Obama dares Republicans to block his coming jobs package

[Razgovory]

Businesses think long-term.  If they see congress taking the debt/deficit problems seriously (maybe even if that includes some slight tax increases), I think they'll have more confidence in the future of the economy & resume hiring.

  Of course they do.

[Faeelin]

Well, we have seen some prominent nations pursuing austerity the past few years. How's that working out?

For some it has achieved the intended purpose--maintaining the ability to borrow at reasonable terms.

But the US can borrow at reasonable terms now, despite the failure to get cuts that ders thinks qualify as austerity.

And while I might buy that business think long-term and hire based on it seriously, it doesn't seem like that's working out anywhere that's pursuing austerity at the moment...

[derspiess]

And while I might buy that business think long-term and hire based on it seriously, it doesn't seem like that's working out anywhere that's pursuing austerity at the moment...

What examples are you thinking of, and do you think they are relevant to the US economy?

[Faeelin]

And while I might buy that business think long-term and hire based on it seriously, it doesn't seem like that's working out anywhere that's pursuing austerity at the moment...

What examples are you thinking of, and do you think they are relevant to the US economy?

The UK and Ireland will do for examples where governments are pursuing austerity. Why are they not relevant to the US economy? If you think austerity and getting the fiscal house in order will encourage business to invest, wh y would that law only apply in America?

[Admiral Yi]

But the US can borrow at reasonable terms now, despite the failure to get cuts that ders thinks qualify as austerity.

Just as Greece, Spain, Portugal, Italy and Ireland could a few years ago.  The yield/risk curve for sovereigns doesn't slope gradually, it's flat until it reaches a tipping point where it gets very steep.  The last couple years we've been packing on debt/GDP at c. 10%/year.  Maybe the debt limit deal dropped that to around 7 or 8 a year.  But still in 6 years or so we'll be at Italian levels of indebtedness.  Any further stimulus spending will just accelerate this process.

The largest bond fund manager in the world has liquidated entirely their holding of Treasuries and taken a short position.  Their stated reason was that the yield obtaining doesn't justify the risk.

Even with the ending of QE2 there are factors which artificially pump up the demand for Treasuries: they are the only collateral accepted for loans from the Federal Reserve's discount window (if you want to take advantage of some of those famous zero percent loans you have to have Treasuries to qualify); as part of the post subprime meltdown reforms capital requirements have been raised, and holdings of Treasuries get counted at full value in assessing capital.

[derspiess]

The UK and Ireland will do for examples where governments are pursuing austerity. Why are they not relevant to the US economy? If you think austerity and getting the fiscal house in order will encourage business to invest, wh y would that law only apply in America?

I'll allow the UK.  But not the Irish

Btw what's the unemployment rate in the UK?

[Valmy]

7.7%

[Ideologue]

7.7%

Looting is not a job.

[Neil]

Businesses think long-term.

Not really.  That's part of the problem.

[The Minsky Moment]

Businesses think long-term.  If they see congress taking the debt/deficit problems seriously (maybe even if that includes some slight tax increases), I think they'll have more confidence in the future of the economy & resume hiring.

I very much doubt most businesses think anything like that at all.

[DGuller]

They don't, but that's a very useful narrative if you're a Republican.

[The Brain]

Persons are smart. Businesses are stupid.

[The Minsky Moment]

Most persons who run businesses focus on the immediate drivers of their revenue and profitability and focus on the short-term.  The latter not only because of the natural tendency to focus on the most immediate concern, but also because most are bright enough to understand that speculating about how complex issues like fiscal policy will work out long-term is just throwing darts blindfolded.  For example a company in the jewelry business will watch the financial news carefully to get an idea how the prices of gold or silver are likely to move over the next 6 months to a year, and help forecast sales for the next 12 months.  But they aren't likely to think about what the long bond yield may be like 10 years from now.  People running mid-size manufacturing, retail, wholesale, services, etc. business are not sitting around reviewing 20 year CBO budgetary forecasts and thinking - "huh - looks like we can get debt/GDP down to 50% by 2025 - I am going to expand my operations". 

[grumbler]

I thought Spicy's laugher about "some of those folks are going to have make-do with taking a job that may pay less than their previous job" was a lot funnier than his rip-tickler about how he thinks businesspeople think.  I think he knows less about how unemployment works than he does about how to size a bicycle properly for a fish.

[Neil]

Most persons who run businesses focus on the immediate drivers of their revenue and profitability and focus on the short-term.  The latter not only because of the natural tendency to focus on the most immediate concern, but also because most are bright enough to understand that speculating about how complex issues like fiscal policy will work out long-term is just throwing darts blindfolded.  For example a company in the jewelry business will watch the financial news carefully to get an idea how the prices of gold or silver are likely to move over the next 6 months to a year, and help forecast sales for the next 12 months.  But they aren't likely to think about what the long bond yield may be like 10 years from now.  People running mid-size manufacturing, retail, wholesale, services, etc. business are not sitting around reviewing 20 year CBO budgetary forecasts and thinking - "huh - looks like we can get debt/GDP down to 50% by 2025 - I am going to expand my operations".

I think you're right, but I also think that an element of hysteria feeds into it.  If everyone on the news is saying 'DOOM!  Businessageddon is coming!', then they might be less likely to expand.