and the treaury's Fed account only has 20B in it, how can we redeem another $650B of Treasuries in the month if tax receipts would fall to only say 100B due to austerity?

Where would treasury get the balances to redeem? Seems like in short order the govt would be "bankrupt" and unable to even just redeem it's debt securities at maturity...
rsp,

Matt Franko said...

conceivably,

If they ended up with 20B in their Fed account and the redemption schedule lined up perfectly where they faced 20B of redemption per day for 20 operation-days per month, they could conceivably use that 20B to "roll over" 20B perday for 20 days or 400B in the month.... without increasing total Treasuries outstanding...

Other than that it looks like spending would be limited to revenues which look like are running at 150B per month...

Expenditure from last month:

Interest on USTs: 35B
SS: 57B
Fed Salaries: 14B
Military Pay: 10B
Medicare: 65B

Total: 188B


.... looks like the medicare doctors and defense/vendors are going to be put on slow pay again...

rsp,

Tom Hickey said...

Paul: It's kind of amazing we can sit here and watch the apocalypse unfold in front of us while eating popcorn.

It's almost like a near-death experience.


And ite's not just the US. The EZ ajd UK are on an austerity binge, too.

LIkely results if pushed are: 1) depression, 2) war, 3) revolt, or some combo thereof. That's what it may take to finally get over neoliberalism.

I have written several time previously here and elsewhere about neoliberalism being the political-economic Zeitgeist since the "failure" of Keynesianism in the '70s. It will play out either as a result of this crisis or the next. Some think that we are only halfway through this crisis.

This would accord with the timeframe of both Strauss & Howe and Ravi Batra, which see the climax and transition occurring ~ 2020-2025. So we may have a way to go yet. However, getting timing like this right is iffy. Batra got the timeline of the fall of totalitarian communism right but so far has missed on the fall of capitalism dominated by rent-seeking and elite overreach.

paul said...

"Check my math on this please…"

Matt, what you are saying makes sense to me, but we have to keep in mind these idiots are not likely to bring the system down this way, they are just trying to scare us into accepting a deal we wouldn't consider otherwise.

I think it's a big scam.

The government has come up with $2.6 Trillion in off-budget spending since the 1960's that doesn't show up as debt held by the public…where did it get that?

Seems to me the government can do whatever it wants, including the impossible, when it comes to money.

Accounting and balancing of transactions is for the rubes.

If they muck the system up it's on purpose.

Tom Hickey said...

we have to keep in mind these idiots are not likely to bring the system down this way, they are just trying to scare us into accepting a deal we wouldn't consider otherwise.

This is the strategy of the pragmatists — a deterrent is only a deterrent if the opponent believes it will be used.

However, there are also the TP extremist nutcases who want and intend to bring the system down.