Bloomberg - "Roubini Says U.S. Risks ‘Train Wreck’ From Bond Vigilante Wrath"

[TomCADem]

Many DUers often cite Nouriel "Dr. Doom" Roubini in reference to the need to strengthen financial regulations and predictions on the direction of the economy. However, interestingly, here he is arguing that the Federal Government needs to starts dealing with the budget deficit. Republicans, for all their lecturing, have historically performed terribly when it comes to deficit reduction with Reagan and Bush presiding over record increases in the budget deficit. Can President Obama do better with even liberal economists like Roubini saying that he needs to start addressing the deficit.

http://www.bloomberg.com/news/2011-01-26/roubini-says-u-s-risks-train-wreck-if-bond-vigilantes-wake-up-on-budget.html

The U.S. will suffer a “train wreck” at the hands of bond investors if it fails to solve its budget problems, said Nouriel Roubini, the economist who predicted the financial crisis.

“The fiscal problem is very serious,” he said in a Bloomberg Television interview today with Tom Keene at the World Economic Forum in Davos, Switzerland. “The bond vigilantes have not yet woken up in the U.S. in the way they have in the euro zone. Unless the U.S. addresses this fiscal problem, we’re going to see a train wreck.”

President Barack Obama yesterday pledged a freeze on non- defense discretionary government spending to rein in a deficit he described as “not sustainable.” U.S. Treasuries fell today before an auction of $35 billion of five-year bonds. Roubini suggested that the U.S.’s commitment on the deficit may still not be enough to placate investors.

“We’re not doing much about the budget deficit,” said Roubini, who is chairman and co-founder of Roubini Global Economics LLC. “The public debt in the U.S. next year may go from 60 percent to 90 percent” of gross domestic product.

[dkf]

1. 60% to 90% In one year?

What would it take to do that?

[Cali_Democrat]

2. Obama, like the Republicans before him, will also perform poorly when it comes to deficit reduction

Because he has instituted the same tax cut policies. There's no hope of reducing the deficit in any meaningful way without increasing taxes.

[notesdev]

4. I know this is unthinkable

but the other way to get the job done is through the arcane and little-known mystical technique known as "spending reduction". This is typically practiced by people who don't matter, such as the additional millions of people who have found themselves jobless over the past few years.

There are a number of problems with the reflex to raise taxes, not the least of which is that it gets our party destroyed in elections.

But the more immediate problem with that is, how do you get more taxes out of someone with no job? And for local governments, there's another problem - how do you get more taxes out of a property tax base whose assessable value gets cut in half?

No, we need to deal with reality. The reality is that we are experiencing the popping of a generation-long debt bubble, and that across the board, from peasant to king, we can't and never really could afford all that stuff we have been buying.

The watchword for the future is "cost-effectiveness". It is not enough to do the right thing, we must also figure out how to afford it.

[Hannah Bell]

6. bullshit.

[Hawkowl]

7. You sir, are confused

The deficit is almost immediately solved by repealing the Bush tax cuts and slashing the Pentagon's budget back to Clinton levels. Problem solved. Additional revenue can be found by taxing corporations which PAY NO TAXES!!!

The watchword for the future is increased revenue and re instate the peace dividend. (Maybe you should brush up on arithmetic)

[Jim Lane]

10. Yet another way to get the job done is through deficit spending that stimulates economic growth.

See the information in my post below (#9).

[upi402]

3. Tax the rich and corporations, end FICA cap

cut the military and bullshit wars

and confiscate/recoup windfalls/bailouts.

fix corporatist trade and tax law, and end subsidies and incentives that harm us.

do what Dylan Ratigan says, what Bernie Sanders says...

[Hannah Bell]

5. who are these fucking "investors" & why must they be "placated"?

imo, they ought to be tried for crimes against humanity.

[Hawkowl]

8. Guillotine anyone?

They keep this up and that is the way we are headed.

[Jim Lane]

9. Roubini is right in one important respect.

He analyzes the debt as a percentage of GDP. That's the realistic number, because it expresses the debt burden in terms of the nation's ability to pay.

Total accumulated debt as a percentage of GDP hit a high in the 1940s, what with World War II. Thereafter, the debt burden declined under every President, regardless of party, from Truman through Carter. It bounced back up under Reagan and Bush I. Clinton got us back on the track of reducing the burden, but Dim Son shoved it up again. This is set out very well in this chart from zFacts: .

Conclusions to be drawn:
1) Trying to reduce the debt burden by cutting taxes on big business and rich people, while attacking social programs that benefit the remaining 98%, doesn't work (at least, not if your actual objective is debt reduction).
2) You can reduce the debt burden even while running unbalanced budgets, if your policies stimulate economic growth.
3) Republican who scream about the deficit are hypocrites, but that one's so obvious I probably didn't even need to list it.