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Thread: Krugman and Stimulus Package

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    Default Krugman and Stimulus Package

    Noted economist has dire jobless warning

    The U.S. unemployment rate could reach 10 percent without a "very effective" stimulus package, 2008 Nobel economics prize winner Paul Krugman said Monday

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    Default Re: Krugman and Stimulus Package

    and for good factual reasons ...

    (snip)"The estimated population of the United States is 305,237,081
    so each citizen’s share of this debt is $34,949.81. [now - before adding gov't guarantees to Wall St. and/or Obama's infrastrucure stimulus spending - sic]

    This debt information is painfully obvious: we cannot go deeper into debt. The average American already owes a year’s worth of wages! If we add another $10,000 to this, it rises to an astonishing $45 k. Per person, not per worker! If it is per worker, the sum zooms to over $100,000. If the money is handed out per person, this would be many times worse. A family of five would be running up over half a million dollars in GOVERNMENT IOUs. This is a catastrophe already! (snip)

    (snip)Heh. I love history. The main thing is this: THERE WAS NO ROBIN HOOD GIVING MONEY TO THE POOR. Period. We have to grow up and realize that we have to pay ALL government obligations, in the end. There is no evading this. We can’t have our government hand out goodies. These are not goodies.

    THESE ARE DEBTS. MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES (in billions)

    China, Mainland 585.0
    Japan 573.2
    United Kingdom 338.4
    Carib Bnkng Ctrs 185.3
    Oil Exporters 182.2
    Brazil 141.9
    Grand Total 2860.5

    That is nearly $3 trillion, not in all debts they hold against us, this is debt guaranteed by our future taxes. It is a huge amount and adding another $5 trillion to it won’t save our economy nor our nation. It dooms us, frankly. Bankruptcy isn’t something to sneeze at.

    No empire that went bankrupt remained an empire. All were hammered into the ground and often, totally dismembered.(snip)

    from


    The salient point of course is that, given that nearly 1/2 of all American workers fall far enough down the earnings curve that they don't actually have to pay any significant amount of income tax, such that the other 1/2 of American workers wind up having to pay their low income neighbor's share of this national debt as well as their own, this is the equivalent of saddling every middle class American worker with a $200,000 government 'mortgage' payment in the form of increased future income taxes in order to avoid America's going bankrupt.

    ~
    Last edited by Melonie; 12-09-2008 at 12:09 AM.

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    Default Re: Krugman and Stimulus Package

    Actually the citizen population is something more like:

    305,237,081 - 12,000,000 illegal aliens = 293,237,081 ()

    293,237,081 - 1,797,963 H-1B Visa Workers = 291,439,118

    291,439,118 - 15,966 L1 Visa Workers = 291,423,152

    So really - the number of people who are going to be responsible in the hard times is less than the population of the US.

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    Default Re: Krugman and Stimulus Package

    ^^^ Deo, you stopped a bit short. How many American people can actually be required to pay additional income taxes, keeping in mind that at income levels below $29k per year Americans don't actually pay any income tax ?

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    Default Re: Krugman and Stimulus Package

    Paul Krugman is a hoot ! When Bush was President he regularly decried : easy money from the Fed; deficits, a weakening dollar and our balance of trade with China. See for example his 9/5/03 column at NYTimes.com.

    Now that Obama is President he says that the deficit is not large enough; the Fed ought to keep pumping out the cash and that a weak dollar is good. In yesterday's N.Y.Times he was alarmed at the WSJ, Charles Plosser ( of the Philly Fed ) and Jeffrey Lacker ( of the Richmond
    Fed ), among many others, who recognize that we cannot continue to have ridiculously low interest rates, trillion dollar deficits and uncontrolled velocity in M2 increases. Krugman poo poos fears of inflation and has the gall to claim that he doesn't know what analysis is behind such inflation fears. Krugman is either lying or he ought to give back his Nobel Prize. He knows, or ought to know, that we are repeating the pattern of the stagflation 70's, only with far greater magnitude.

