Daily Digest

Daily Digest 8/1 - High Stakes Histrionics, A Tea Party Triumph On Debt Deal, Astonished By High Water In Flood Zone

Monday, August 1, 2011, 9:54 AM
  • Deal May Avert Default, but Some Ask, ‘Is That Good?’
  • High Stakes Histrionics
  • Debt Deal Complicates Liberals' Support
  • A Tea Party Triumph
  • The President Surrenders
  • From Spending to Cuts, While the Economy Stalls
  • Data Centers’ Power Use Less Than Was Expected
  • In the Flood Zone, but Astonished by High Water

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Economy

Deal May Avert Default, but Some Ask, ‘Is That Good?’ (jdargis)

These economists and traders argue that lawmakers need to focus on the nation’s long-term financial health rather than its current bind. They point to historical examples involving local and national governments that defaulted on some obligations, and said the short-term pain that befell those places when they tried to borrow again eased over time.

High Stakes Histrionics (Ilene)

The stock market reacted poorly to the debt ceiling drama. David Waddell, president at Waddell & Associates, opined, “The politicians seem further apart than they were a few days ago, but we’re even closer to the deadline. Investors are at the point where they are saying ‘take me to cash.’ Politicians are really taking it to the pain threshold, where the everyman investor has just about had enough.” (Markets Swoon on Debt Fear)

Mish Shedlock commented on Boehner’s exercise in futility: “In a nearly useless face-saving maneuver, House Speaker John Boehner managed to twist enough arms to narrowly pass his bill that was instantly rejected in the Senate.

Debt Deal Complicates Liberals' Support (jdargis)

"Is this the deal I would have preferred?" No," Obama said. "We could have made the tough choices required on entitlement reform and tax reform right now rather than through a special congressional committee process. But this compromise does make a serious down payment on the deficit reduction we need . and ensures also that will we not face this same kind of crisis in six months or eight months or twelve months."

A Tea Party Triumph (jdargis)

The big picture is that the deal is a victory for the cause of smaller government, arguably the biggest since welfare reform in 1996. Most bipartisan budget deals trade tax increases that are immediate for spending cuts that turn out to be fictional. This one includes no immediate tax increases, despite President Obama's demand as recently as last Monday. The immediate spending cuts are real, if smaller than we'd prefer, and the longer-term cuts could be real if Republicans hold Congress and continue to enforce the deal's spending caps.

The President Surrenders (jdargis)

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

From Spending to Cuts, While the Economy Stalls (jdargis)

“Unemployment will be higher than it would have been otherwise,” Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. “Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.”

He added, “We have a very weak economy, so withdrawing more spending at this stage will make it even weaker.”

Data Centers’ Power Use Less Than Was Expected (jdargis)

The slowing of growth in consumption contradicts a 2007 forecast by the Environmental Protection Agency that the explosive expansion of the Internet and the computerization of society would lead to a doubling of power consumed by data centers from 2005 to 2010.

In the Flood Zone, but Astonished by High Water (jdargis)

Many residents here at the southeastern tip of the state, where it borders Nebraska and Iowa, say they never imagined this chain of events. Scott Mackie, like most of his neighbors, did not take out flood insurance on his newly built house — not because he could not afford it, he said, but because he believed the Missouri had been tamed by a system of dams and reservoirs.

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20 Comments

saxplayer00o1's picture
saxplayer00o1
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Manufacturing Weakens From China to U.K

 

"Japan and Germany welcomed news of
an 11th-hour deal to avoid a U.S. government default on Monday,
but officials in both countries said Washington must do more to
deal with its huge debt burden and the threat of a cut in its
credit ratings. Japan, second to China as America's biggest creditor, joined
other countries and investors in praising the deal but said it
hoped the United States would take additional steps to stabilise
its finances and head off the threat of a downgrade."

  • Other headlines:

'Band Aid’ Deal May Pressure S&P to Slash US Rating

U.S. may still face debt downgrade: Buchholz

Declaring bankruptcy doesn't ease student loans (CBS News)

Gold Coins Selling Out in Lisbon on Big Bets

EU/IMF start Portugal bailout review, focus on slippage

Still No Guarantees U.S.'s Perfect Credit Rating Will Remain Intact .

