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A few days ago, I was stuck in the car for a long drive. Because of the complete absence of progressive talk from Orlando's airwaves, I had no real choice but to listen to the nasal maundering of Mark Levin on the radio. Levin was very upset about the federal deficit.

Interestingly, Levin was a high-level appointee in the Reagan Administration. Dick Cheney, who was Reagan's Defense Secretary and later the Vice President, said 10 years ago that "Reagan proved deficits don't matter."

I must concede that it is rather difficult to reconcile the conflicting statements of these two gentlemen, Messrs. Levin and Cheney. Evidently, they believe deficits are a terrible tragedy when a Democrat is President, and a wonderful gift when a Republican is President.

There has got to be a more objective standard than that.

Here's one: the federal deficit is a problem when long-term interest rates are high, and not much of a problem when long-term interest rates are low. The Federal Reserve dictates short-term interest rates, but long-term rates still are, pretty much, set by the market, in its usual ruthless fashion. (Which is why James Carville said that after he dies, he "want[s] to come back as the bond market. You can intimidate everybody.")

When long-term interest rates are high, a federal deficit competes against and "crowds out" private borrowing and investment. When long-term interest rates are low, the federal deficit is not taking away from borrowing by the private sector. On the contrary, the federal deficit is acting as a needed boost to aggregate demand in the economy, an action also known as "fiscal policy." When the economy is slack, every dollar of reduction in federal spending takes three or four dollars off of our gross national product.

So, by that test, where are we? Well, as I explained last week, long-term U.S. interest rates are at their lowest in history. So what does that tell you about the deficit?

Sorry – I didn't mention that there was going to be a quiz.

When Ronald Reagan was President, long-term interest rates sometimes exceeded 15% – ten times as high as long-term interest rates today. The market was screaming at the top of its lungs that the Reagan deficit was too high. And today? Silence.

Look around the world. The ten-year note in Greece yields a little less than 30%. Pakistan, 13%. Portugal and Venezuela, 12%. In those countries, the bond market is shouting, "Cut that out!"

Not here.

Thanks to all the deficit-mongering by Mark Levin, Rush Limbaugh, Fox "News," etc., a lot of Americans are scared by the federal deficit. The advice from Democratic pollsters is to go along with this hand-wringing. But there is an alternative: Explain to the American people when a federal deficit is bad, and when it is not.

Like I just did.

Courage,

Alan Grayson

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Comment Preferences

  •  Much better than I could have explained it. (7+ / 0-)

    It's a well-known fact that budget deficits are only a problem when a Democrat is in the White House.

    Obama is being blamed for the years of mismanagement when conservatives were in power.  And yet now, we're supposed to be dumb enough to believe that if we elect Republicans to run the country again, this time they'll actually do something about it.

    History says they won't.

    28, white male, TX-26 (current), TN-09 (born), TN-08 (where parents live now)

    by TDDVandy on Fri Jun 08, 2012 at 02:46:06 PM PDT

    •  Grayson's argument is a bit circular (2+ / 0-)
      Recommended by:
      Karl Balke, Youffraita

      The debt isn't bad when interest rates are low doesn't get to the question of why the bond market is behaving as it is.

      In effect, he's saying it's not bad because it's not bad.

      Interest rates in the Reagan years were high because we had inflation. The deficit was adding  to the demand for money at a time money was cheapening. Obviously, investors had to get a high interest rate to get a real positive return.

      Now, the crash of the banking system and deleveraging have reduced the supply of money being made available by banks, while the rich and large corporations have been hoarding cash. The deflationary effects of deleveraging, wage reductions and declining housing values needs to be countered by government spending to avoid a downward deflationary spiral. Yes, some commodities have resisted the trend because the earth has finite supplies of resources, but even oil has begun to fall with the growing problems in Europe.

      The Republicans are lying as usual, but we need to invest wisely to avoid a debt trap.

      look for my eSci diary series Thursday evening.

      by FishOutofWater on Fri Jun 08, 2012 at 03:44:12 PM PDT

      [ Parent ]

      •  That may be a bit true. (0+ / 0-)
        Grayson's argument is a bit circular
        However, the arguments of the GOP pundits are totally hyperbolic and contradictory and self-serving and preposterous.

        And that is the essential point of the diary.

        H'mm. I'm not terribly into this, anymore.

        by Knarfc on Fri Jun 08, 2012 at 06:37:52 PM PDT

        [ Parent ]

      •  The other thing is, (0+ / 0-)

        You can't cut your way out of a deflationary spiral.  Obama's stimulus program, whatever else you want to say about it (and I agree with Krugman on this) at least stopped the spiral and got us back to weak-but-positive territory.

        Greece's problem is that austerity can never get their economy growing again.  (See deflationary spiral, above.)  Their new president recognizes that.  If the Eurozone won't let Greece spend its way back to prosperity -- and THEN try to repay debts -- Greece will have no choice but to return to the drachma.

