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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Kenneth E. Phillipps who wrote (319933)	11/16/2002 10:39:10 AM
From: D.Austin	Read Replies (3) \| Respond to of 769670

In an economic slow down tax cuts are necessary, not tax increases. If you have to run budget deficits caused by tax cuts in order to stimulate the economy then you do so. This economy will require a whole variety of corporate and individual tax cuts as this cycle is completed in order to offset the devastating effects of the debt bubble collapsing. The bottom line is that yes we are deflating and yes it is being caused on purpose by the FED in order to remove the overcapacity in the US economy. But, deflation need not lead to depression as long as our federal government leaders are strong enough to stand up to the "people" and those fiscally liberal members of congress pandering to them.

To: Kenneth E. Phillipps who wrote (319933)	11/16/2002 10:45:03 AM
From: D.Austin	Respond to of 769670

Deflation and Depression There are many and increasing concerns being voiced about the prospects for a deflationary spiral to take hold in the US Economy as it has in Japan over the past decade. Deflation and depression do not have to go hand in hand however. Deflation is caused primarily by monetary mismanagement. The central bank keeps too few dollars in the economy thereby making each dollar more precious to the owner of it. The sellers of goods must then not only compete more aggressively to persuade the owner of the dollar to swap the dollars for their goods by slashing prices but must also compete with all of the other sellers of goods. Depression is caused primarily by fiscal mismanagement; i.e. taxing and spending. The central government spends too many dollars and taxes too deeply thereby decreasing economic competitiveness, increasing barriers to entry and removing even more dollars from the economy. Fiscal policy changes are often the result of and reaction to monetary mistakes causing the deflation to begin in the first place. In the US in the 1930's FDR's New Deal program was a reaction to the stock market decline and resulting deep recession that was begun in the late 20's first by too loose a monetary policy, allowing the asset bubble to form in US equity prices. The inevitable correction in asset prices ran for 4 years, 1929-1932, resulted in an 89% drop in the DOW, and was coupled with tight monetary policy. In other words, the policy mistakes by the FED allowed the Federal Government to step in at the request of the "people" to try to get the economy going again. The fix was to increase government spending, taxes and regulation in an attempt to force the economy to grow. This removed private capital profit seeking incentives from the economy and the private capital left the US Economy. The result was an even worse economy lasting the entire 1930's. The fiscal fix, the New Deal, caused the depression. But, the stock market crash and resulting recession was the prefect excuse for an egomaniac like FDR to grab for even greater political power, at the expense of the citizens that granted him the power. In Japan in the 1930's the Japanese, at the strong urging of the Clinton Administration adopted these same fiscally, liberal, big government, big spending programs following a stock market collapse that began on the first trading of 1990 and was itself coupled with too loose a monetary policy followed by too tight a monetary policy. But why would the Japanese adopt fiscal policies that were already known to be self defeating? Because that is what the political leaders there wanted to hear. Because big business and big banking was tied to big government it appeared to be in the best interest of the big corporations to promote a government bail out plan as well. And, the primary constituency of the Liberal Democratic Party, the party that has been running Japan since the end of WW2, is rural; i.e. they didn't know any better. Did they know adopting these policies would fail? Yes, they knew. They couldn't not know. The government leaders placed their own ambition in place of the good of the people. "Let them eat cake" Germany is on the verge of following these same disastrous policies that will lead to collapse of the German economy. Their large stock market, the DAX, is down about 40% this year. Their smaller technology stock market, referred to as NASDAQ Germany is out of business. Their banking sector is undercapitalized and facing the need for a central bank bail out. The debt bubble there is worse than the US but better than Japan. So, why would the Germans with the ability to draw on the events of the US in the 1930's and Japan in the 1990's be considering tax increases and government economic intervention to attempt to stave off an economic disaster and revitalize the economy knowing that result will most certainly be the opposite? Because that is what he German people are requesting. So much for the economic philosophy that people always do or pursue what is in their best interest. Will Germany collapse? I believe it is the most probable outlook from here given the German governments current path. Which brings us to the US. Deflation is a monetary mistake; depression a fiscal mistake. Will the US deflate? The corporate sector already is deflating and the consumer sector probably will soon. Does the FED understand this? Of course the FED understands this. The US FED is allowing real monetary policy to remain tight in an attempt to stop deflation by reducing capacity. In other words it is attempting to drive companies out of business by ensuring they do not have access to capital. This is my opinion anyway. As these companies are suffocating for lack of access to capital and are beginning to panic in search of money they are turning to the Federal government for help. Will the Federal government begin to use fiscal policy to bail out companies and investors. The key to understand the answer is in timing. If fiscal policy is used too soon or too much, before the capacity is removed from the economy; i.e. enough business's go under; then it is self defeating as it allows weaker companies to survive and compete when they should be allowed to die. This would then prolong and worsen the deflation. I think our federal government leaders understand this and will wait until enough companies have been driven out of business to remove the capacity before stepping in with fiscal policy incentives to help the remaining and get the economy back on track. So, the next question becomes what type of fiscal policy incentives will be used. There are basically two kinds, spending and taxing. Spending has been increasing recently even as tax revenues fall. This trend is disturbing but not as damaging to the economy as tax policy. from Roger@MyHomeLender.com