Economy and that scary "R" word

[Schneed10]

Originally Posted by saden1

How has it been good for the economy? We are spending more money than we generate. I'm no economist but my take is that you don't give a tax cut without a balanced budged and a surplus.

1) If the tax cut wasn't put in place, unemployment would have hit sky high levels.

2) Government deficits don't stall economic growth. They weaken the dollar, which is a bad thing in that you can't go to Europe for vacation as cheaply, and you can't import goods as cheaply. But it's a good thing because people from other countries invest more in our companies (their currency is stronger against the dollar, so one Euro can buy more shares of Coca Cola than it normally could). Our businesses then take that cash and invest in new products and markets, creating jobs and generating more tax revenue for the US government.

[hooskins]

Originally Posted by Schneed10

1) If the tax cut wasn't put in place, unemployment would have hit sky high levels.

2) Government deficits don't stall economic growth. They weaken the dollar, which is a bad thing in that you can't go to Europe for vacation as cheaply, and you can't import goods as cheaply. But it's a good thing because people from other countries invest more in our companies (their currency is stronger against the dollar, so one Euro can buy more shares of Coca Cola than it normally could). Our businesses then take that cash and invest in new products and markets, creating jobs and generating more tax revenue for the US government.

Right but point two only lasts for a bit. Severe weakening leads to depreciation of the dollar, and in the LR can lead to inflation. Nations will pull out their investments for fear of failure. See Asian nations crisis and what happened to several Latin American countries from 70's-90's. The cycle goes back around.

Just studied this stuff last semester as an International Economics major.

[Schneed10]

Originally Posted by hooskins

Right but point two only lasts for a bit. Severe weakening leads to depreciation of the dollar, and in the LR can lead to inflation. Nations will pull out their investments for fear of failure. See Asian nations crisis and what happened to several Latin American countries from 70's-90's. The cycle goes back around.

Just studied this stuff last semester as an International Economics major.

Asian and Latin American countries don't have the underlying resources and skill sets to continue driving profit from investment. The United States is positioned strategically with natural resources and, despite growth in other nations, still contains the most highly skilled and educated workforce in the world. You're right, investment from overseas investors will not last long, but that is the case because American businesses will invest the cash in new products and markets successfully, driving profits up, driving tax revenues to the government up, driving the deficit down, and ultimately strengthening the dollar. The strengthening dollar is what will curtail overseas investment. That's the cycle that will take place in the US, not a downward spiraling cycle, but the typical business cycle we've observed over the past fourty to fifty years.

There's a reason that US government bonds yield the lowest return of all government bonds in the world. It's the most stable economy on Earth, and hence least risky to invest in.

And while we're mentioning academic credentials, BS in Finance/Economics with a minor in math, and an MBA in finance.

[hooskins]

Originally Posted by Schneed10

Asian and Latin American countries don't have the underlying resources and skill sets to continue driving profit from investment. The United States is positioned strategically with natural resources and, despite growth in other nations, still contains the most highly skilled and educated workforce in the world. You're right, investment from overseas investors will not last long, but that is the case because American businesses will invest the cash in new products and markets successfully, driving profits up, driving tax revenues to the government up, driving the deficit down, and ultimately strengthening the dollar. The strengthening dollar is what will curtail overseas investment. That's the cycle that will take place in the US, not a downward spiraling cycle, but the typical business cycle we've observed over the past fourty to fifty years.

There's a reason that US government bonds yield the lowest return of all government bonds in the world. It's the most stable economy on Earth, and hence least risky to invest in.

And while we're mentioning academic credentials, BS in Finance/Economics with a minor in math, and an MBA in finance.

All good points about resources and skill sets, and clearly you know a bit more about this than I do lol. I was just stating my background just the older folk don't jump all over me not to undermine you.

And I agree with the last point as well, that is other nations keep buying our govt's bonds, t-bills, etc.

[saden1]

Originally Posted by Schneed10

1) If the tax cut wasn't put in place, unemployment would have hit sky high levels.

2) Government deficits don't stall economic growth. They weaken the dollar, which is a bad thing in that you can't go to Europe for vacation as cheaply, and you can't import goods as cheaply. But it's a good thing because people from other countries invest more in our companies (their currency is stronger against the dollar, so one Euro can buy more shares of Coca Cola than it normally could). Our businesses then take that cash and invest in new products and markets, creating jobs and generating more tax revenue for the US government.

This sounds all peachy but are tax cuts a good long term solution and how long should we rely on tax cuts to "stimulate" the economy? Should the tax cuts be permanent? Do you expect the increase tax revenues to eventually balance the budget? How long should the government be in a deficit?

[Schneed10]

Originally Posted by hooskins

All good points about resources and skill sets, and clearly you know a bit more about this than I do lol. I was just stating my background just the older folk don't jump all over me not to undermine you.

And I agree with the last point as well, that is other nations keep buying our govt's bonds, t-bills, etc.

No sweat, you're a smart cookie and I respect all the posts you lay on us all over the Warpath. I just figured if it was gonna be that kind of party I'd whip mine out too and measure up, LOL!

