Download 3 Generic-Culpepper-Economy - ddi09

DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Econ Generic
Econ Generic ...................................................................................................................................................... 1
1NC Shell (1/3)................................................................................................................................................... 6
1NC Shell (2/3)................................................................................................................................................... 7
1NC Shell (3/3)................................................................................................................................................... 8
Uniqueness – Investor Confidence ..................................................................................................................... 9
Uniqueness – Investor Confidence ................................................................................................................... 10
Uniqueness – Investor Confidence ................................................................................................................... 11
Uniqueness – Investor Confidence ................................................................................................................... 12
Uniqueness – Investor Confidence ................................................................................................................... 13
Uniqueness – Small Businesses........................................................................................................................ 14
Uniqueness - T-Bills Up ................................................................................................................................... 15
Uniqueness - Recovery Now ............................................................................................................................ 16
Uniqueness – Recovery Now ........................................................................................................................... 17
Uniqueness – Fiscal D ...................................................................................................................................... 18
AT: Inflation Now ............................................................................................................................................ 19
Uniqueness - Won’t Switch From the Dollar Now .......................................................................................... 20
Uniqueness – Brink .......................................................................................................................................... 21
Uniqueness – Dollar Heg Brink ....................................................................................................................... 22
Uniqueness – Dollar Dumping ......................................................................................................................... 23
Uniqueness – AT: Econ Down**** ................................................................................................................. 24
Links – Social Services .................................................................................................................................... 25
Links – Social Services .................................................................................................................................... 26
Links – Social Services .................................................................................................................................... 27
Links – Social Services .................................................................................................................................... 28
Links – Social Services .................................................................................................................................... 29
Links – Social Services .................................................................................................................................... 30
Links – Social Services .................................................................................................................................... 31
Links – Social Services .................................................................................................................................... 32
Links – Social Services – Perception ............................................................................................................... 33
Links – Deficit Spending .................................................................................................................................. 34
Links – Deficit Spending .................................................................................................................................. 35
Links – Deficit Spending .................................................................................................................................. 36
Links – Deficit Spending .................................................................................................................................. 37
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Deficit Spending .................................................................................................................................. 38
Links – Paygo ................................................................................................................................................... 39
Links – Welfare ................................................................................................................................................ 40
Links – Census ................................................................................................................................................. 41
Links – China ................................................................................................................................................... 42
Links – China ................................................................................................................................................... 43
Links – Abortion............................................................................................................................................... 44
Links – Hyde Amendment................................................................................................................................ 45
Links – Education ............................................................................................................................................. 46
Links – Education (Head Start) ........................................................................................................................ 47
Links – Elder Care ............................................................................................................................................ 48
Links – Food Stamps ........................................................................................................................................ 49
Links – Full Employment ................................................................................................................................. 50
Links – Full Employment ................................................................................................................................. 52
Links – Full Employment ................................................................................................................................. 53
Links – Healthcare ............................................................................................................................................ 54
Links – Healthcare ............................................................................................................................................ 55
Links – Healthcare ............................................................................................................................................ 56
Links – Healthcare (Medicaid) ......................................................................................................................... 57
Links – Healthcare (Medicaid) ......................................................................................................................... 58
Links – Healthcare (Medicaid) ......................................................................................................................... 59
Links – Healthcare (Single-payer).................................................................................................................... 60
Links – Healthcare – Small Businesses ............................................................................................................ 61
Links – Immigration ......................................................................................................................................... 62
Links – Immigration ......................................................................................................................................... 63
Links – Legal Services ..................................................................................................................................... 64
