Tuesday, November 24, 2009

Dollars, Deficits and Gold

“President Obama is in Asia,” I told the class.

“Yes, and he bowed to the Japanese emperor,” said a boy.

“What’s wrong with that?”

“Americans don’t like to see their leader bow to others,” said the boy. “It’s like saying they’re better they we are.”

“He was just being polite,” said a girl. “Nothing wrong with that.”

“Okay,” I said. “Chinese leaders asked how he was going to pay for his health care reform bill, which may cost another trillion dollars. Why would Chinese leaders care about that?”

“Because China lends us money, right?” said another boy.

“Yes. Japan too. Why is that?”

“Because we don’t have enough?”

“That’s right,” I said, pulling down the screen and projecting an image onto it. “This chart goes back to 1980 and it shows how our federal government is paying, or not paying, for what it does.” I explained how we get a deficit when government spends more than it gets in taxes and showed them how the deficit increased during the Reagan and first Bush presidencies and declined during the Clinton years. Then I pointed to the surplus in the late Clinton years and the second Bush’s early years before sliding back into deficit after the September 11th attacks in 2001 and our invasions of Afghanistan and Iraq.

“Notice that during George Bush’s last year the deficit was a record at almost $500 billion?” I said, pointing on the screen. “Now look at President Obama’s first year,” I said. He’s more than tripled the deficit to $2 trillion.”

“Wow,” said three students.

“What can Obama and the Congress do to reduce the deficit?” I asked. “There are at least three ways.”

“Higher taxes,” said a boy.

“Right,” I said. “That’s one way, and Obama is asking Congress to raise taxes, but not nearly enough to reduce the deficit. Why not?

“Because that would make people mad,” said the boy.

“Right, and congressmen might get voted out. What else can they do?”

“Don’t spend as much,” said a girl.

“Right again,” I said, “but Obama and the Congress are spending more and the health care reform bill they’re trying to pass will cost another trillion dollars. What else can they do?”
 No hands.

“They could print money. The Constitution gives Congress power to do that and they are,” I said. “Good idea, huh?”

“Yeah,” said a boy.

“Won’t that make our money not worth as much?” asked a girl with a worried look.

“Yes,” I said. Other students looked puzzled.

“Why is that?” asked one.

“Because then there are more dollars out in circulation while the number of things to buy stays the same. Each new dollar and the ones already out there are worth less. Prices go up. It’s called inflation.”

I waited while that sunk in. Then I took a dollar and a blank check from my wallet and held them up. “Notice they’re about the same size and both are made of paper?”

They nodded.

“Let’s say you were selling a house for $200,000 and I wanted to buy it, okay?
More nods.

“If I made out this check for $200,000 and signed it, would you take it in trade for your house?”

“That depends on whether you have $200,000 in your account,” said another girl.

“I claim that by writing the check. It comes down to how much you trust me.”

“I don’t know,” she said.

Then I held up the dollar. “This is like a check from the United States of America. Do you trust the United States government?”


“Would you take 200,000 of these?”


“China is nervous about the US dollar,” I said. Then I took a quarter out of my pocket and held it up. “This used to be made of silver but now it’s copper because this much silver is worth more than 25 cents. Ever see an old movie where someone bites a coin?”

Many had.


“Because silver is soft and they wanted to see if it was real,” said a boy.

“Right. They trusted the metal, not the country. This has little ridges around the outside edge because people would sometimes shave some off. With ridges, you know it’s all there.”

“The price of gold has doubled in three years to over $1100 an ounce because people are trusting metal more than dollars again. Two weeks ago India bought 200 tons of it. China is worried about the billions it already lent us. That’s why they’re asking Obama about where he’s going to get the money to pay for his health care reform bill. They’re afraid he’s going to print more dollars.”


Anonymous said...

Right on, Tom.

Keep up the good work!

Harvey in North Baldwin

Anonymous said...

Pray, pray, pray

Anonymous said...

The Truth About Obama And The Deficit

Jonathan Chait

A few weeks ago, I wrote a column pointing out how strange it is that President Obama is being blamed for huge budget deficits, when the projected deficits we face are entirely due to policies he inherited. In my column, I cited this paper by the Center on Budget and Policy priorities, which found that Obama's budget would reduce the budget by $900 billion over ten years compared with keeping current policies in place.