    Krugman has been called on the carpet for his pathetic attempt to wave away concerns about the deficit by claiming that the deficit in 1945 was much larger as a percentage of GDP. That's true BUT once defense spending was cut, the deficit virtually disappeared and we paid down the accumulated debt in about ten years. Today there is no 3/4 plus of the Federal Budget in defense spending to reduce. Most Federal spending is mandated transfer payments and interest on the national debt. Right now 40% of individual tax revenue goes to pay interest on the debt.

    More importantly Krugman never says HOW he expects the deficit to be reduced. He opposes tax cuts or anything else designed to generate growth. He supports National Health Care and Cap & Trade, both of which will ADD Federal spending and retard growth. In fact Krugman has advocated INCREASED Federal spending and a LARGER deficit. All he can come up with is a return to Clintonian tax rates which will stifle the very growth we need and which will amount to little more than a few drops in the bucket as far as generating revenue. Worse yet, his proposed extra spending will sop up any revenue increases.

    I can't stand Krugman and the biggest reason for my disgust is because he's a coward. You NEVER see him on Kudlow or Cavuto or any program hosted by someone who knows anything about economics. Instead he sticks to friendly forums like Bill Maher's "Real Time" and the nit wits of CNN and MSNBC. Every time he's on "This Week" on ABC,George Will hands him his lunch albeit in a very polite and civil way. Sort of like the way Al Gore won't debate or defend the numerous errors that have been revealed about "An Inconvenient Truth".
    Last edited by Eric Stoner; 10-15-2009 at 08:16 AM.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Eric Stoner View Post
    Most Federal spending is mandated transfer payments and interest on the national debt. Right now half of all tax revenue goes to pay interest on the debt.
    Half? Try eight percent of all the budget goes to interest payments. Do you just make up the numbers you spout?

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Zofia View Post
    Half? Try eight percent of all the budget goes to interest payments. Do you just make up the numbers you spout?
    You're right. In LAST Year's budget, debt service was 8 % of the total. In the 2009 budget, 40% of all revenue collected from individual income taxes went to pay interest on the National Debt. That's $ 353 billion out of just over $900 billion. It is in the out years that 50% of all tax revenue will be needed to pay interest on the Debt.
    Last edited by Eric Stoner; 10-14-2009 at 12:10 PM.

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    Default Re: Krugman and Stimulus Package

    ^^^ and the 50% assumption for 2015 and beyond doesn't take into account potential major increases in interest rates which the US Treasury may need to pay in order to attract sufficient future foreign investment to 'roll over' maturing debt with less than seven year terms that the gov't cannot afford to simply pay off.

    But then again, there's also the 'printing press' option. If you devalue the US dollar by a 2:1 ratio over the next 7 years, GDP doubles in US dollar terms. US salaries will also nearly double, which will MORE than double tax revenues without anybody having to vote for a tax rate increase. Problem solved ( unless you are a saver / long term US dollar investor )

    See also , which broaches the subject at the state level where the 'printing press' is not an available option.

    ~
    Last edited by Melonie; 10-14-2009 at 03:20 PM.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Eric Stoner View Post
    You're right. In LAST Year's budget, debt service was 8 % of the total. In the 2009 budget, 40% of all revenue collected from individual income taxes went to pay interest on the National Debt. That's $ 353 billion out of just over $900 billion. It is in the out years that 50% of all tax revenue will be needed to pay interest on the Debt.
    You keep making things up! It's just amazing. The 8 percent figure was for the 2009 fiscal budget. For FY 2010 the budget is for $3.5 trillion. Interest on the national debt is budgeted at $164 billion. Call that 5.2%. Not 40%. Even if you use your calculation of debt as a portion of individual income tax receipts (164B/1.06T) interest is only 15%. Not that your methodology is in any way indicative of the whole of federal tax revenues.