Links – Postal Service ...................................................................................................................................... 65
Links – Prisons ................................................................................................................................................. 66
Links – Welfare ................................................................................................................................................ 67
AT: Status Quo Social Services  Impact ...................................................................................................... 68
Internals – Fiscal Discipline* ........................................................................................................................... 69
Internals – Deficit Spending ............................................................................................................................. 70
Internals – Deficit Spending Kills Confidence ................................................................................................. 71
Internals – Deficit Spending Dollar Dumping ............................................................................................. 72
Internals – China Will Dump ........................................................................................................................... 73
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Investor Confidence........................................................................................................................ 74
Internals – Investor Confidence........................................................................................................................ 75
Internals – Investor Confidence........................................................................................................................ 76
Internals – Small Businesses (HELLO ASHISH) ............................................................................................ 77
Internals – Foreign Investment ......................................................................................................................... 78
Internals – Interest Rates .................................................................................................................................. 79
Internals – Public Sector ................................................................................................................................... 80
Internals – Taxes............................................................................................................................................... 81
AT: Econ Resilient – Small Businesses ........................................................................................................... 82
Impacts – Mead 2009 ....................................................................................................................................... 83
Impacts – Economic Decline  Nuclear War ................................................................................................. 85
Impacts – U.S. Key to Global Economy .......................................................................................................... 86
Impacts – U.S. Key to Global Economy .......................................................................................................... 87
Impacts – U.S. Key to Global Economy .......................................................................................................... 88
Impacts – U.S. Key to Global Economy .......................................................................................................... 90
Impacts – U.S. Key to Global Economy .......................................................................................................... 91
Impacts – Business Confidence ........................................................................................................................ 92
Impacts – Investor Confidence ......................................................................................................................... 93
Impacts – Small Businesses Key to the Economy............................................................................................ 95
Impacts – Deficit Spending .............................................................................................................................. 96
Impacts – Deficit Spending .............................................................................................................................. 96
Impacts – Deficit Spending .............................................................................................................................. 97
Impacts – Deficit Spending .............................................................................................................................. 98
Impacts – Deficit Spending ............................................................................................................................ 100
Impacts – Deficit Spending Kills the Dollar .................................................................................................. 101
Impacts – Deficit Spending Kills the Dollar .................................................................................................. 102
Impacts – Inflation .......................................................................................................................................... 103
Impacts – Deficit Spending  Inflation ........................................................................................................ 104
Impacts – Deficit Spending  Inflation ........................................................................................................ 105
Impacts – Deficit Spending  Inflation ........................................................................................................ 106
Impacts – Deficit Spending  Inflation ........................................................................................................ 107
Impacts – Deficit Spending  Inflation ........................................................................................................ 108
Impacts – T-Bill Selloff .................................................................................................................................. 109
Impacts – Inflation .......................................................................................................................................... 110
Impacts - Inflation .......................................................................................................................................... 111
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Inflation .......................................................................................................................................... 112
Impacts – China .............................................................................................................................................. 113
Impacts – China .............................................................................................................................................. 114
Impacts – China .............................................................................................................................................. 115
Impacts – China .............................................................................................................................................. 116
Impacts – Unemployment............................................................................................................................... 117
Impacts – Credit Downgrade .......................................................................................................................... 118
Impacts – Trade .............................................................................................................................................. 119
Impacts – Dollar Heg – Heg Impact (1/2) ...................................................................................................... 120
Impacts – Dollar Heg – Heg Impact (2/2) ...................................................................................................... 121
Impacts – Inflation Kills Dollar Heg .............................................................................................................. 122
Impacts – Spending Kills Dollar Heg ............................................................................................................. 123
Impacts – Deficit Spending Kills Dollar Heg................................................................................................. 124
Impacts – Dollar Decline ................................................................................................................................ 125
Impacts – Dollar Decline  Inflation ............................................................................................................ 126
Impacts – Dollar Decline – Oil Prices ............................................................................................................ 127