Yesterday David Leonhardt of the New York Times took up a similar question. Leonhardt looked at the budget from 2009 through 2012, and tried to figure out what had changed in those years since 2001. He found that the business cycle accounted for 37% of the higher red ink. More than half came from legislation signed by President Bush. Seven percent came from Obama's stimulus bill, and only three percent from his regular budget.

It was an admirable and serious article. A good sense of how serious can be seen in the contrast to a Politico story that ran the same day. Politico concerned itself entirely with the perception that Obama is responsible for the new debt without bothering to explore the merits of the perception. It ran quotes alleging as much (GOP Sen. John Cornyn: "This was not an inherited situation. This was a matter entirely of this administration’s and this Democratic leadership’s making") without pointing out that the allegation is demonstrably false.

But Leonhardt's article, superior though it was, actually overstated Obama's contribution to the deficit. The figure I cited above, remember, said that Obama's budget would reduce the deficit by $900 billion over ten years compared with maintaining current policy. Leonhardt, looking only at three years, says that Obama's budget would make the deficit higher, but just a little bit. Even accounting for the difference in time frame (ten years versus three), that's a big discrepancy. So, which is it -- is Obama shrinking the deficit slightly, or increasing it slightly?

I asked James Horney, a budget expert at CBPP, how to reconcile the two changes. He told me that Leonhardt made two different assumptions. First, he put on Obama's tab the 2009 omnibus appropriations bill. Second, he added in several tax credits, such as for R&D or alternative energy, that Obama plans to extend. The first is a fair though debatable point -- the appropriations bill was passed by Congress under Bush's watch, but Obama signed it, so you can blame him for it. But the second is pretty unfair. The tax code is filled with credits that, rather than being part of permanent law, Congress simply extends year after year in order to keep lobbyists on the hook for campaign contributions. Those clearly belong in the category of extending inherited policy rather than new policy created by Obama.

It's a sign of how distorted the debate has been that Leonhardt's conclusion that Obama accounts for just a tiny share of the fiscal collapse was recieved as a shocking revelation. Leonhardt himself treated it as such. ("How can that be?," he wrote.) You can fault Obama for failing to do more to solve the problem -- though his health care reform will make a huge difference if it works -- but to attribute the situation to his policies is simply inaccurate.

Anonymous said...

Simple explanations and common sense rule...

Anonymous said...

The world of Economics is a strange and wondrous place. The Chinese are afraid to call in their debts on a devalued US dollar because it would drag down the value of their money and cause inflation and depression and unemployment in their country. I realize this is an over simplification but it does sound familiar.

pinko said...

This would be way more interesting if there were pictures of leather clad gay men interspersed throughout the article, the way there usually are.

Anonymous said...

Tom tells his class that "he (Obama) has more than tripled the deficit".

In order to carry out his agenda though, he did not get into how much of that was not Obama's doing...nope, just that "he" did it.

A real educator would have included the following facts:

that the poor business cycle that Obama inherited accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.

And about 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

Pesky thing, those facts, huh Tom? Just leave them out and hope your students don't discover the truth?


Anonymous said...

Whatever Anon.

- good cover up on the percentages, but doesn't explain the bowing part to the Saudi's and so on.

You know, a leadership type thing.


Dawn said...

"but doesn't explain the bowing part to the Saudi's and so on."

maybe we should call him President Obowma? :)

Anonymous said...

Whatever Anon:


President Obama has shattered the budget record for first-year presidents -- spending nearly double what his predecessor did when he came into office and far exceeding the first-year tabs for any other U.S. president in history.

In fiscal 2009 the federal government spent $3.52 trillion -- $2.8 trillion in 2000 dollars, which sets a benchmark for comparison. That fiscal year covered the last three-and-a-half months of George W. Bush's term and the first eight-and-a-half months of Obama's.

That price tag came with a $1.4 trillion deficit, nearly $1 trillion more than last year. The overall budget was about a half-trillion more than Bush's for 2008, his final full fiscal year in office.

Anonymous said...