But seriously, it's good to have these discussions on the boards. I think it's educational for those who see the headlines about the economy and don't know what the hell the articles are talking about.

And you made me think about the Asian cycle, something I hadn't considered before. So it helped me think through it too.

Good thread.

[Schneed10]

Originally Posted by saden1

This sounds all peachy but are tax cuts a good long term solution and how long should we rely on tax cuts to "stimulate" the economy? Should the tax cuts be permanent? Do you expect the increase tax revenues to eventually balance the budget? How long should the government be in a deficit?

Tax cuts are the best long term solution for the generation of jobs. Tax cuts are not a one-time shot in the arm. Think of the government like a dam in a river, where the dam opens and closes the flow of money coming downstream to the town below where all the corporations and citizens live. As the government increases taxes, they choke off the river, and money's a little harder to come by to the town folk. It gets harder to fish and you can't irrigate as many crops because you don't have as much water (money to invest with) at your disposal. But when a tax cut comes along, the government eases the dam, and money flows more freely. As long as the tax cut is in place, more money continues to flow to our businesses, and they continue to put those resources to use.

A tax rebate on the other hand, is like when someone comes along and dumps a big bucket of water (money) right along the shore where the people live. It's a one-time thing. You can use it to water an extra field and get an extra field's worth of corn that year, but once you use it up, you're back to dealing with the same choked-off river you were before.

So yes, the tax cuts should be permanent.

[Schneed10]

Originally Posted by Schneed10

You don't want to get out of stocks now, because you never know when they're going to bounce back up. You could miss out on that bounce.

Case in point, today. The DOW was down 300 points to start the day. It staged a huge rally and finished UP 300 points.

An intraday swing of 600 points.

It's a rollercoaster ride, has its ups and downs. Tomorrow might be down 300 points, you never know. Just hold on for the ride, it's worth it in the end.

[saden1]

I understand the reasons for a tax cut and quite frankly I like the idea of giving money back to their rightful owners (like everyone else I want my money back). I strongly disagree with giving out tax cuts at the expense of the future (we'll take worry about it later mentality). In the long run we're going to crash into a wall and we'll be screwed. Fiscal responsibility is not an oxymoron.

As for what the Feds did today, it's an emergency measure, permanent tax cuts are not. In any case I'd like to see government spending reduced and maybe then we'll both be happy.

[Campbell17]

Too many bank loans are killing stocks.

[FRPLG]

saden is right and schneed is right. tax cuts should be permanent and we need to cut our government spending. alas we haven't one singl politician who is brave enough to make reducing spending happen. not one.

[FRPLG]

Originally Posted by dmek25

this president has done everything he could to weaken the American dollar. cutting the rate is another way. that's just trying to insert a quick stop gap on the economy. we need more jobs on American soil. NAFTA should be dropped into the nearest trash can. worse piece of legislation ever passed. more jobs = more spending. in turn strengthens the economy

I wont quibble about NAFTA but this is a prime example of piling on Bush. Bush has nothing, NOTHING, to do with the Federal Reserve and it's policies. The rate cuts are their discretion and frankly the decision makers in the Fed are probably more qualified to make those decisions than any economic advisor any president has had in decades. Bush gives us plenty to get mad about but why do people have to attribute everything to him?

[dmek25]

Originally Posted by Schneed10

You're getting the tax cuts and tax rebates confused. The rebate was the one-time $300 check. Which I agree, amounts to a hill of beans in the long run.

However the tax cuts have been in place all along. We're all paying less taxes every pay period, especially the wealthy, because of the tax cuts. That is the move that made such a good impact on our economy.

its seems like we disagree all those tax cuts did was try to balance out the ever rising rate of inflation. so now your taxes are a wee bit lower, but your paying more for your actual purchases

[dmek25]

Originally Posted by FRPLG

I wont quibble about NAFTA but this is a prime example of piling on Bush. Bush has nothing, NOTHING, to do with the Federal Reserve and it's policies. The rate cuts are their discretion and frankly the decision makers in the Fed are probably more qualified to make those decisions than any economic advisor any president has had in decades. Bush gives us plenty to get mad about but why do people have to attribute everything to him?

wasn't he appointed by the president? and isn't there any meetings or consulting done with the president over the economy? i know that any administration that has any economic issues always went straight to Greenspan. why the difference now? you should know that any CEO is only as good as the people he surrounds himself with

[Schneed10]

Originally Posted by saden1

I understand the reasons for a tax cut and quite frankly I like the idea of giving money back to their rightful owners (like everyone else I want my money back). I strongly disagree with giving out tax cuts at the expense of the future (we'll take worry about it later mentality). In the long run we're going to crash into a wall and we'll be screwed. Fiscal responsibility is not an oxymoron.

As for what the Feds did today, it's an emergency measure, permanent tax cuts are not. In any case I'd like to see government spending reduced and maybe then we'll both be happy.

Yeah that I definitely agree with. The government is wasteful with our money. We should be cutting spending without repealing the tax cuts in order to get the budget back in balance.