Impacts – Dollar Decline Raises Oil Prices ................................................................................................... 129
Impacts – Oil Prices  Food Prices .............................................................................................................. 130
Impacts – Econ Turns Heg ............................................................................................................................. 131
Impacts – Econ Turns Heg ............................................................................................................................. 132
Impacts – Econ Turns Prolif ........................................................................................................................... 133
Impacts – Econ Turns Disease ....................................................................................................................... 134
Impacts – Econ Turns Warming/Environment ............................................................................................... 135
Impacts – Econ Turns Famine ........................................................................................................................ 136
Impacts – Econ Turns Racism ........................................................................................................................ 137
Impacts – Econ Turns Russia War ................................................................................................................. 138
Impacts – Econ Solves War ............................................................................................................................ 139
Impacts – Econ Solves Poverty ...................................................................................................................... 140
Impacts – War Turns Gender Violence .......................................................................................................... 141
Impacts – Econ Turns Terrorism .................................................................................................................... 142
AT: Keynesian Economics ............................................................................................................................. 143
Aff – Confidence Low .................................................................................................................................... 144
Aff – Confidence Low .................................................................................................................................... 145
Aff – Econ Down............................................................................................................................................ 146
Aff – Deficit Spending High .......................................................................................................................... 147
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Aff – Alt Cause ............................................................................................................................................... 148
Aff – China Switching From the Dollar Now ................................................................................................ 149
Aff – Plan Doesn’t Cause Stagflation ............................................................................................................ 150
Aff – U.S. Not Key to Global Economy ........................................................................................................ 151
Aff – U.S. Not Key to Global Economy ........................................................................................................ 152
Aff – Dollar Decline Inevitable ...................................................................................................................... 153
Aff – China Won’t Dump ............................................................................................................................... 154
Aff – No China Dollar Impact ........................................................................................................................ 155
Aff – China Dollar Dump Good ..................................................................................................................... 156
Aff – Inflation Good ....................................................................................................................................... 157
Aff – Inflation Good ....................................................................................................................................... 158
Aff – Impact Defense ..................................................................................................................................... 159
Aff – Deficit Spending Good ......................................................................................................................... 160
Aff – Deficit Spending Good ......................................................................................................................... 161
Aff – Deficit Spending Good ......................................................................................................................... 162
Aff – Healthcare Helps Small Businesses ...................................................................................................... 163
Aff – No Small Businesses Impact ................................................................................................................. 164
Aff – SQ Fiscal Policies Unsustainable.......................................................................................................... 165
Tradeoff Disad ................................................................................................................................................ 166
Tradeoff Disad ................................................................................................................................................ 167
Tradeoff Disad ................................................................................................................................................ 168
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
1NC Shell (1/3)
Confidence high, but lack of discipline causes premature pullout
Cass, former editor-in-chief of Worth, a magazine devoted to wealth management and related issues for the affluent readers, 612-09[Dwight Cass, former editor-in-chief of Worth, a magazine devoted to wealth management and related issues for the affluent
readers, June, 12th, 2009, “Bond bust fears overblown-for now”,
http://money.cnn.com/2009/06/12/markets/bondcenter/bond_bust_fears_overblown.breakingviews/index.htm?postversion=200906
1211]
The U.S. Treasury bond market has been feeling distinctly unloved. A 10-year bond auction went badly on June 10 after Russia,
Brazil and China said they were taking steps to diversify their foreign currency reserves . Worries that Thursday's $11
billion auction of 30-year bonds would follow suit rattled the market. But central banks flocked to buy the bonds,
meaning dollar diversification fears were overblown -- at least for now. Treasury officials may be relieved, but they shouldn't
relax. The factors that could push up the cost of issuing U.S. government debt continue to mount. The behavior of the inflationlinked bond market shows investors are beginning to worry more about inflation than deflation, as signs of an approaching
economic recovery proliferate. And the sheer volume of debt the U.S. has to issue this fiscal year -- $3.25 trillion worth, or nearly
four times as much as last year -- has unnerved investors. Nonetheless, the 30-year bond auction received a lot more interest than
usual. The ratio of total bids to accepted bids, an indicator of demand, was 2.68, up from an average of 2.21 in
recent auctions. Encouragingly, foreign investors, mainly central banks, purchased nearly half the bonds. They normally take
only about a third. That's notable because big Treasury bond investors like China have been shifting their
purchases toward shorter-term securities to reduce their risk of loss from interest rate rises. And that's a
significant risk. The 4.72% yield at which the bonds were sold was admittedly the highest at auction in
nearly two years. But assume inflation returns to a long-term average of about 3%, and the real return on the
bonds starts to look parsimonious. Add the likelihood of long bond yields rising significantly at times over
three decades, and the price of this bond could slide. While the willingness of foreign central banks to shoulder this risk
is encouraging, Treasury officials shouldn't be high-fiving each other just yet. The long bond has plummeted 10% in price in the
last month alone. The patience of many foreign investors is already strained. Some may soon reach their limit
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
1NC Shell (2/3)
New social service spending freaks out investors – deficit issues
Irwin, Staff writer for the Washington Post covering the economy, 6-4-9 [Neil Irwin, Staff writer for the Washington Post
covering the economy, June, 4th, 2009, “Bernanke Presses for Fiscal Restraint”, http://www.washingtonpost.com/wpdyn/content/article/2009/06/03/AR2009060301367.html]
The nation needs to begin planning now to eventually bring taxes and spending in line, Federal Reserve Chairman Ben S.