Ah, so when all your cheese-ball attempts of slandering our president fails when examined using facts and reality, you can at least whine about his bowing.

Do you realize how pathetic you come off griping about bowing?

Well, if that's all you got...


Anonymous said...

Whoever just posted that last piece from Faux News - you are just repeating what was already explained. But considering where you are getting your "news" from, I'm not surprised.

Irregardless NH said...

When I read this heart-rending colloguy between Educator McLaughlin and the youngsters he guides, tears welled up as I wondered why he omitted the following quotation from The Hammer:

"Nothing is more important in the face of war than cutting taxes." Tom Delay (R-TX)(March 2003)

It may be argued that the current dilemma we find ourselves in ought properly be called "The Iraq Deficit".

The same convoluted (or, as Quitter Palin calls it 'bass-ackwards') "logic" that Delay and EMcL espouse was wrong in 2003 and is just as wrong today.

Oh, and Dawn? Haven't you ever treated yourself to photos of Bush the Smarter and his Son holding hands with our Saudi friends? You know...the same good folks who attacked us on 9/11?


...not that there's anything wrong with that

DAWN said...

"Oh, and Dawn? Haven't you ever treated yourself to photos of Bush the Smarter and his Son holding hands with our Saudi friends?"

and why was this directed at me? Because I made mention, tongue and cheek, of OBOWma?

Besides... showing solidarity (clasping hands) is much different than showing inferiority (bowing to a superior).

So what's your point?

Irregardless NH said...

Besides... showing solidarity (clasping hands) is much different than showing inferiority (bowing to a superior).

The point is to whom one shows 'solidarity'...the very Carlisle Group members (along with the Bush Family) who sponsored the most devastating attacks on US soil?

Don't you...er...have something of a problem with the coziness of Bush I and The Lesser with the Saudis?

You seem to take offense when President Obama (as many of his predecessors) shows respect to the Japanese but have no problem with President Bush kowtowing (one might say "pallin' around with") the Saudis.

Double standard anyone?

Irregardless NH said...


Let me just leave you with this:

We're both lucky to live in a country where we can agree to disagree...and amicably.

My (sincerest) best wishes for a Happy and Healthy Thanksgiving to you and yours!

Dawn said...

"My (sincerest) best wishes for a Happy and Healthy Thanksgiving to you and yours!"

and to you as well!

pinko said...

Right on, Dawn. We were all much better off when Bush 1 threw up on the Prime Minister of Japan. Yepper, that's how to show the world that we're #1!

As for Bush holding hands and playing kissy with Prince Bandar - nooooo problem. Except.....wasn't it Saudis who flew into the WTC?

Bush made sure all his Saudi pals got out before US airspace was shut down. That was so sweet of him. Almost as sweet as the holding hands kissyface pictures.

Now, if only Bandar had been wearing leather....then Tombo would have taken an interest.

Samantha Bradshaw said...

Ha ha. Great job putting teacher Tom in his place! He certainly doesn't let facts get in the way of his "lessons" does he? He may fool his illiterate buddies on "asmainegoes" with his phony eloquence, since they all get their "facts" from Faux News and Glenn Beck, but I bet his students see right through this garbage.

Anonymous said...

When things appear or sound to be too good to be true, then they are usually not true. Liberals fail at every turn to read the signals. Has anyone noticed that the "Hope and Change" rhetoric that was sold to the public is now "Doom and Gloom"?

DAWN said...

Hitler was about change also. And that change didn't end up going so well.

During the election many didn't logically think thru this "change" speak very well. They didn't care about the details. They just wanted change not thinking there's good change and then there's bad change.

Well we've got change. Is it for the better? Or is it for the worse?

Anonymous said...

Ah yes. When all else fails, bring up Hitler. LOL.

Anonymous said...

The change since Bush left office has definitely been for the better...Obama was left with a horrendous mess that will take years to clean-up. Just like cleaning house the mess seems much worse right after the cleaning begins - furniture pulled out, dust all over, piles of junk to sort - but it is a process that needs to happen for real change.

Anonymous said...

Dawn, you are truely showing the extent of your ignorance/irrationality/brainwashing when you try and compare our president to Hitler. Very unbecoming.