The world economy is heading towards a black hole unless bold action taken • Hacker News Board

Re: The world economy is heading towards a black hole unless bold action taken

#41

Post by nhebb » Fri, Sep 30, 2011, 2:47 AM UTC

"That could change if Congress came to its senses, passed Barack Obama’s jobs plan"

The jobs plan doesn't even have enough Democratic support to pass the Senate, so the likelihood of it making it through both houses is nil. It's more of a political plan than an economic one.

I also think that we have limited capability to make expedient investments in infrastructure with a positive ROI. Take a look at the Columbia River Crossing project between Oregon and Washington states - six years after project inception, the final environmental impact study still hasn't been released. Construction would start in 2013 at the earliest and is estimated to take 5-7 years. Time lines like that are common with large infrastructure projects in the US.

Re: The world economy is heading towards a black hole unless bold action taken

#42

Post by palish » Fri, Sep 30, 2011, 2:48 AM UTC

dmix wrote: post #38

sliverstorm wrote: post #21

Earlier quoted context omitted.

Oh, it's not a big deal, you just need everbody to go without money and food for a few years while you get the things off the ground. No sweat.

It's not as black and white (ex suffering or no suffering). It's possible there will be much more suffering as a consequence for not acting now - by letting the core problem persist. It could have major implications that last for decades versus a few years of hardship. Most complex problems can't be fixed from constantly patching the top surface. They need to be broken down and rebuilt into something better.

For what it's worth, you're 100% spot-on correct.

Don't feel bad that no one else believes it, heh. Throughout history, the world has been literally insane -- this is just another example of an insane view that's spread into popular culture. ("The system is too big to fail" / "Postponing the disaster is better, because the pain will be distributed over a longer period, rather than shocking us all at once" / whatever other crazy, impossible thing.)

Re: The world economy is heading towards a black hole unless bold action taken

#43

Post by TomOfTTB » Fri, Sep 30, 2011, 2:49 AM UTC

jamesaguilar wrote: post #36

TomOfTTB wrote: post #28

Earlier quoted context omitted.

With all due respect raising taxes that high is a straw man. I'd be all for raising taxes if it worked but it doesn't. Nation states are competitive entities and they compete for the world's resources. If the U.S. dramatically raises taxes on the rich then emerging countries like Hong Kong see an opportunity and lower their tax rates. Then you start to see capital flee the U.S. for overseas. That's why per capita tax…

> With all due respect raising taxes that high is a straw man. How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here. (Except maybe in your post. You're making it seem like the person you're responding to is in favor of doubling or tripling the tax rate or something, when in reality he probably su…

> How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here.

I suspect it's around where they were during the Clinton presidency. But I honestly don't know. And if we were making policy rationally instead of trying to demonize one side or the other what we'd be doing is trying to find that out.

As for the term Straw Man what you're saying when you says "raise taxes" is "The answer is simple". You're giving the impression that the other person just doesn't want to look at the obvious answer. My point was the tax argument is false (because we can't realistically raise taxes that high) and hence the argument that our debt is a serious problem is not a weak one.

> Your link shows the opposite. Per capita tax receipts have grown 250% over the last sixty years according to that chart.

Consistent is relative I'll grant you that. But the point is when the top tax rate was around 90% tax receipts were lower. So in comparison to our wildly fluctuating tax policy the receipts have been relatively consistent.

> How high do you think that is? Right now receipts are well south of 20% of GDP. Currently revenue would have to be doubled, but outlays typically increase and revenues decrease during a recession. If you look at the non-recession tax rates that would be needed to close that gap in, e.g., the Bush years, it would have only taken a 5-10% increase, which hardly seems as outrageous as you're making it out to be

Right now you're just making up numbers so I can't really debate your point. 5-10% of what? Income tax? Capital Gains? If you combine National + Average State debt for each American the number comes out to around $150,000 per tax payer with interest. That is not something that is going to be solved with a 5-10% increase on anyone.

Re: The world economy is heading towards a black hole unless bold action taken

#44

Post by Volpe » Fri, Sep 30, 2011, 2:50 AM UTC

TomOfTTB wrote: post #28

yequalsx wrote: post #24

Earlier quoted context omitted.

The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. In the U.S. taxes are around 24% GDP which is quite low relative to the rest of the industrialized world and quite low relative to our recent past (50 years). Raising taxes will counteract any hyper inflationary forces. Increasing the debt for the U.S., given that the borrowing ra…

With all due respect raising taxes that high is a straw man. I'd be all for raising taxes if it worked but it doesn't. Nation states are competitive entities and they compete for the world's resources. If the U.S. dramatically raises taxes on the rich then emerging countries like Hong Kong see an opportunity and lower their tax rates. Then you start to see capital flee the U.S. for overseas. That's why per capita tax…

> ... emerging countries like Hong Kong...

Erm... I'd like to see your definition of "emerging country" because it seems completely different to the accepted definition for either of those words

Re: The world economy is heading towards a black hole unless bold action taken

#45

Post by cwp » Fri, Sep 30, 2011, 2:51 AM UTC

bd_at_rivenhill wrote: post #7

building a firewall around illiquid but solvent countries like Italy I'm not entirely sure I understand the distinction being made between illiquidity and insolvency here, could someone please explain it? It seems to me that if you are in a state in which a high enough interest rate on your debt will put you in a death spiral from which you cannot feasibly recover, then your problem is bigger than liquidity.

That's exactly the distinction being made. Italy's debt is highish but manageable; it budget deficit is small. If it can borrow at reasonable rates for the next few years, it's not in danger of default. That's illiquidity. Compare to Greece, which, even if it could get loans at low interest, is never going to be able to repay what it already owes. That's insolvent.