Bernanke said yesterday, arguing that large budget deficits, if sustained, could deepen the financial crisis and choke off the
economy. Bernanke's testimony to Congress reflected growing concern among economists and investors that the nation's
long-term fiscal imbalances could stand in the way of economic recovery by driving up the interest rates that the government,
businesses and consumers pay to borrow money. The rate the government pays has already risen in recent weeks. The Fed
chairman argued that even as the government spends massive amounts of money to contain the financial crisis, it must be
prepared to move toward fiscal balance. "Congress and the administration face formidable near-term challenges that must be
addressed," Bernanke told the House Budget Committee. But "unless we demonstrate a strong commitment to fiscal
sustainability in the longer term, we will have neither financial stability nor healthy economic growth." The financial crisis is
driving the country deeply into the red, with the national debt projected to double from about 41 percent of the economy last
year to more than 82 percent by the end of the next decade. Thereafter, things will only get worse, budget analysts say, as the
baby boom generation lays claim to benefits from Social Security and costly federal health programs. So far, President
Obama has offered no plan to rein in those costs, though he has stressed the importance of reducing the deficit generally.
Bernanke frequently delivers messages on the need for fiscal responsibility to congressional budget committees. But his
comments yesterday carried more weight given recent swings in the market for Treasury bonds. In particular, the global
investors who finance the nation's large budget deficits have grown more antsy. The U.S. Treasury must now pay 3.5 percent
to borrow money for 10 years -- low by historical standards, but up from about 3.1 percent a month ago and 2.9 percent three
months ago. The increase has come even as the Fed has launched a program to buy up to $300 billion in Treasury bonds -purchases designed to push down rates and did, when the program was rolled out in March. The higher rates for government
borrowing have many likely causes, and some of those reflect improvement in financial markets. For example, as investors
have become more comfortable investing in risky assets such as stocks, they have been willing to move money out of safe
U.S. Treasury bonds and into other investments. But other reasons for the shift are less positive. Investors are also worried
that Congress and the Obama administration will continue to rely heavily on borrowed money to fund the government and
thus are demanding a higher premium to lend it money. "These increases appear to reflect concerns about large federal
deficits," Bernanke said in his testimony, before naming other causes that are also playing a role. Some analysts worry that
the Fed will succumb to political pressure in the future to effectively print money to fund government borrowing -- a process known
as monetizing the debt. Two congressmen raised that possibility explicitly in yesterday's hearing. "This can be a dangerous policy mix. The
Treasury is issuing debt. And the central bank is buying it," said Rep. Paul D. Ryan (R-Wis.). "It gives the alarming impression that the
U.S. one day might begin to meet its financial obligations by simply printing money. And we all know what happens to a country
that chooses to monetize its debt. It gets runaway inflation, a gradual erosion of workers' paychecks and family savings." Bernanke said
that the Fed takes its political independence seriously, and while it is now focused on using all the tools at its disposal to ease the pain of
the recession, it will respond aggressively if inflation becomes a problem. The Fed has given no strong indication of whether it will expand
its purchases of Treasury bonds. Without doing so, though, the Fed would have less flexibility to stimulate the economy. It has already cut
a key interest rate it controls to nearly zero. "They definitely have less leeway" to buy more Treasury bonds, said Michael Feroli, an
economist at J.P. Morgan Chase. "The Fed hasn't done a stellar job of communicating its strategy" with the bond purchases, which, he
argued, has allowed the discussion to be dominated by people who argue that the Fed's actions are effectively monetizing the debt.
