Saturday, August 02, 2008

It is still the economy, stupid!

I've insulted Bush and his merry men so many times that I'm surprised the CIA and FBI haven't come after me. It really makes one wonder how they can run the world's only superpower without laws to protect leaders and civil servants from insult. Compare that with Singapore where we have the right laws in place to arrest people who insult our civil servants and bankrupt those who defame our leaders. As Bush is not protected by such laws, I'll proceed to insult him for the way he handled the economy.
When Hillary's husband left office, he put the US economy on track to balance the budget, narrow the trade deficit and with sufficient to fund the retirement of the baby boomers. After 8 years of Bush-nomics, all that has changed. US is heading for bankruptcy. No, this is not a theory by a doomsday economist or a bunch of conspiracy theorists - the person who is saying this is the US Comptroller General who is the accountant for the US govt. To appreciate what is wrong, you should listen to him yourself:

The US is already the largest debtor nation in the world at some point in the not so far future, it will only be able to afford to pay for the interest on its debt. While Bush is not solely responsible for this situation, he hammered the last nails in the coffin. Given the recent subprime crisis and credit crunch, the last opportunities to solve this problems are probably gone as the balance sheet of the US govt is further decimated to solve the short term but severe economic problems.
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The problem started many years ago when the US started having persistent twin deficits - the budget and trade deficits. To fund these deficits they issued treasury bills and the Asian govts like the China & Japanese were willing buyers given their huge trade surplus. This is the equivalent of the shopkeeper lending money to a customer to keep buying his goods. At the same time, the social security obligations of the US govt started to grow and they attempted to correct this during Regean's era by imposing a payroll tax. This that was suppose to fund the retirement of baby boomers in the next few years, however, the money is all gone! The US govt borrowed against the social social and now it is pretty empty just when it is needed to fund the retirement thus large batch of American retirees. When Bush entered office, these were difficult problems but not intractable. The Bush Administration took the stand that 'deficits don't matter' and proceeded to cut taxes for the rich, fight a useless war, increase defense spending and put America on a long term trajectory to fiscal disaster.
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Many are saying that Bush is clearly the worst president ever for fighting a war on a false premise but it is his economic policies that will cause long term pain to Americans. The book by Paul Begala, "It's Still the Economy, Stupid" was written in 2002...it was considered a scathing criticism of Bush's economic policies at that time but 6 years later the economy turned out to be far worse that the book predicted.

8 comments:

Anonymous said...

I love your economics comment in this blog. One of many reasons why I like to visit this blog. The primary reason is admiring your sarcasm and then reading the comments of the readers who don't quite get it.

Lucy Tan, do you mind commenting on the economic policies in Singapore? Our inflation can be 6% for this year. It is harming our savings for retirement especially the $40,000 in our CPF.

Why are the policy makers just focusing on our monetary band?

1. It hurts the export sector, especially the manufacturing industry.

2. It didn't work for Britain in the 80's under John Major. They now don't use it to fight inflation.

3. How come my savings a/c is only 0.25%? My friend in Brunei has 3% in his savings a/c.

Shouldn't banks increased their rates during high inflation so to cool the circulation of money?

Thanks Lucky Tan for your economics insights.

Enjoy your weekend!

Onlooker said...

They don't plan for long term like US take Temasek "LONG TERM" investment in citigroup ,merry lynch and UBS for example.
At least the money is not to boost someone ego like in the US.

..... Somehow this come out wrong.

Anonymous said...

At the end of the day, it is likely that many countries are still confident (and willing) in lending the US govt money, hence allowing it to borrow its way out of all these problems. Many governments still believe that the excessive consumption of Americans (is the only way to) fuel their economy, and are prepared to extend credit to the Americans in order to fuel their spending on imported goods.

Anonymous said...

To be fair to Bush's economic policy, part of his tax cut initiative (JGTRRA & EGTRRA) is actually beneficial to the poor, for example, the reduction of federal tax for low income bracket by 5%. Prior to this, lowest income ($1-20,000) pay 15% federal income tax, while the rich, via the capital gains tax, pays 10%. After EGTRRA, it becomes 10% for the poor and 8% (capital gains only) for the rich. The top income tax bracket for those above $350,000 is 35%. (it is necessary to differentiate between income tax and capital gains tax)

In essence, Bush's tax plan benefits both the rich and the poor. But of course, the best course of action is to abolish the capital gains tax category entirely, such that any income is classified under 'income tax' so that the rich would pay more than the poor. But at the same time, in the US's situation, with a top bracket of 35% (federal) plus 9.5% (california state tax, some states are taxfree), any drastic change of taxation policy will encourage transfer of wealth out of the US, which is not optimal in view of looming recession.

A lot of lambasting on Bush's economic policy is politically motivated, and not entirely true. For example, due to the tax cut, the taxation revenue for the government increases from $1.8 trillion in 2003 to $2.6 trilion in 2007. The tax cut seems to encourage higher tax revenue. But some economists brushed this aside and said that this is simply due to the housing boom. However, now that the boom is over, if we look at the figures again, it seems that the tax revenue for the first five months, if extrapolated, would suggest a tax revenue of $2.4 trillion, which is still significantly higher than the 2003 figure.

Anyway, because the media, including cable, internet, and paper, are controlled by various factions who are politically vested in their interests, it is necessary to be skeptical to what they write. Look into their numbers and verify the actual sources, and you might be surprised that the facts have been twisted to fit their story telling.

Last note, I am not a Bush supporter.

Anonymous said...

wow! we have so much accountability in the States!

Singapore leh??

Lee Kuan Yew's performing magic leh!! He said you can't imagine the proportion of scale of your $$$ he's handling, so keep the mouth shut leh!!

Anonymous said...

Hey lucky, is the US medi-care scheme particularly broken or is it true that in general that a govt cannot afford to give free medi-care to its ppl

Anonymous said...

to the first comment here: savings interest rates in singapore have been so low in recent years in a large part because banks are keeping them artificially low. as for the high rate of inflation now, i believe the main causes are energy and food costs, not overspending by consumers (which can be countered by raising interest rates). raising domestic interest rates won't curb inflation that much, because food and energy costs are imported.

Anonymous said...

Correct me if I am wrong. I think Singapore inflation is due to each Ministry department going in for a race to see who dig the most from the people. It suddenly become a performance indicator to them.

Secondly, patching up all the problem that they had created due to their failed policies.

I truthfully believe that even if there is a total change of capable ruling party in Singapore political. It would be about impossible to reverse the damage without hurting the Singaporean even more.

Like it or not. HDB is a fundamental tool for country stability and citizen commitment to work towards owning one. Look at it now, it had became a money generating department for the Government, nearer each day to a private housing.

Say one day majority of Singaporean can't afford housing. I think we can imagine the worst.

Transportation, CPF etc .... I can go on and on.