Are We Turning Japanese?

From the Financial Times:

The point of the FT article was to describe how it is extremely difficult for the private sector to deleverage, or reduce debt levels, during periods of falling prices…As the charts show, the US is witnessing debt balloon to levels not seen since the 1950’s (as a percentage of GDP), while asset prices have fallen precipitously.

As the author describes;

It has long been argued that the US could not suffer like Japan. This is wrong. It is true the US has three advantages over Japan: the destruction of wealth in the collapse of the Japanese bubble was three times gross domestic product, while US losses will surely be far smaller; US non-financial companies do not appear grossly overindebted; and, despite efforts by opponents of marking assets to market, recognition of losses has come far sooner.

Basically, our situation is more similar to that of Japan circa 1990-2005 than we had anticipated – not to mention some  economic characteristics which are considerably less desirable (a global recession, leaving little room for other countries to pick up the slack in our budget/trading deficit by buying our debt and consuming our exports).

Surprisingly, part of the reason the author included all of this background was to advocate for a bigger stimulus package, not to be depressing.

Unfortunately, there is no discernible solution to the problems brought up in this article, other than the old “we’ll have to tough this one out” analysis:

The bigger point, however, is not that the package needs to be larger, although it does. It is that escaping from huge and prolonged deficits will be very hard. As long as the private sector seeks to reduce its debt and the current account is in structural deficit, the US must run big fiscal deficits if it is to sustain full employment.

There will be a Part II to this author’s column in next week’s FT, if at all interested.

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Tax Plans: Obama vs. McCain

The highest tax bracket, or families who earn $2.87+ million a year, would experience a 11.5% increase on a 35% marginal rate of taxation, or an overall tax rate of 40.25%. McCain would bring it down to 33.46%.

I think Obama’s plan reflects intelligence (and a bit of populism), because:

1. He’s not reducing government tax receipts as much as McCain, which will not exacerbate our deficit.
2. He’s providing a tax break to the part of America which has the greatest propensity to spend money (which is good for the consumer spending component of GDP), and increasing taxation on the people who are more inclined to save the next dollar they earn. The “fair vs. unfair” argument, for the time being, will be neglected…I think that is a sign of a good leader.
3. Ultra-free market enthusiasts argue for low rates of taxation with the mindset being that the consumer can better allocate money through free enterprise better than a government ever could; by lowering taxes on the working class, Obama is promoting entrepreneurship and private investment, and funding it with the taxes of the super-upper class, who have already achieved these goals – which is a bit like communism if you ask me…

Here’s how the rates of taxation look today:

Year 2008 income brackets and tax rates

Marginal Tax Rate	Single	Married Filing Jointly or Qualified Widow(er)	Married Filing Separately	Head of Household
10%	$0 – $8,025	$0 – $16,050	$0 – $8,025	$0 – $11,450
15%	$8,026 – $32,550	$16,051 – $65,100	$8,026 – $32,550	$11,451 – $43,650
25%	$32,551 – $78,850	$65,101 – $131,450	$32,551 – $65,725	$43,651 – $112,650
28%	$78,851 – $164,550	$131,451 – $200,300	$65,726 – $100,150	$112,651 – $182,400
33%	$164,551 – $357,700	$200,301 – $357,700	$100,151 – $178,850	$182,401 – $357,700
35%	$357,701+	$357,701+	$178,851+	$357,701+

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Cumulative Cost of Iraq War

September 4th:

I’ve been meaning to find a chart which captures the cost of the Iraq war, since it has been one of the most searched topics on my blog for a while now…Well the guy at thebigpicture found one, and saved me some work/time:

Click for interactive chart:

It also compares the cost of prior wars in real terms (or discounting inflation). Notice that the Iraq war is approaching the cost of the Vietnam war in almost half of the time.

I am against this war for a multitude of reasons, but besides the usual world peace spiel, its a big strain on our economy. For one, I don’t think its healthy to have 9.6 trillion dollars of national debt (check out that US National Debt Clock website). Yes, this relentless national spending has served as a liquidity pump for the entire world. This has spurred investment, and perhaps allowed many emerging markets to develop…so, maybe they will continue to ignore our compounding debt!

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