Doing so would increase the money supply, thereby weakening the dollar and leading to high inflation. One thing that would
help assuage those fears would be for government leaders to signal that they will manage the nation's finances well in the
long run. That would tend to keep long-term interest rates low, which in turn would help encourage an economic recovery.
Bernanke, as is his habit, did not recommend specific ways that Congress should aim to reduce long-term budget deficits; he
views tax and spending decisions as the domain of elected officials. "In the end, the fundamental decision that the Congress,
the administration and the American people must confront is how large a share of the nation's economic resources to devote
to federal government programs, including entitlement programs," Bernanke said. "Crucially, whatever size of government is
chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the
long run."
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
1NC Shell (3/3)
Investor confidence decline collapses the economy
The Economist 6/11/2009 (http://www.economist.com/opinion/displaystory.cfm?story_id=13829461)
This alarming trajectory puts policymakers in an increasingly tricky bind. In the short term government borrowing is an essential
antidote to the slump. Without bank bail-outs the financial crash would have been even more of a catastrophe. Without stimulus
the global recession would be deeper and longer—and it is a prolonged downturn that does the greatest damage to public finances.
But in the long run today’s fiscal laxity is unsustainable. Governments’ thirst for funds will eventually crowd out private
investment and reduce economic growth. More alarming, the scale of the coming indebtedness might ultimately induce
governments to default or to cut the real cost of their debt through high inflation. Investors have been fretting on both counts.
Worries about default have been focused on weaker countries in the euro area, particularly Greece, Ireland, Italy, Portugal and
Spain, where the single currency removes the option of unilateral inflation (see our special report). Ireland’s debt was downgraded
for a second time on June 8th. Fears of inflation have concentrated on America, where yields on ten-year Treasuries reached nearly
4% on June 10th; in December the figure was not much above 2%. Much of this rise stems from confidence about economic
recovery rather than fiscal alarm. Yet eye-popping deficits and the uncharted nature of today’s monetary policy, with the Federal
Reserve (like the Bank of England) printing money to buy government bonds, are prompting concerns that America’s debt might
eventually be inflated away. Justified or not, such worries will themselves wreak damage. The economic recovery could be
stillborn if interest rates rise too far too fast. And today’s policy remedies could become increasingly ineffective. Printing more
money to buy government debt, for instance, might send long-term bond yields higher rather than lower. What should
policymakers do? A sudden fit of fiscal austerity would be a mistake. Even when economies stop shrinking, they will stay weak.
Japan’s experience in 1997, when a rise in consumption taxes pushed the economy back into recession, is a reminder that a rush to
fiscal tightening is counterproductive, especially after a banking bust. Instead of slashing their deficits now, the rich world’s
governments need to promise, credibly, that they will do so once their economies are stronger. Lord, make me prudent—but not
yet But how? Politicians’ promises are not worth much by themselves. Any commitment to prudence must include clear principles
on how deficits will be shrunk; new rules to stiffen politicians’ spines; and quick action on politically difficult measures that would
yield future savings without denting demand much today, such as raising the retirement age. Broadly, governments should pledge
to clean up their public finances by cutting future spending rather than raising taxes. Most European countries have scant room for
higher taxes. In several, the government already hoovers up well over 40% of GDP. Tax reform will be necessary—particularly in
places, such as Britain and Ireland, which relied far too much on revenues from frothy financial markets and housing bubbles.
Even in the United States, where tax revenues add up to less than 30% of GDP, simply raising tax rates is not the best answer.