        To make the argument that the media has a left- or right-wing, or a liberal or a conservative bias, is like asking if the problem with Al-Qaeda is do they use too much oil in their hummus. Al Franken

        by Youffraita on Fri Jun 08, 2012 at 10:58:20 PM PDT

        [ Parent ]

      •  Interest rates were high (0+ / 0-)

        in the Reagan era because Paul Volker raised them to control inflation. It worked. Interest rates are low today because we are in what Keynes called :The paradox of thrift". Given the recent unpleasantness, all entities are shifting their portfolios toward savings. In that sort of an economy, the fiscal multiplier goes way up allowing government spending to stimulate the economy fairly cheaply.

        "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

        by johnmorris on Sat Jun 09, 2012 at 06:31:35 AM PDT

        [ Parent ]

  •  Reagan's deficits were DOUBLY worse (4+ / 0-)
    Recommended by:
    sockpuppet, bronte17, Odysseus, myboo

    because of what they were incurred for - Defence Spending
    There was nothing gained by that spending - the nation saw no long term benefit......unless anyone would call winning a war against "mighty Grenada" a huge benefit

    Raising the deficit now, if used for investment in infrastructure etc would provide a benefit in the future.
    It's why Germnay grew after WW2.....they incurred large debts (to the US) under the Marshall Plan, and used the monies to totally revitalize their (demolished) infrastructure.....this contributed to their huge growth in the 50s and 60s

  •  The deficit contributes to the national debt (0+ / 0-)

    of which we pay interest on.  That interest now is about $223 billion per year and projected to be nearly $1 trillion per year by 2022, based on Obama's own budget proposal.  That $1 trillion comes right off the top of the national budget as mandatory spending.   The interest on the national debt could quadruple within the next ten years.  Certainly will make it even harder to address the budget deficit and will be making some people awful rich.  I don't know, that seems bad to me.

    "The Global War on Terror is a justification for U.S. Imperialism. It must be stopped."

    by BigAlinWashSt on Fri Jun 08, 2012 at 03:00:59 PM PDT

    •  We Finished WW2 With Huge Debt and Then To (9+ / 0-)

      avoid relapsing into depression as 10 million short term federal employees were dumped into the job market, we piled many billions of dollars onto the debt to help vets get education and buy houses, and billions more to help with the rebuilding of both allies and defeated enemies in Europe and Asia.

      Because of that we were able to grow enough that the ratio of debt to gdp went way down as we and Europe moved hundreds of millions of working class people into a middle class lifestyle.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Fri Jun 08, 2012 at 03:23:36 PM PDT

      [ Parent ]

      •  Well, I don't know how well past situations can (0+ / 0-)

        match up to the current one.  I'm just stating simple math, the budget line item for interest on the national debt will be nearly $1 trillion by 2022.  That's pretty amazing to me.  Can we grow our way out of again, who knows.
        Things seem exponential now, debt as a ratio to GDP is skyrocketing with no end in sight.

        "The Global War on Terror is a justification for U.S. Imperialism. It must be stopped."

        by BigAlinWashSt on Fri Jun 08, 2012 at 03:32:29 PM PDT

        [ Parent ]

        •  Tax rates on the rich & corps were much higher (4+ / 0-)
          Recommended by:
          Odysseus, Youffraita, stunvegas, quill

          The system will fail if the distribution of wealth continues to become even more skewed. Middle class demand is needed to maintain the economy.

          Taxes by the rich and big corps help maintain the middle class. That's why we could do what we did in the post war period.

          look for my eSci diary series Thursday evening.

          by FishOutofWater on Fri Jun 08, 2012 at 03:47:44 PM PDT

          [ Parent ]

        •  We can grow (and tax) our way out of it (1+ / 0-)
          Recommended by:
          DarkestHour

          but the time to do that is when the economy is strong and unemployment is low.

          Deficit cutting now will just return us to a full-blown depression, just as happened in 1937.

          “What’s the use of having developed a science well enough to make predictions if, in the end, all we’re willing to do is stand around and wait for them to come true?” - Sherwood Rowland

          by jrooth on Fri Jun 08, 2012 at 05:12:27 PM PDT

          [ Parent ]

          •  I guess I'm phrasing it wrong because I am not (0+ / 0-)

            suggesting deficit cutting to try to lower the national debt and the interest on it.  In fact, I don't believe the debt can ever be paid off now, nor should it.  
            I am just stating what the interest is and will be.  It's alot and it's going to be much more impactive.

            "The Global War on Terror is a justification for U.S. Imperialism. It must be stopped."

            by BigAlinWashSt on Fri Jun 08, 2012 at 05:31:38 PM PDT

            [ Parent ]

    •  Starving the malnourished seems bad to me. (1+ / 0-)
      Recommended by:
      Egalitare
      •  The victims of deprivation serve as a caution (0+ / 0-)

        to those who are not yet deprived.  It's the witnesses who are to be impressed, to say to themselves "there, but for the grace of God" or General Motors go I.
        Attacking the bodily integrity of women serves the same purpose in prompting men to conclude that they're glad they're not women.
        Triangulation -- i.e. attacking an innocent person -- is effective because not only is the victim taken unawares, but it's hard to seek revenge against irrational behavior. We tend to assume there's a direct connection between an act and the intent, but often there's not.