    Just trying to keep it real.
    Z

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Melonie View Post
    But then again, there's also the 'printing press' option. If you devalue the US dollar by a 2:1 ratio over the next 7 years, GDP doubles in US dollar terms. US salaries will also nearly double, which will MORE than double tax revenues without anybody having to vote for a tax rate increase. Problem solved ( unless you are a saver / long term US dollar investor )
    ~
    No it doesn't. The salaries of government employees will also double. The price of products purchased by the government will also double.

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    Default Re: Krugman and Stimulus Package

    ^^^ the point was that existing US income tax rates are progressive ... thus if dollar devaluation causes all prices to double and also causes a person's annual earnings to go from $50k a year to $100k a year, the income taxes due will increase by a factor of 4 or 5 not by a factor of 2 !!!

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Zofia View Post
    You keep making things up! It's just amazing. The 8 percent figure was for the 2009 fiscal budget. For FY 2010 the budget is for $3.5 trillion. Interest on the national debt is budgeted at $164 billion. Call that 5.2%. Not 40%. Even if you use your calculation of debt as a portion of individual income tax receipts (164B/1.06T) interest is only 15%. Not that your methodology is in any way indicative of the whole of federal tax revenues.

    Just trying to keep it real.
    Z
    NO ! Sorry. ONE set of facts for everybody.
    8% of the 2008 buget went to debt service according to the Office of OMB and the Treasury Dept. If Obama has increased the overall debt from $10.6 trillion to $11.9 trillion from Inauguration Day up until now and the deficit has gone from $1.2 trillion to $1.4 trillion, wtf do you get $164 billion and 5.2% for interest on the national debt ? The total debt is almost TWELVE TRILLION DOLLARS ! Every 1% in interest is almost $120 billion. Interest on the 10 year Treasury is well over 3%. That's at least $360 billion. How much do you think was collected in INDIVIDUAL Income taxes for 2008 ? What do you think it's projected to be for 2009 ?

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    Default Re: Krugman and Stimulus Package

    from

    (snip)"Retiring to a Banana Republic, without leaving home

    Retiring to a tropical paradise is a very common aspiration. Who knew all Americans of all income levels would get a chance to do so- if one considers a Banana Republic a tropical paradise.

    What does Senator Gregg mean by the phrase "banana republic"? He is referring to the stereotype of a tropical country that borrows so much money it eventually finds its interest expense exceeds its receipts. Once that point is reached, no amount of primary (non-interest) budget restraint can fix the problem and default becomes the only option.

    So long, however, as the US$, as currently defined, remains the world's reserve currency of choice the US cannot default in the classical sense. As Alan Greenspan noted a few years ago, We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power.

    Of course, the world has increasingly been looking to shift away from the US$ as world's reserve currency- the exorbitant privilege, to which Greenspan refers, is being revoked- thus the US may indeed risk a classical default.

    That day, however, has not yet arrived, but it seems to be rapidly approaching. According to the FY2009 report, Federal Interest expenses came to $383B (admittedly higher than any annual deficit prior to 2004) which compares to receipts of $2,105B. On the surface, it seems the US has a lot of wriggle room.

    Underneath the surface, however, the wriggle room is rapidly shrinking.

    1) The interest charges on the rapidly growing stock of debt are at historically low levels. In the event the US$ needed to be supported by a substantial increase in interest rates (the, thus far, only sure fire method of putting a floor under a currency), particularly given the short duration of the debt stock, it wouldn't be long before interest charges alone exceeded the $1,000B level, assuming no increase in the debt.

    2) The debt, however, is not projected to remain stable. Rather, it is projected (by some) to rise by $1,000B per year for the next 10 years. Given the current stock of Federal Public Debt of $7,530B, a $10,000B increase at 12.5% interest would lead to interest charges in excess of last year's receipts. Admittedly, receipts might rise as well over the decade, but we might also find that the 12.5% interest might be too low. Alternatively, especially if economic policy retains its multi-decade "trickle-down" approach of financial system support to pull the real economy behind, receipts might continue their current decline (FY2009 receipts were $400B less than those of FY2007). The higher unemployment becomes, the higher the deficit will be, particularly given the aging demographics of the US population. Gotta love multi-variable analysis.

