<p>I agree with Mini, who appears to agree with Krugman’s recent column, about S&P. </p>
<p>Also, it is not a matter of whether politicians, or those pulling their strings, understand economics or the long-term effects on the nation of the policies they promote. Very few politicians are concerned with such utilitarian matters, and those that are usually have no power. The flowery rhetoric about what is good for the economy or the nation is developed after the decision is made to support a particular policy, i.e., it is simply sophistry designed to justify the decision to the public, a decision which was motivated by reasons other than those stated. It is a sophisticated and complex game with many levels and many players, and the mainstream corporate media is rarely of any help for the citizen who wishes to look behind the curtain.</p>
<p>Krugman and Mankiw are both proponents of free trade but they acknowledge the resulting problems of competition and state that social safety nets are required to support the displaced that can’t or won’t recover.</p>
<p>I recall that there is some economic debate on where types of countries wind up with free trade.</p>
<p>This stuff is from Mankiw’s Macro book, maybe two years ago where he liberally quotes Krugman.</p>
<p>There haven’t been free markets since the first Quaker gunmaker sold the first cannon to George III to fight the upstart colonials. The concept was obsolete before the ink was dry on Adam Smith’s fingers.</p>
<p>Just read CNN that China told us to live within our means and spend less on defense while China is spending more on defense. Let’s hope they don’t start a war with us.</p>
<p>“Krugman and Mankiw are both proponents of free trade but they acknowledge the resulting problems of competition and state that social safety nets are required to support the displaced that can’t or won’t recover.”</p>
<p>Reminds me of the joke where someone asks an economist about how to open a can on a desert island and he says “Assume a can opener.” They say free trade is going to make us all better off and then say in the fine print “as long as you do x, y, and z” when in the real world x, y, and z are unrealistic.</p>
<p>Please understand, I am not generally anti-free trade. Its just that economists make real world policy prescriptions based upon non real world assumption.</p>
<p>“Just read CNN that China told us to live within our means and spend less on defense while China is spending more on defense. Let’s hope they don’t start a war with us.”</p>
<p>“Just read CNN that China told us to live within our means and spend less on defense while China is spending more on defense. Let’s hope they don’t start a war with us.”</p>
<p>For 2010, China spent < 1.5% vs USA > 4.5% of GDP on defense. The US has increased its percentage since 2005 while China has decreased it.</p>
<p>They can afford to. After just coming back last week from China, we better stop living like it is 1940 and focus more on the lives of our citizens as opposed to worrying about protecting everybody else.</p>
<p>I don’t know what living within our means means. </p>
<p>If we cut government, unemployment is going to go up. So, we should cut government so unemployment goes to 15 or 20%? And that will help the government’s budget?</p>
<p>I have no idea what China means either…</p>
<p>Depending on the duration of the US debt they own, China might want low interest rates in the US. </p>
<p>Then again, if the US economy doesn’t grow much, we don’t buy China’s crap and their economy doesn’t do as well. And if our government cuts
right now, US economy won’t do as well right now.</p>
<p>One reason the employment numbers are so poor is state and local governments are laying off people. Maybe, that should happen, but who
is picking up the slack? </p>
<p>The only way government layoffs could help the economy is if government spending went down in equal proportion, so that the money went back into the general economy, but that ain’t happening.</p>
<p>Don’t believe much of the data coming out of China. Their banks’ exposure to bad loans is probably more than their GD. When the property market falters and all the bad loans come due we will all be in deep trouble. </p>
<p>S&P has no credibility when it comes to ratings. This same company rated badly packaged mortgage loans as AAA in order to pocket the fees, I am not sure whose fees they are pocketing now for this ratings change.</p>
<p>If UK, Spain and Italy, countries in worse shape than the US, still have their ratings intact, then I am not sure why the US rating is downgraded.</p>
<p>Interest rates are at levels that haven’t been seen in years.</p>
<p>When there is crowding out, then the government should probably cut…</p>
<p>But that isn’t a given either…if we have crowding out because financial companies are borrowing at 33 to 1 ratios…maybe the financial companies should be crowded out.</p>
<p>Interest rates are low because of increase in demand from all the turmoil in other parts of the world. America corporate lending is up because of the same reason. Small business loans, however, are down. There is some crowding out effect, although, not very significant now.</p>
<p>Right now…if the government cut spending…would small businesses would not get more funding?</p>
<p>There are a few areas that can be cut now…some areas of defense…especially overseas…and spending on the top 1 percent of the population…because the multiplier effect is very low in those areas.</p>
<p>But then spending should be increased in other areas to make up for this…</p>
<p>“Dont believe much of the data coming out of China. Their banks exposure to bad loans is probably more than their GD. When the property market falters and all the bad loans come due we will all be in deep trouble.”</p>
<p>You don’t need to believe it - just walk around there. They are already deflating their property values and slowing down the rate of population increase in their major cities. That’s why the Chinese are investing so much in property outside of China.</p>