Dear Republicans - you were right.

[jacko]

When Reagan ran large deficits it pulled the US out of a huge and serious recession. We thought you were wrong, but we now see that you were right. So why have you changed your minds? Was Reagan wrong?

Deficits add money to the economy. Surpluses remove money from the economy. Which do you prefer - more money, or less money????

The two great economic collapses were preceded by our only two multi-year surpluses. 1920's surpluses were followed by a bubble and the Great Depression. And Clinton's surpluses were followed by a bubble - which Greenspan thought he could overcome by creating another bubble - but here we are in the Great Recession.

The difference now is credit is not easy. In the 1920's and 1990's when we ran multi-year surpluses the private sector made up for the loss of money by creating it's own via debt. But if we run a surplus now, since credit is not easy, nothing will replace the money and we will simply collapse.

Reagan ran huge deficits, and Cheney said "Reagan proved deficits don't matter". They do in the sense that we should shrink our trade deficit, and spend government money wisely, but the past money spent which everyone calls "debt" is NOT a problem. Read some Minsky, get educated, and stop our policy makers from fooling us into believing that our grandchildren will be hurt by our spending - they won't - they will be helped by it.

[banca rotta]

Deficits in the private and public sector's probably don't matter if they invest in the future such as training, education (real education not the cr@p the public schools and universities teach).

If a business runs a deficit, gets into debt to expand a good business model then the debt will self liquidate from the extra income thanks to the debt/investment.

Timing also matters. Reagan ran up huge deficits at a time where it didn't affect us too badly. We were a good, productive nation that sold goods and services to the rest of the world and our debt to GDP wasn't that much out of whack.

Today is a different story. Between G Bush Jr. and Obama they aren't getting the return on investment for all of the debt they ran up.

Obama for example spent 1.5 trillion in deficit spending since he took office but GDP only went up by about a third that amount so something is terribly wrong with his business model.

Aging baby boomers needing more health care and social services is adding to his dilemma.

The big problem that so few seem to understand or even want to understand is that our dollar standard is a debt based currency system.

Simply put the money supply needs debt in order to grow. We must get into debt or there will be no dollars in the system if we pay it all back. It's that simple.

[banca rotta]

When Reagan ran large deficits it pulled the US out of a huge and serious recession. We thought you were wrong, but we now see that you were right. So why have you changed your minds? Was Reagan wrong?

Paul Volcker who was actually a Democrat was another reason why we exited the recession of that time. He was the only Fed boss that raised interest rates (which initially broke the economy) in order to save the dollar. He fought and won the war on inflation with 21.5% interest rates.



If we even attempt to raise interest rates today to save our falling dollar the US Government will be in default of it's debt. 15 trillion in debt with most of it short term will kill us if we raise rates to 1980/1981 levels.

[tobee43]

banca,

i need to say this after reading you posts for a few years now (although i only joined 2 years ago, i lurked for at least 2 prior to that).

your posts are always well written, well thought through and really make others ponder on the issues. whether one agrees with you or not, is not the point. i enjoy reading your most informative and insightful thoughts. thanks for sharing them!