    Of course, long before the classic banana republic type default point is reached, cleverer people than I would have run their spreadsheets (as I have) and stopped buying new debt (unless the price was right, i.e.at a much higher interest rate). Budget constraints, thanks to the large and growing stock of external debt, would be imposed from without and the painful choices, long pushed into the future would need to be addressed.

    The question is one of wriggle room. Currently, low interest charges create the illusion that the US can continue to run trillion $ deficits for years. Yet, the US$, as I argued in yesterday's The Fed vs. Gold, is no longer nearly as good as gold. In the not too distant future the Fed will need to defend the value of the $. This rise in interest rates will, other things equal, further hinder the real sector, and, far more ominously, as I argued in From Black-Scholes to Black Holes, push the big banks closer to insolvency.

    The time is soon approaching for the government to prioritize its goals. It seems clear to me that the US cannot wage wars, honor its commitments to its population, and support the speculative elements in its financial system from default, all at the same time. Choices need to be made or Senator Gregg will be correct."(snip)

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Melonie View Post
    ^^^ the point was that existing US income tax rates are progressive ... thus if dollar devaluation causes all prices to double and also causes a person's annual earnings to go from $50k a year to $100k a year, the income taxes due will increase by a factor of 4 or 5 not by a factor of 2 !!!
    If prices and salaries were to double over the next seven years, income tax deductions will increase greatly, especially mortgage interest deductions.

    For salaries and prices to double over 7 years, they would have to increase approximately 10% a year. This in turn would drive interest rates up to greater than 10% a year. Therefore, what would be a $150,000 mortgage today with an interest rate of approximately 4%, would be in 7 years, be a $300,000 mortgage with an interest rate of approximately 12%. Instead of being able to deduct approximately $6,000 in interest for the mortgage, the home buyer would be able to deduct $36,000.

    Of course the possibility of wages doubling over the next seven years is extremely unlikely. Right now wages are stagnant or even falling. With the unemployment rate at 10%, there is no upward pressure for wages. With demand for products low, there is very little upward pricing pressure on most products.

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    Default Re: Krugman and Stimulus Package

    ^^^ which would promptly be 'cancelled out' by the Alternative Minimum Tax disallowing such an increased home mortgage interest deduction ... not to mention a 40%+ combined federal and state marginal tax rate applying to the 'inflated' income level.

    However I agree with you completely that if the dollar's 'purchasing power' is cut in half, there is essentially no chance that salaries / incomes will double in response to maintain some sort of balance. This leads to a scenario where the American 'middle class' standard of living will decline significantly ... as the direct result of rising energy prices / food prices / prices for all imported goods, PLUS rising taxes and fees, leaving 'middle class' Americans with an ever shrinking amount of their family budget remaining to cover 'non-essential' items.

    As discussed in many other threads, this same scenario is likely to lead to a whole lot of future discontent as the de-facto standard of living of the American 'middle class' steadily declines to more closely match the de-facto standard of living of unskilled / 'structurally unemployed' Americans receiving social welfare benefits paid for by their 'middle class' neighbors. Some commentators have referred to this scenario as 'Trickle-Up Poverty'.

    ~
    Last edited by Melonie; 10-20-2009 at 12:49 AM.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by eagle2 View Post
    If prices and salaries were to double over the next seven years, income tax deductions will increase greatly, especially mortgage interest deductions.

    For salaries and prices to double over 7 years, they would have to increase approximately 10% a year. This in turn would drive interest rates up to greater than 10% a year. Therefore, what would be a $150,000 mortgage today with an interest rate of approximately 4%, would be in 7 years, be a $300,000 mortgage with an interest rate of approximately 12%. Instead of being able to deduct approximately $6,000 in interest for the mortgage, the home buyer would be able to deduct $36,000.