Budget cuts leave California with fewer hands to fight wildfires

Manufacturing Weakens From China to U.K

Tepco Says Highest Radiation Yet Is Detected at Fukushima Dai-Ichi

 

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brjohnson789
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Math, physics, economic growth

Sorry if this is a re-post, I thought this would be something some of the folks here might find interesting...

http://physics.ucsd.edu/do-the-math/2011/07/can-economic-growth-last/

 

Septimus's picture
Septimus
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A Few Facts to Keep in Mind - Tea Party did not win

A relatively small cut in the rate of future increases in spending is not a  victory for the tea party or anyone. To keep spending at the current level  is nota true reduction. A freeze on spending to the current level would mean (in Washington speak) a cut of over 9 trillion over the next 10 years:

http://jerrypournelle.com/chaosmanor/?p=1072

"A Few Facts to Keep in Mind

The most important thing to understand is that if the Congress were to freeze government spending: pass a Bill that says that we will next year spend precisely the same amount as we did last year, same salaries, same payments to pensions, same purchases, same veteran benefits, same payments to Bunny Inspectors and SWAT teams, same amount to Food Stamps and Free Lunches – if we froze government, the result would be called a $9.5 Trillion cut.

Stopping the exponential growth of government will be called a $9.5 Trillion cut, an intolerable cut, balancing the budget on the backs of the poor, giving enormous tax benefits to the rich, grinding the faces of the poor for the benefit of corporate jet owners. Etc.

The Budget Deal proposes at best about $3 Trillion “cut” over a ten year period. This amounts to a reduction in the exponential growth of government from something over 7% to something over 6%; meaning that government spending now on track to double in 11.5 years will instead double in 13.5 years. Since no Congress can bind the next Congress, and no “cut” takes place before 2013, there is a possibility that exponential growth of government will not change at all; and at best the exponential growth of will continue the inexorable march of the United States toward a regulated planned economy welfare state.

The Deal Bill says there are no tax increases, but that is not correct. The Bush Tax Cuts will expire under this deal. That is a tax increase. The Deal Bill has no effect on the increases in taxes built into ObamaCare, and has no effect on ObamaCare costs or employer burdens.

The Deal Bill increases spending by at least $8 Trillion, locking in all of the Stimulus Increases. It makes almost certain the largest tax increases in history.

This is, according to the Wall Street Journal, the best we can get from having taken the House last November.

The White House View

The White House view of this budget deal is given here. It is triumphant in tone, as it should be.

What Comes Next:

The government will grow, defense will be cut, the economy will continue to plummet, and taxes will rise, in theory for “the rich”.

Note that this won’t be distributism: that is, confiscation of wealth in order to distribute it to everyone. That is one form of “stimulus” on the theory that poor people spend their money and that builds an economy. I am not making that case, but a case can be made for lowering the gap between rich and poor in the interest of the appearance of fairness, and distributing the money to those who will spend it is the best way to stimulate an economy, particularly if that is coupled with more economic freedom.

That is not what will happen. Under this New New Deal things will go on as before. Government will grow, unionization of government will continue with a vengeance, much of the government spending will go to create political funds and lobbies for continued spending, and the United States marches on toward becoming Portugal, or Greece. Taxes will rise.

The Deal raises the Debt by the greatest amount that the Debt has ever been raised in one putsch. The Deficit Dance ends in a grand finale. Perhaps the Bunny Inspectors will now come out to show us what we are getting for our 2010 Election Victory.

We can all hope I am wrong in this analysis. Alas, I do not think I am.

This has not passed the House, and may not do so. The Dance may not be over. And in any event this Deal hasn’t anything like enough “cuts” to affect the US AAA Bond rating. We may get the Deal and a bond downrating. And many say “this is the best we can do until we take both Houses and the White House.” The House leadership fears that Obama will deliberately default then blame it on the Republicans. The Dance continues."

 

alcatwize's picture
alcatwize
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they just don't get it.

 “Unemployment will be higher than it would have been otherwise,” Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. “Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.”

He added, “We have a very weak economy, so withdrawing more spending at this stage will make it even weaker.”

