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Author: ibarz Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459122  
Subject: Austerity, really? Date: 5/26/2012 2:24 PM
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WSJ just published an article on Iceland's recovery.

http://online.wsj.com/article/SB1000142405270230420360457739...

As the article said, this might not translate to a larger scale, but the same principles apply. Devalue the Krona, same as what the Dollar is doing. Gov't step up the spending, same here in the US. But here's something very important:

And instead of rushing into the sort of spending cuts that have ravaged Greece and Spain, Iceland delayed austerity. Initially, the country even increased social-welfare payments to its poorest citizens, whose continued spending helped cushion the economy.

I just had to say something for those that kept talking about austerity measures needed to get the US on the road path to recovery. You need to be shouting about austerity WHEN the economy is running full cylinders NOT when there is a crisis and there is a huge void in spending.

Gov't had to step in when the public sector reduced their spending by more than half during the 2008-11 crisis. My only issue was the government not putting all that money into huge infrastructure projects for future growth.

I believe we're out of the trough until the next crisis. But that is a fact of life, all you can do is avoid the crowd mentality and make the most of opportunities.
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Author: rharmelink Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393131 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 3:05 PM
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You need to be shouting about austerity WHEN the economy is running full cylinders NOT when there is a crisis and there is a huge void in spending.

Yeah. Right. Who listens to shouts about austerity when things are running great?

Ever see the article on how many NBA and NFL players declare bankruptcy within 5-7 years after retiring? Too late for austerity.

When things are going well, people just get more optimistic about the future. Look at the housing bubble. Look at the stock market tech bubble. Look at Madoff. Look at Social Security. Look at Medicare.

The warnings were/are there. Nobody cares until the pain occurs.

Personally, I've been practicing austerity since the early 1980's, telling anyone that lived paycheck to paycheck that they were a financial accident waiting to happen. But, when they get a raise, they allow their expenses to increase, keeping themselves in the same situation.

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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393132 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 3:06 PM
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And instead of rushing into the sort of spending cuts that have ravaged Greece and Spain...

Seriously?

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Author: xLife Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393136 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 4:44 PM
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As the article said, this might not translate to a larger scale, but the same principles apply. Devalue the Krona, same as what the Dollar is doing. Gov't step up the spending, same here in the US. But here's something very important:

And instead of rushing into the sort of spending cuts that have ravaged Greece and Spain, Iceland delayed austerity. Initially, the country even increased social-welfare payments to its poorest citizens, whose continued spending helped cushion the economy.


Apparently only works for elves.

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Author: PeterRabit Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393156 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 8:15 PM
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ibarz added to your Favorite Fools list.

Peter

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Author: ibarz Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393159 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 9:30 PM
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Yeah. Right. Who listens to shouts about austerity when things are running great?

I totally agree. I've resigned to this fact that we will never learn from our mistakes.

When things are going well, people just get more optimistic about the future. Look at the housing bubble. Look at the stock market tech bubble. Look at Madoff. Look at Social Security. Look at Medicare.

Yes that is definitely sad and if you dwell on it, it can make the most optimistic person depressed. BUT on the bright side, you can take measures to reward yourself. Partly because of this board (way back in 2005) I sold my house and sacrificed living in rentals. I started buying in 2010 and just closed on my third house last month. I also bought gold in 2006 because of the compelling debate here. Just sold them this year for a 165% gain (sounds impressive, but it's really just about 17% compounded growth).

The warnings were/are there. Nobody cares until the pain occurs.

AND we have not seen the last of these crisis. It's just part of the economic cycle. OK, I'm going back to my cave. Sorry to hear that Sonnypage passed away, he posted some interesting stuff.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393162 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 10:45 PM
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<<I just had to say something for those that kept talking about austerity measures needed to get the US on the road path to recovery. You need to be shouting about austerity WHEN the economy is running full cylinders NOT when there is a crisis and there is a huge void in spending.>>


History proves you can shout all you want for austerity when the economy is running full tilt and you will be ignored.



Seattle Pioneer

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393164 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 10:51 PM
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I've resigned to this fact that we will never learn from our mistakes.

“Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusions of counsel, until the emergency comes, until self-preservation strikes its jarring gong – these are the features that constitute the endless repetition of history.”
-- Winston Churchill

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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393168 of 459122
Subject: Re: Austerity, really? Date: 5/26/2012 11:47 PM
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History proves you can shout all you want for austerity when the economy is running full tilt and you will be ignored.

History also proves you can shout all you want for austerity when the economy slows down and you will be ignored.

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393237 of 459122
Subject: Re: Austerity, really? Date: 5/27/2012 6:27 PM
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You need to be shouting about austerity WHEN the economy is running full cylinders NOT when there is a crisis and there is a huge void in spending.


We were.

We were even able to cite the big spenders' favorite dead economist, Keynes, in support of our claim that austerity was needed.

We got nowhere.

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393238 of 459122
Subject: Re: Austerity, really? Date: 5/27/2012 6:31 PM
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And instead of rushing into the sort of spending cuts that have ravaged Greece and Spain...

Seriously?


The addict promised to stop taking drugs. He then died of an overdose.

Obviously, the lesson to learn from this is to not stop taking drugs while you are addicted - get clean and THEN stop taking them.

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393243 of 459122
Subject: Re: Austerity, really? Date: 5/27/2012 7:57 PM
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And instead of rushing into the sort of spending cuts that have ravaged Greece and Spain...