        People to Wall Street: "LET OUR MONEY GO"

        by hannah on Fri Jun 08, 2012 at 04:27:51 PM PDT

        [ Parent ]

      •  Hey I'm flat fucking against the austerity (0+ / 0-)

        measures.  I'm simply pointing out the size of the interest on the national debt.  Few talk about that when talking about the deficit or the debt, but it's the key factor.  How is that going to work out with the bought and paid for kabuki theatre the politicians will soon present again to us is the question.  

        God, it's weird when pointing out this stat how people respond.  

        "The Global War on Terror is a justification for U.S. Imperialism. It must be stopped."

        by BigAlinWashSt on Fri Jun 08, 2012 at 04:39:36 PM PDT

        [ Parent ]

        •  The debt (0+ / 0-)

          consists, primarily, of bonds issued by the Treasury Department to whom the interest is owed. In other words, we're paying it to ourselves. Its really not a big scary deal.

          "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

          by johnmorris on Sat Jun 09, 2012 at 06:36:08 AM PDT

          [ Parent ]

          •  I'm talking about the interest on the debt. Do (0+ / 0-)

            you see that as not a big deal?

            "The Global War on Terror is a justification for U.S. Imperialism. It must be stopped."

            by BigAlinWashSt on Sat Jun 09, 2012 at 08:36:20 AM PDT

            [ Parent ]

          •  Wait, saw you addressed that. I'll ponder. (0+ / 0-)

            "The Global War on Terror is a justification for U.S. Imperialism. It must be stopped."

            by BigAlinWashSt on Sat Jun 09, 2012 at 08:38:05 AM PDT

            [ Parent ]

            •  I addressed it too with the Krugman link: (0+ / 0-)
              The answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income.
              Try reading what people write instead of getting all fucking reactionary about how "weird" you think it is that people have sense.
        •  "people" responded to what you wrote and its (0+ / 0-)

          obvious implications. Don't blame everyone else because you've decided that you don't mean what you clearly implied.

  •  It's true, people who are used to seeing a regular (1+ / 0-)
    Recommended by:
    Odysseus

    trickle into their bank accounts from the interest and dividends on bonds are upset that the rate has been lowered so drastically.  After all, in 1990, thirty year Treasury bonds were providing an annual "return" of 8.1%. Compare that to the present rate of less than 3%.
    Of course, the question that's not even being asked is why the federal government which issues our currency has to borrow from anyone.  Or why, for that matter, currency, which is a figment of the imagination as surely as the script we use to write, should be restricted and require payment for its use, doesn't seem obvious.
    John K. Galbraith said the best money is worthless.  Well, we have that now with paper and electronic currency. But, some people have been given dibs on its distribution and are still convinced that it will be worth more if there's less around.  So, they're hoarding and making it artificially scarce. And still the value doesn't increase. Which makes sense.  Inches don't get more valuable because there are more or less of them around your waste.

    People to Wall Street: "LET OUR MONEY GO"

    by hannah on Fri Jun 08, 2012 at 04:20:30 PM PDT

  •  ot/but is there a way that Florida Dems (0+ / 0-)

    can make sure that qualified voterswho were notified that they might be ineligible to vote that they can and should vote?

    best/Sh

  •  Thank you. (2+ / 0-)
    Recommended by:
    DarkestHour, stunvegas

    Paul Krugman and Joe Stiglitz, and many others who know what they're talking about have been saying this for years - but for some reason our political "leaders" are afraid to speak this simple truth.

    Thank you for adding your voice to this message.

    “What’s the use of having developed a science well enough to make predictions if, in the end, all we’re willing to do is stand around and wait for them to come true?” - Sherwood Rowland

    by jrooth on Fri Jun 08, 2012 at 04:56:04 PM PDT

  •  Well stated, sir. (2+ / 0-)
    Recommended by:
    Egalitare, stunvegas

    “The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.” — Marcus Aurelius

    by LamontCranston on Fri Jun 08, 2012 at 05:03:50 PM PDT

  •  Excellent argument. (1+ / 0-)
    Recommended by:
    Egalitare

    One of the best.

    I guess their argument is federal deficits don't matter when the purpose of the expenditures is to shore up the financial statements of the GOP's favorite corporations.

    H'mm. I'm not terribly into this, anymore.

    by Knarfc on Fri Jun 08, 2012 at 06:25:24 PM PDT

    •  The deficit problem is simple (0+ / 0-)

      Democrats invest money in services to people, which necessarily means the poor, women, minorities, immigrants...That is what the Republicans must stop at all costs. Republicans throw money away on military adventures, tax cuts for the wealthy, subsidies, tax breaks...all with the excuse of Starving the Beast, that is, trying to force cuts in services to people.

      As Nixon strategist Lee Atwater put it, "So you say stuff like forced busing, states' rights and all that stuff. You're getting so abstract now [that] you're talking about cutting taxes, and all these things you're talking about are totally economic things and a byproduct of them is [that] blacks get hurt worse than whites."

      Busting the Dog Whistle code.

      by Mokurai on Fri Jun 08, 2012 at 10:13:07 PM PDT

      [ Parent ]

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