Re: The world economy is heading towards a black hole unless bold action taken

#46

Post by jpdoctor » Fri, Sep 30, 2011, 2:52 AM UTC

anigbrowl wrote: post #14

OstiaAntica wrote: post #8

"Bold" action by the politicians and the central banks created much of the current mess. If we'd just cleared the pipes by letting the banks fail, recapitalizing new banks, and basically rebooting the financial system, we'd be much further along. Instead, we got bailouts and crony capitalism and ad hoc intervention, and today the global system is in many ways in worse shape now than in 2008. (Banking is more concentr…

letting the banks fail, recapitalizing new banks, and basically rebooting the financial system Please tell us how that works in practice rather than in theory. I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system. How do you 're'capitalize a new bank? If you just mean create new banks, who is running these banks? I mean, I'd like…

> I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system.

There will be massive disruption in any case. It can come in the format of recapitalization (Iceland) or inflation due to inflating their insolvency away (Latin America).

> How do you 're'capitalize a new bank?

OP meant recapitalize the failed banks. Short version:

1. Fire the board of directors.

2. Fire the management. (The question here is how many levels: At least the C-level execs, but probably another level below that.)

The above people have FUBAR'd the bank in the first place. Leaving them in place and expecting a different result is insanity.

3. Wipe out the shareholders.

4. Haircut the bondholders. Subordinated debt is probably 100% wiped out, preferred is probably 50%.

5. Inject treasury capital, and subordinate the formerly preferred. Nobody gets ahead of the treasury.

Total time is probably 1 week for the BoA sized guys. Declare a bank holiday if you wish, like 1933. Guys smaller than BoA are a weekend, as evidenced by FDIC takeovers.

6. Prepare for steps 1-5 for all the idiots that depended on the bonds from this bank as Tier 1 capital because they thought this bank was too big to fail. The system will be better without those idiots too.

Re: The world economy is heading towards a black hole unless bold action taken

#47

Post by yequalsx » Fri, Sep 30, 2011, 2:52 AM UTC

TomOfTTB wrote: post #28

yequalsx wrote: post #24

Earlier quoted context omitted.

The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. In the U.S. taxes are around 24% GDP which is quite low relative to the rest of the industrialized world and quite low relative to our recent past (50 years). Raising taxes will counteract any hyper inflationary forces. Increasing the debt for the U.S., given that the borrowing ra…

With all due respect raising taxes that high is a straw man. I'd be all for raising taxes if it worked but it doesn't. Nation states are competitive entities and they compete for the world's resources. If the U.S. dramatically raises taxes on the rich then emerging countries like Hong Kong see an opportunity and lower their tax rates. Then you start to see capital flee the U.S. for overseas. That's why per capita tax…

Raising taxes does work since the tax level in this country is quite low. It has a long way to go to catch up to France, Germany, etc. If raising taxes to the level of Germany would cause such a massive outflow of capital (which could be taxed at the exit point) then why does Germany have so much capital? Wouldn't the same thing happen to Germany?

The current tax burden as a percent of GDP in the U.S. is low by U.S. standards of the last 50 years and quite low relative to other industrialized nations.

The so called fiscal problem we have is easily fixable. Raising taxes is a viable strategy.

http://paul.kedrosky.com/archives/2011/07/tax-burdens-around...

Re: The world economy is heading towards a black hole unless bold action taken

#48

Post by yequalsx » Fri, Sep 30, 2011, 2:59 AM UTC

TomOfTTB wrote: post #43

jamesaguilar wrote: post #36

Earlier quoted context omitted.

> With all due respect raising taxes that high is a straw man. How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here. (Except maybe in your post. You're making it seem like the person you're responding to is in favor of doubling or tripling the tax rate or something, when in reality he probably su…

> How high? And how is it a straw man? A straw man is a false argument that someone uses to make another person's position seem weak in a debate. I don't see that happening here. I suspect it's around where they were during the Clinton presidency. But I honestly don't know. And if we were making policy rationally instead of trying to demonize one side or the other what we'd be doing is trying to find that out. As for…

Here are some charts. I don't know how to make links in a comment.

http://paul.kedrosky.com/archives/2011/07/tax-burdens-around...

Re: The world economy is heading towards a black hole unless bold action taken

#49

Post by dmfdmf » Fri, Sep 30, 2011, 3:02 AM UTC

guelo wrote: post #31

dmfdmf wrote: post #12

I agree with OstiaAntica. This Economist article is a thinly veiled call for more debt and more inflationary spending. Who stands in the way of "recovery" ? The obstinate Germans (who learned the lesson of hyperinflation last century) with the only sound Euro economy, i.e. they will be paying for the bailouts. In the USA its the Tea Party and the few Republicans with a spine who recognize that the problem is the mass…

Can you please explain your theory of how massive cuts to government and the ensuing massive layoffs of government workers, and the government buying less stuff from businesses, is going to fix the economy? Please take into account in your explanation that the US is able to borrow at record low rates right now.

> Can you please explain your theory...

I wish I could but I can't, not in context of a HN thread comment. I'd be happy to recommend some books if you are interested.

Re: The world economy is heading towards a black hole unless bold action taken

#50

Post by michaelochurch » Fri, Sep 30, 2011, 3:04 AM UTC

ChrisLTD wrote: post #4

They almost made it the entire article without throwing in a bit of Both Sides Do It nonsense. "In America the Republicans are guilty of outrageous obstructionism and misleading simplification, while Mr Obama has favoured class warfare over fiscal leadership."

Obama class warfare? No sign of it. I think Obama's a great human being, but he's a essentially a conservative by any sane standard. With the economic stance he holds now, he'd have been a Republican in 1970 (a time in which Republicans were not all horrible).