Seriously?

The addict promised to stop taking drugs. He then died of an overdose.


Isn't it interesting how the arguments of in debt up to their eyeballs nations for another loan coincide with the arguments by drug addicts for another hit?

Fill-in-the-blank nation can't just go cold turkey but needs to taper off sloooooooooooooowly. But, never fear, someday they'll be solvent again.

"Needles" Neidemire claims he'll die (or that it's just too hard) to go cold turkey and needs to taper off sloooooooooooooowly. But, never fear, someday he'll be straight again.

Someday never comes.
http://www.youtube.com/watch?v=NwNuQulK6N0

Desert ( http://www.youtube.com/watch?feature=fvwp&v=pc6RruVoaYU&... ) Dave

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393246 of 459122
Subject: Re: Austerity, really? Date: 5/27/2012 8:19 PM
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History proves you can shout all you want for austerity when the economy is running full tilt and you will be ignored.

Funny, I remember it differently. I remember some people saying "pay down the debt" while other people were supporting the politicians who said "give me a big, juicy tax cut." So as not to make this political, I will leave it to the reader to see if he can divine which party belonged to which position, although the more well read may already be able to give an educated guess.

In case not, here is a chart which shows expenditures as a oercent of GDP charted against a time line. Lucky us, it goes all the way back to the seventies, so Rip Van Winkle types can catch up.
http://en.wikipedia.org/wiki/File:CBO_-_Revenues_and_Outlays...

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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393251 of 459122
Subject: Re: Austerity, really? Date: 5/27/2012 8:45 PM
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History proves you can shout all you want for austerity when the economy is running full tilt and you will be ignored.

Funny, I remember it differently. I remember some people saying "pay down the debt" while other people were supporting the politicians who said "give me a big, juicy tax cut." So as not to make this political, I will leave it to the reader to see if he can divine which party belonged to which position, although the more well read may already be able to give an educated guess.


It's one thing to *say* that you are going to pay down the debt. It's another thing entirely to actually *do* it. *Both* parties were saying that they were going to pay down the debt, so don't pretend that only one party said that they were going to do it.

Unfortunately, the projections were unrealistic to begin with. Tax revenues were not sustainable even without tax cuts. They had hit the second highest level as a percentage of GDP in the nation's history, but then they started to fall with the slowing economy. Tax revenues had already begun to decline in FY 2001. Corporate income taxes declined 27% from FY 2000 to FY 2001 despite no tax cut.

The idea that Democrats were going to pay down the debt is even more laughable than the idea Republicans were going to pay down the debt. We haven't had a surplus when Democrats controlled Congress since the 1960s, and we are seeing their predisposition to spend like crazy right now. The biggest danger is entitlements, and they are fighting any cuts tooth and nail.

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Author: jaagu Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393258 of 459122
Subject: Re: Austerity, really? Date: 5/27/2012 10:09 PM
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jaagu

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Author: jgc123 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393313 of 459122
Subject: Re: Austerity, really? Date: 5/28/2012 12:29 PM
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MadC: "Unfortunately, the projections were unrealistic to begin with. Tax revenues were not sustainable even without tax cuts."

Is this a tacit admission that the tax cuts were at least a component of the rising deficits of the last 12 years?

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393320 of 459122
Subject: Re: Austerity, really? Date: 5/28/2012 2:09 PM
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rhamelink

The point is that if you do government austerity during good times, the laid off employees can find other employment so it does no reduce GDP much at al. Clinton got rid of about 700,000 employees (me amongst them) and you hardly noticed. State and local governments did this with teachers and other employees and it held back the recovery.

brucedoe

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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 393325 of 459122
Subject: Re: Austerity, really? Date: 5/28/2012 2:51 PM
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MadC: "Unfortunately, the projections were unrealistic to begin with. Tax revenues were not sustainable even without tax cuts."

Is this a tacit admission that the tax cuts were at least a component of the rising deficits of the last 12 years?


Microscopically, yes, or at least probably. The assumption is that the tax *rate* cuts led to less revenue than they would have without the tax *rate* cut, although it is extremely difficult to discern the impact of the tax *rate* cut from other factors that affect tax revenue.

The two biggest factors affecting the deficits were:
1) Tax revenues being reduced due to weakness in the economy. You can see this by looking at how tax revenue as a percentage of GDP changed cyclically.
2) Spending increased from 18.2 of GDP the last time we had a budget surplus in FY 2001 to 24.1% in FY 2011 (it is projected to be up to 24.3% in FY 2012).

Even after the so-called "tax cuts," we would have had a balanced budget in FY 2006 and a budget surplus in FY 2007 if we had simply maintained spending at 18.2% of GDP. Instead, spending was increased to 20.1% and 19.7% for those years respectively.

Table 1.2—Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930–2017 - http://www.whitehouse.gov/omb/budget/Historicals

I've been over this before, but real tax revenues per capita have continued to increase over the decades, but it is never enough. Now we are running record deficits with far more revenue than decades past.

The funny thing is that the average real tax revenue per capita from FY 2002 through FY 2009 ($7,126) was almost identical to that from FY 1994 through FY 2001($7,219), despite the fact that revenue was depressed by economic weakness from FY 2001 through FY 2003.

Taxes and spending per capita in 2005 dollars - http://boards.fool.com/taxes-and-spending-per-capita-in-2005...

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