How will the market react to downgrade?

[Bobmuhthol]

Cutting spending and raising taxes is the opposite of Keynesian policy.

[Parkbandit]

Cutting spending and raising taxes is the opposite of Keynesian policy.

Who said it isn't? And it's not exactly the opposite.. raising taxes is a big part of the theory.

[Kembal]

Who said it isn't? And it's not exactly the opposite.. raising taxes is a big part of the theory.

Only in good times, to ensure you run a budget surplus that pays down the debt you incurred in bad times.

[Bobmuhthol]

I guess I'm lost. Kembal said that FDR cut spending and raised taxes, which was a very bad thing; you seem to be arguing that it was somehow a Keynesian policy and thus Keynesian economics sucks.

I have never heard of a Keynesian policy which called for raising taxes. The necessity of higher taxes than there would otherwise be to fund the larger government, sure, but Keynesian economics is, as Hicks described it, depression economics. It would be silly to increase taxes during a depression, and Keynes was fully aware of that.

[Kembal]

So.. for 4 years Keynesian programs didn't work.. so he wanted to try something else?

No, he thought the recovery was on solid enough footing. He was wrong.

Off the top of my head... let's see, maybe Japan.. right before the "Lost Decade". I love how you quantify things with "(done at the correct magnitude)" because that is the excuse ALWAYS given by Keynesians when their economic theory flops... "We didn't spend ENOUGH!"

Right before the Lost Decade? Did you miss the part where they sharply raised interest rates and thus caused the crash? (raising interest rates isn't Keynesian policy)

In fact, looking at the economic history for that time period, I see no reference to a use of Keynesian fiscal policy tools until the end of the 1990s, after the lost decade had happened. At that point, it's kind of late.

[Tsa`ah]

They were saying that when I first got into gold.... now it's at 1700 an ounce.

If it does pop, that means we got our fiscal house in order. I don't see that anytime soon.

You base this on what exactly?

Gold hit the record high of $850/oz at the beginning of 1980 (that's $2,328.44 adjusted to today) and then took a nose dive a little later to around $300/oz (821.80 adjusted to today) ... and our fiscal house wasn't exactly in horrible shape (though it was about ready to get the shit kicked out of it).

You can't peg a bubble bursting on the health of fiscal house ... you're essentially saying that bubbles (generic) pop when the government has a control on the budget (spending and revenues). History has pretty much shown that bubbles tend to go pop when things are on the head end of a slide ... or the pops cause slides.

The gold bubble bursts when there is a massive dump of holding into the market ... or people realize the price is ridiculous and they just stop buying.

You may be mis-remembering. The claim was that WITH the stimulus, unemployment would peak at 8.5% (Eric Cantor said Obama used this number) and go no higher. Obviously this was wrong, but I don't think anyone expected unemployment to stay below 8%. Private sector projections were 11-13% without a stimulus, the other (partisan) government projections were higher.

I don't believe Obama actually mentioned those numbers ... aids out of his administration did. Likely "former" aids not long after.

[Suppa Hobbit Mage]

Only in good times, to ensure you run a budget surplus that pays down the debt you incurred in bad times.

I have never heard of a Keynesian policy which called for raising taxes. The necessity of higher taxes than there would otherwise be to fund the larger government, sure, but Keynesian economics is, as Hicks described it, depression economics. It would be silly to increase taxes during a depression, and Keynes was fully aware of that.

Kembal covered it, but for Keynesian economics to work it needs to be in place in the "good" times as well as the "bad". You are correct that the theory wouldn't raise taxes during a depression, but to counter that it plans for a surpluss of revenue from either taxes during an economic boom, or reducing government spend.

You can't start following the model only during down trends and expect it to work - at least thats my basic understanding.

[Atlanteax]

The problem is politicians are too worried about the short-term (getting elected) than the long-term (health of the economy for their descendents & the public).

[Fallen]

What do we think for today? I will go with closing within 50 points of its current mark in either direction.

[Ardwen]

Off to a good start this morning, but the daily waffling is very much alive, if it goes up enough people start taking profits and running and a new mini-panic seems to ensue and a larger sell off starts.