 

They guy who wrote this article (Paul Krugman) is an idiot.

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badScooter
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when a cut is not a cut

 Well said, Septimus.  I like Jerry Pournelle quite a bit (I'm a science fiction kind of person when I'm not fuming over economics).  I find the obfuscation coming out of DC almost as baffling as the lack of critical thinking capacity of the US population (on aggregate)

 

cheers,

mike

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Nate
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Septimus wrote: "A Few
Septimus wrote:

 

"A Few Facts to Keep in Mind

The most important thing to understand is that if the Congress were to freeze government spending: pass a Bill that says that we will next year spend precisely the same amount as we did last year, same salaries, same payments to pensions, same purchases, same veteran benefits, same payments to Bunny Inspectors and SWAT teams, same amount to Food Stamps and Free Lunches – if we froze government, the result would be called a $9.5 Trillion cut. 

Septimus,

Do you mean a $9.5 Trillion cut over a 10-year period?

Nate

Damnthematrix's picture
Damnthematrix
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they just don't get it.
alcatwize wrote:

 “Unemployment will be higher than it would have been otherwise,” Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. “Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.”

He added, “We have a very weak economy, so withdrawing more spending at this stage will make it even weaker.” 

They guy who wrote this article (Paul Krugman) is an idiot.

Why so? (I have no opinion of Krugman)  The economy's throughput is measured in money and is called the GDP.  IF there is indeed less spending, then the GDP will go down, and as measured, it will be weaker.......

If people spend less, there will be more unemployment.  Growth will go down.  That's how the economy as we know it works, so I ask again, why is the writer an idiot (apart from the mere fact he's an economist of course!).

Of course you are right with the heading "they just don't get it".

Mike

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Poet
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Semantics Are Power In A War Of Words

I love Jerry Pournelle's books, especially the Falkenberg's Legion series. Everyone who loves science fiction should read it. (Although in John Christian Falkenberg's world, there is still a great abundance of energy and raw materials, as there are numerous star systems to exploit. One parallel seen is how there are "citizens" who live on the public dole versus "taxpayers" who are essentially taxed to death but enjoy some benefits including some legal protections, and of course at the top there are the wealthiest elites who always manage to keep their political and wealth ever-growing.)

However, I disagree with Pournelle about the Bush cuts' expiration being labeled a " tax increase". A temporary tax cut designed by it's very authors to be temporary, and designed to have a sunset, is not a tax increase.

I know most people would NOT call the temporary Social Security tax cuts enacted this year, designed to sunset at the end of this year, a tax increase when it's no longer available next year. They understand it was temporary in nature. Just as I know most people here who got the economic stimulus check in 2008, would NOT call the continued lack after that, to be a stimulus cut.

It's a matter of semantics and war of "spin" - and how you spin it for others to see can be powerful. But everyone acknowledges the Bush tax cuts were never designed to be a permanent tax cut or they wouldn't have put in a sunset clause in the first place.

Poet

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Thomas F.
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brjohnson789....Great link....

Thanks for sharing.  I found it very informative and educational.

joeysan's picture
joeysan
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A tax that was lower and then goes up is a tax increase.

 Semantics can be a form of self-delusion.  If I am paying  taxes at a 32% marginal rate and it goes up to 35% or 39% or whatever then I am experiencing a tax increase period.  What it was "intended" to be by disingenuous politicos is irrelevant.  I, the tax payer, am paying more not less tax and therefore I am experiencing a tax increase--there is not honest, non-delusional way to spin that. Let's at least think clearly about that.

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This just irks me to

This just irks me to read...

The President Surrenders (jdargis)

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Sure it will depress the economy to cut spending, but borrowing unaffordably to maintain spending is not an effective way to maintain an economy to me.  Isn't letting letting the economy contract to a more sustainable level more healthy in the long run?  We never paid down our debt in the best economic times like we should have, so it's time to take our lumps now, for the sake of our children.

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+1 Woodman
Woodman wrote:

This just irks me to read...

The President Surrenders (jdargis)

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Sure it will depress the economy to cut spending, but borrowing unaffordably to maintain spending is not an effective way to maintain an economy to me.  Isn't letting letting the economy contract to a more sustainable level more healthy in the long run?  We never paid down our debt in the best economic times like we should have, so it's time to take our lumps now, for the sake of our children.