    Of course the possibility of wages doubling over the next seven years is extremely unlikely. Right now wages are stagnant or even falling. With the unemployment rate at 10%, there is no upward pressure for wages. With demand for products low, there is very little upward pricing pressure on most products.
    Have you looked at the price of oil lately ? At the price of materials we have to import to actually make the things we still manufacure here ? China and India import a lot of the same stuff. What do you think that does to prices ? And other countries import a lot of the same stuff. And many do so with stronger currencies than ours . What do you think that will do to prices ?

    Are you remotely familiar with what happened in the late 70's and early 80's ?
    We're actually worse off now than we were then.

    The match that lit the fuse to the financial meltdown of 2008 was foreclosures. And a primary cause of foreclosures was soaring energy costs. And that won't happen again this time, WHY ?
    Last edited by Eric Stoner; 10-20-2009 at 12:22 PM.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Eric Stoner View Post
    More importantly Krugman never says HOW he expects the deficit to be reduced. He opposes tax cuts or anything else designed to generate growth. He supports National Health Care and Cap & Trade, both of which will ADD Federal spending and retard growth. In fact Krugman has advocated INCREASED Federal spending and a LARGER deficit. All he can come up with is a return to Clintonian tax rates which will stifle the very growth we need and which will amount to little more than a few drops in the bucket as far as generating revenue. Worse yet, his proposed extra spending will sop up any revenue increases.

    I can't stand Krugman and the biggest reason for my disgust is because he's a coward. You NEVER see him on Kudlow or Cavuto or any program hosted by someone who knows anything about economics. Instead he sticks to friendly forums like Bill Maher's "Real Time" and the nit wits of CNN and MSNBC. Every time he's on "This Week" on ABC,George Will hands him his lunch albeit in a very polite and civil way. Sort of like the way Al Gore won't debate or defend the numerous errors that have been revealed about "An Inconvenient Truth".
    I was involved in interviewing him earlier this year. I have to say that we didn't pitch questions as if we were superstar macro economists - but with all due respect, it isn't easy picking an intellectual fight with someone of his calibre. The outcome isn't in doubt, it's all about how silly he wants to make you look...

    What I find humourous, is that you complain that he doesn't have the answer. Right now, honestly, does anyone???

    Figuring out how best to deal with the current deficit situations of the world in a voter and business friendly way is like watching WTO negotiations = 3D chess with 180 simultaneos players.

    So he doesn't have all the answers, give the guy a break. Neither do any of us - and from what I have seen of your thoughts above, that includes YOU!!

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by StuartL View Post
    I was involved in interviewing him earlier this year. I have to say that we didn't pitch questions as if we were superstar macro economists - but with all due respect, it isn't easy picking an intellectual fight with someone of his calibre. The outcome isn't in doubt, it's all about how silly he wants to make you look...

    What I find humourous, is that you complain that he doesn't have the answer. Right now, honestly, does anyone???

    Figuring out how best to deal with the current deficit situations of the world in a voter and business friendly way is like watching WTO negotiations = 3D chess with 180 simultaneos players.

    So he doesn't have all the answers, give the guy a break. Neither do any of us - and from what I have seen of your thoughts above, that includes YOU!!
    I'll debate that little hump. Anytime and anywhere. All you need is a thorough grasp of the current situation; know your economic history and understand basic human nature. That's one thing that gets me about Krugman. He's NOT all that smart. More to the point, you tell me why he never appears with Kudlow, Cavuto or even Alexis Glick or Maria Bartiromo ? Because he knows Kudlow and Cavuto would expose him and Alexis and Maria would hold their own.

    As far as reducing the deficit and promoting the economic growth we need to help get us out of this mess, we can slow down monetary growth; control the fiscal nymphomania and cut corporate and capital gains taxes and institute a flat tax. We can also reorient what's left of the stimulus package to real infrastructure repair. Too much was spent as part of an AFSCME and NEA Relief Program.

    At the risk of abandoning all pretense to humility and modesty, free market capitalism has lots of answers. What's your question ?

