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I read a lot of blog commentary. Probably too much. This entry is more than worthy of publication in a major periodical or newspaper. I'm thinking WSJ, U.S. News and World Report....along those lines.

I'd also like to see an O'Reilly, Limbaugh or even (heaven forbid) Savage pick this up. I'm going to send a bunch of emails. Maybe some other readers here could do the same.

Yes, Steve, we need a Gipper again. I'm reminded of the song from All In The Family which I'd alter a bit.....

"Mister we could use a man like Ronald Reagan again".

Steve wrote: "Both of them have faith in the borrower's future."

Sometimes. But quite often the loan is coupled with a lien on real assets whose value substantially exceeds the amount of the loan. In such case, the lender needs to have some faith in the future of the assets, but needn't have any faith in the future of that particular borrower. If the borrower defaults, the lender takes over the asset(s), sells them, and is once again whole.

But, ignoring that detail, the faith in the future premise may have other flaws. The fact remains that borrowers, big and small, occasionally do default, even though their future at the time of the loan looked incredibly bright. It's one thing if private entities end up in untenable financial straits, it would be quite another if the United States government, which is basically the world's bank, ended up in a weak financial position. The markets can absorb defaults on loans by private entities without even blinking. Can the markets absorb financial difficulties encountered by the largest government in the world if that ever happened? Probably, but at what cost?

We really really need to get the word out somehow, and have it stick. I mean, there's all those lobbyists out there shaping out politicians, I find it hard to believe we can't get through to a couple. If someone could sit down and explain this stuff to them for a couple hours, it would be a good start. I'm with you Steve, I'm afraid what might happen in the near future. I am optimistic as well, since everything has worked out for us so far, but it almost seems a guarantee they won't be near as good as they could be. These facts have to make it to the mainstream... they just have to. I’m only 24 so I’m going to see a lot of the long-term effects of what’s happening now.

I'm afraid that Bret is missing the whole point of this post and most likely failed to read Steve's post on hyperinflation.

I don't want to put words where they should not be but what this meant to me is that the overall level of angst and pessimism in this country does not bode well for faith in the future. Throw in the professional politician and it it is hard not to be grim. But there are any number of things we can do to make it brighter. My number 1 is alternative transporation fuel which Steve has written about.

That stated, it will require a statesman like a Reagan to make it
happen. Pray that one comes around sooner rather than later.

Mr. Conover. I've been a long-time reader of your blog, and I appreciate your view, and almost completely agree with it on every issue you've given voice. However, over the last few months, as a student of economics, I've come across some information which has drastically changed my mind on the central point of your blog, namely, the danger posed to America by running large and repeated deficits.

A study of both economic history and theory suggests no reason why debt itself (while reasonable, and that is defined, as far as I can see, by historic levels, so we are in a safe range now) should be dangerous. However, both theory and history show us that tax cuts increase government spending. In theory, we say that if a cost for a service has dropped, demand has increased. In history, every major tax cut of the post-war era has led to more government spending, and every tax increase has led to less.

Because I believe that government can be too big (and probably already is), the idea of a continually growing demand for government is disturbing.

If we run a deficit over a long period, I believe the trend is to continue to grow that deficit by increasing spending even more rapidly than growth raises revenue (or at the same rate), which is not, itself, a worrisome trait.

However, the fact is that I believe that government as a percentage of GDP is already too high, and this suggests no way to alleviate this problem, while tax increases and even small surpluses would drive down the size of government rapidly. Over the short run, this might hurt the economy, but over the long run, the resources freed from inefficient government uses would offset the sharp one-time losses.

Perhaps, of course, a reasonable deficit will produce only a constant government spending as a precentage of GDP, and this might be where we are, and we might find that the current level of spending is just right. If so, all that I've really shown is that you have little or no reason to worry about the danger of the budget naturally inching its way up to a surplus.

Your thoughts are appreciated.

On the subject of the danger of the debt itself, I have a story to relate.

My father worked for the state of California when Reagan was governor. He was some study board or other, and he was presented with a protest by a group of environmentalists on the danger of building a new nuclear power plant close to a fault line.

It turns out that the environmentalists, in this case, were not all lying, completely. In the case of the right earthquake and weather, a nuclear power plant situated so close to a fault line could be responsible for the death of five-thousand or so people.

Of course, the earthquake, to crack the reactor open, would have to be so massive it would kill literally millions of people.

This is very similar to worrying about America defaulting on her loans. It is possible, but in the world in which it could happen, much, much worse things would be going on. Realize that the Great Depression wasn't close to bad enough to make us consider failing to pay our debts. Short of nuclear holocaust, only structural deficits (deficits minus GDP growth) sustained for decades, and debt-to-GDP ratios of well over 100% could result in America failing to pay her debts.

to Jon Thompson:

I'd like to take a look at the data you mentioned. Although correlation does not guarantee causation, it's interesting if a decrease in taxes as a share of GDP correlates with an increase in the spending share.

In any case, the phrase "big government" isn't specific enough for me. When we cut national security spending in the 90s, cashing in the so-called peace dividend, government got "smaller." However, it would have been better for "government"(i.e., national security) to have kept the same funding, or even to have grown as a %gdp, if that would have prevented 911 or the subsequent costly wars.

FDR ...stateman??
the man who took the poeples gold (at gun point) and imm depreciated the currency from 20 bucks for an ounce of gold to 35 bucks... that stateman??
is the next paragon of national acclaim to be the one who takes your real estate and rents it back to you??


Read Steve's comments on FDR again. He didn't say he agreed with everything he did nor did he state that everything worked. But what he did do was give a disparaged nation hope. He acted and had faith that the country would come out of it's current state and become more prosperous.

Man, the term "dismal science" is so right on.

I know you love Reagan, but isn't he guilty of your greatest political-economic sin? He used Carter's record debt as a selling point during the '80 election, even though GDP-Debt ratio was at a post WW2 low point.

Reagan later went on to balloon that ratio with outrageous spending on the military- industrial complex. Honestly, the 'value' of such an investment for America's future was debatable, being that the old adage about the USSR of "paint over rust" appeared to be correct.

Anyway, my opinions aside, I am a big fan of your writing.

I also believe we have a great need for another statesman. I'm wondering, Steve, if you have an opinion on any Republican candidates that have such potential? Slim pickin's, I agree.

Fred Thompson seems like a possibility. He does seem to say "pro growth" things...I guess we'll see.

RON PAUL is THE ONLY CANDIDATE that hasnt violated his oath of office and understands teh realhistory behind foriegn and economic policy!


If we discuss Reagonomics, lets not be irrational and exclude discussion of the Grace Commssion report.


Ron Paul is the only candidate addressing these issues, I suggest everyone look at what the corporate media is doing to marginalise him, what are they afraid of? The truth, that they are controlled by the corpocracy.

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