Good News August 30, 2009Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, politics.
Tags: bank bailouts, Krugman on the budget deficit, missle defense
It is Monday and we could all use a little happy talk.
Remember all the controversy about the bank bailout and how the taxpayers were required to foot the bill to the tune of $700 Billion for a bunch of irresponsible bankers.
Slate is reporting that
As we approach the one-year anniversary of the Panic of 2008, it’s clear that the actual cost of the TARP will be a fraction of the original $700 billion estimate and that taxpayers are even turning a profit from the central component of the package. […] The bottom line: Taxpayers put $204.4 billion into the banks through CPP and have received $70.2 billion in principal, plus about $10 billion in dividends and warrant payments. […]
Given the returns thus far, Herb Allison, the former CEO of TIAA-CREF who was tapped by Timothy Geithner to run the TARP, notes that “it’s quite possible we’ll have a positive return on the CPP program as a whole.”
As the article points out, profits are not guaranteed yet, but the bailouts are not as expensive as many critics thought they would be.
Today, the conventional wisdom has a different worry—the exploding budget deficit projected to be $9 Trillion over the next 10 years. Many economists are concerned that China may not want to finance that much debt, the interest will be burdensome, and the U.S. may face insolvency or have to raise taxes so high that growth cannot be sustained.
But Nobel Prize winner, Paul Krugman thinks otherwise:
…in 1950, federal debt in the hands of the public was 80 percent of GDP, which is in the ballpark of what we’re looking at for 2019. By 1960 it was down to 46 percent — and I haven’t heard that anyone considered America a debt-crippled nation when JFK took office. […]
How, then, did America pay down its debt? Actually, it didn’t: federal debt rose from $219 billion in 1950 to $237 billion in 1960. But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally.
Which brings me to a question a number of people have raised: maybe we can pay the interest, but what about repaying the principal? Jim gets scary numbers about the debt burden by assuming that we’ll have to pay off the debt in 10 years. But why would we have to do that? Again, the lesson of the 1950s — or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels — is that you need to stabilize debt, not pay it off; economic growth will do the rest.
Can we grow our way out of the deficit? I’m not sure. I don’t see a growth sector in the U.S. economy at the moment primed to take off when the recession ends. But Krugman has a Nobel Prize and I don’t. Who am I to argue with him.
Finally, one of the stupidest ideas of the Bush Administration (I know, the competition is stiff) was to propose a missile defense system in Poland and the Czech Republic that is supposed to protect Europe from an attack from Iran. As Robert Farley points out
No one could ever conclusively argue why these bases were a good idea; they were supposed to deter Russia, but at the same time weren’t aimed at Russia, and couldn’t possibly have stopped a Russian attack. They were supposed to defend from Iranian missiles, even though no one could ever figure out a plausible reason why Iran would fire ballistic missiles at Europe. Eastern European missile defense was, in short, insane; it was conceived by missile defense fanatics in the United States, and abetted by policymakers in Poland and the Czech Republic who wanted a clear signal of US commitment to their defense. The latter motivation was defensible; the former not so much.
All the proposal succeeded in doing was pissing off the Russians. Now it looks like the Obama Administration has other ideas.
According to Defense News, reporting claims in a Polish newspaper:
Washington will scrap plans to put anti-missile bases in Poland and the Czech Republic and is looking at alternatives including Israel and Turkey, a Polish newspaper reported Aug. 27, citing U.S. officials.
Don’t worry. I will have some bad news to think about tomorrow.
For political commentary by Dwight Furrow visit: www.revivingliberalism.com