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Eric Stoner View Post
    As far as reducing the deficit and promoting the economic growth we need to help get us out of this mess, we can slow down monetary growth; control the fiscal nymphomania and cut corporate and capital gains taxes and institute a flat tax. We can also reorient what's left of the stimulus package to real infrastructure repair. Too much was spent as part of an AFSCME and NEA Relief Program.
    Please explain how this is going to get us out of this mess.

    The Fed slowed down monetary growth in 1930. It didn't work out so well.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by eagle2 View Post
    Please explain how this is going to get us out of this mess.

    The Fed slowed down monetary growth in 1930. It didn't work out so well.
    Very simple. You create incentives for people to get their money out of T-bills and money markets. You make it worth their while to cash in overseas and invest here in the Good Old U.S.A.

    In 1930, the Fed did a LOT more than just slow down monetary growth. They CONTRACTED the money supply. Add in Hoover's tax increases and a recession was turned into a Depression.

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    Default Re: Krugman and Stimulus Package

    Higher interest rates gives people more incentive to put their money in T-bills and money markets.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by eagle2 View Post
    Higher interest rates gives people more incentive to put their money in T-bills and money markets.
    Yes but what about the safety factor ? Why do you think we saw a stampede into Treasuries and money markets last year ? Money poured in while interest rates DROPPED. Banks still haven't resumed lending.

    Obama's stimulus package stimulated GOVERNMENT, not the private sector.

    Here's just one little example of how misguided the stimulus package is. It requires American made steel be used in all stimulus related construction projects unless it costs more than 25% more than foreign suppliers. This benefits the American steel industry and about 150,000 steelworkers. But steel is a very capital intensive industry and when it increases production it doesn't hire very many new workers. On the other hand construction is VERY labor intensive and there are 7 MILLION construction workers; 1.5 million of whom are unemployed. There are projects like the Bay Bridge in San Francisco where the American content requirement added $400 million to the cost of the project.

    Politics prevents us from learning from past experience. G.W. Bush imposed steel tariffs raising the price of steel for things like autos, heavy machinery, large appliances ,construction and other steel using industries.. Bush's steel tariffs cost us 200,000 jobs and "saved" 2 or 3,000 in the steel biz.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Eric Stoner View Post
    NO ! Sorry. ONE set of facts for everybody.
    And you keep making them up to fit your argument. That is not persuasive.

    wtf do you get $164 billion and 5.2% for interest on the national debt ?
    From the FY2010 budget resolution.

    How much do you think was collected in INDIVIDUAL Income taxes for 2008 ? What do you think it's projected to be for 2009 ?
    I posted the numbers. You cannot change them to fit your scenario and expect to be persuasive. Further, why is it you think that debt divided by individual income tax is somehow relevant? There are other taxes.

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    Default Re: Krugman and Stimulus Package

    Quote Originally Posted by Eric Stoner View Post
    Very simple. You create incentives for people to get their money out of T-bills and money markets. You make it worth their while to cash in overseas and invest here in the Good Old U.S.A.
    Would this really work? I mean, if you were too successful, might China, Japan, Saudi Arabia and the UAE sell their dollars causing an instant collapse?

    In fact, wouldn't the mere idea that this is what the government wanted trigger this?

    Its a nice idea and all, but really, if all Americans got out of T-Bills, would that really make much of a difference when you consider just how much is owned by China et al?

    I'd also like to add that if all of the economic and monetary problems of the US and world could be solved in two short paragraphs, it seems odd to think that the first person to solve it is here...

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    Default Re: Krugman and Stimulus Package

    ^^^ thanks Stuart for pointing out the 'tightrope' that the US Fed / Treasury is currently trying to walk re needing to peddle a record number of new treasuries ( over $100 billion expected this week I am told) in order to support escalating US gov't stimulus / social welfare / deficit spending obligations, and at the same time avoiding 'spooking' China, Japan, and the Middle East away from the buyers' table at these upcoming auctions !

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