That's just like saying, "The worst thing you can do in these circumstances is take the crack away from the crackhead, since that will depress him further." No shit that will depress him further, but otherwise he's just going to keep getting worse and worse until he stops the stupid behavior or dies.

SS

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Damnthematrix
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you need to get over it....
Woodman wrote:

Sure it will depress the economy to cut spending, but borrowing unaffordably to maintain spending is not an effective way to maintain an economy to me.  Isn't letting letting the economy contract to a more sustainable level more healthy in the long run?  We never paid down our debt in the best economic times like we should have, so it's time to take our lumps now, for the sake of our children.

I think they call this being between a rock and a hard place...?  Doesn't matter what they do, we're screwed.  After a while, you just accept it.....

Mike

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Arthur Robey
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Robot camels

Foxconn (evocative name) is going to use 1 million robots by 2014 in China.

Who do they intend to sell their products to?

Will the economic unit be the company, not the human.

The story goes like this. Humans are consumers. Companies become people. Companies become consumers. Humans become non-people.

We fall out of the economy,  like the happless Arab and his apocryphile Camel, who forced him out of his tent.

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+2 woodman

 That's why I said the author is an idiot.

alcatwize's picture
alcatwize
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Robot Camels
Arthur Robey wrote:

Foxconn (evocative name) is going to use 1 million robots by 2014 in China.

Who do they intend to sell their products to?

Will the economic unit be the company, not the human.

The story goes like this. Humans are consumers. Companies become people. Companies become consumers. Humans become non-people.

We fall out of the economy,  like the happless Arab and his apocryphile Camel, who forced him out of his tent.

 

Apparently the good old USA will buy it all.  It doesn't matter if we don't have money, we got a printing press that can crank out as much as we need :)

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Arthur Robey wrote: Foxconn
Arthur Robey wrote:

Foxconn (evocative name) is going to use 1 million robots by 2014 in China.

Who do they intend to sell their products to?

Will the economic unit be the company, not the human.

The story goes like this. Humans are consumers. Companies become people. Companies become consumers. Humans become non-people.

We fall out of the economy,  like the happless Arab and his apocryphile Camel, who forced him out of his tent.

Reminds me of a SciFi novelette I read many years ago where factories turned on robots to consume because humans couldn't consume fast enough.

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Arthur Robey wrote: Foxconn
Arthur Robey wrote:

Foxconn (evocative name) is going to use 1 million robots by 2014 in China.

Who do they intend to sell their products to?

Will the economic unit be the company, not the human.

The story goes like this. Humans are consumers. Companies become people. Companies become consumers. Humans become non-people.

We fall out of the economy,  like the happless Arab and his apocryphile Camel, who forced him out of his tent.

I doubt very serioulsy those robots are going into China.

Taiwan's Foxconn Technology Group, known for assembling Apple's iPhones and iPads in China They are also famous for workers suicides.

‘The use of automation is driven by Foxconn's desire to move workers from more routine tasks to more value-added positions in manufacturing such as R&D, innovation and other areas that are equally important to the success of our operations,’ Foxconn said.

Foxconn plans to buy a set-top plant in Mexico from Cisco Systems and is looking into investing more in Brazil, where it is already making mobile phone handsets.

It has bought LCD TV plants from Japan's Sony Corp in Mexico in 2009 and Slovakia in 2010 and is in cooperation talks with a number of top Japanese hi-tech firms, including Sharp, Canon and Hitachi.

Look for those robots to go into the new plants in Mexico and Brazil, where the labor burden is decidiely higher than mainland China. There is no ROI for machine automation when labor costs are $.60/hour.

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krugman

 My opinion of Krugman...he's either an idiot (if he actually believes the drivel he pens) or a political shill of the worst kind.  Gee, I guess those two things are not mutually exclusive.  Of course, I'm biased.  The hack just rubs me so the wrong way with his derisive "I'm an economist so I know best" style.  Gosh, I know of lots of other economists who completely disregard him, except as a propaganda barometer.

Bad day, sorry, I just *really* don't like that guy.

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