There too, spending control should take priority, though there is certainly room for efficiency-enhancing tax reforms, such as
eliminating the preferential tax treatment of housing and the deductibility of employer-provided health insurance.
Economic collapse causes World War Three
Mead, 9 – Henry A. Kissinger Senior Fellow in U.S. Foreign Policy at the Council on Foreign Relations
(Walter Russell, “Only Makes You Stronger,” The New Republic, 2/4/09,
http://www.tnr.com/politics/story.html?id=571cbbb9-2887-4d81-8542-92e83915f5f8&p=2)
History may suggest that financial crises actually help capitalist great powers maintain their leads--but it has other, less reassuring
messages as well. If financial crises have been a normal part of life during the 300-year rise of the liberal capitalist system under
the Anglophone powers, so has war. The wars of the League of Augsburg and the Spanish Succession; the Seven Years War; the
American Revolution; the Napoleonic Wars; the two World Wars; the cold war: The list of wars is almost as long as the list of
financial crises. Bad economic times can breed wars. Europe was a pretty peaceful place in 1928, but the Depression poisoned
German public opinion and helped bring Adolf Hitler to power. If the current crisis turns into a depression, what rough beasts
might start slouching toward Moscow, Karachi, Beijing, or New Delhi to be born? The United States may not, yet, decline, but,
if we can't get the world economy back on track, we may still have to fight.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Investor Confidence
Investor confidence high – research group signals
Ylan Mui, Washington Post Staff Writer, 7/21/2009 (http://www.washingtonpost.com/wpdyn/content/article/2009/07/20/AR2009072001082.html?hpid=sec-business)
U.S. stocks extended last week's rally Monday after struggling business lender CIT Group won a reprieve from its creditors and the
Conference Board's index of leading economic indicators posted its third consecutive monthly gain. The Dow Jones industrial
average rose 104.21 points, or 1.2 percent, to close at 8848.15, pushing the index of blue-chip stocks into positive territory for the
year. The broader Standard & Poor's 500-stock index increased 10.75 points, or 1.1 percent, to 951.13, and the tech-heavy Nasdaq
finished up 22.68 points, or 1.2 percent, at 1909.29. Investors were cheered by reports that struggling small-business lender CIT
Group persuaded its creditors to provide a rescue package including $3 billion in new loans, buying the company a little more time
to resolve its broader financial problems. Retailers in particular worried that a CIT implosion could endanger the upcoming
holiday season, since the firm provides financing for many retail suppliers. CIT's stock rose 78.6 percent, to $1.25. "CIT clearly is
a driving force," said William Byrne, director of trading for Conifer Securities. "You have to look at so many big positives that
came out of that." Wall Street was also encouraged by positive signals about the pace of the economy's recovery. The Conference
Board, a business research group, said that seven of the 10 benchmarks in its index of leading economic indicators had increased
last month. Building permits, stock prices and an indicator of the economy based on bond-market data were the top three gainers,
while money supply, orders for capital investments by manufacturers and consumer expectations fell. The index is now at 100.9,
and its growth over the past six months is at the highest rate since the first quarter of 2006.
Confidence high – venture capital index
The Economist, 7/9/2009 (http://www.economist.com/businessfinance/displaystory.cfm?story_id=13998760)
His is not the only glimmer of light. On July 9th the latest results from a “confidence index” compiled by Mark Cannice of the
University of San Francisco showed that venture capitalists had become more bullish for the second consecutive quarter. The
comatose market for initial public offerings (IPOs), an important exit route for VCs looking to unload companies, is also showing
a few signs of life. According to Thomson Reuters and the National Venture Capital Association (NVCA), an industry group, there
were five venture-backed IPOs in the second quarter of 2009, worth a total of $721m.
Confidence high despite deficit
Reuters 7/17/2009 (http://www.washingtonpost.com/wp-dyn/content/article/2009/07/17/AR2009071700645.html)
PARIS (Reuters) - U.S. Treasury Secretary Timothy Geithner is more optimistic on the economic outlook than he was three
months ago, he said in an interview with French newspaper Le Monde published on Friday. He called for a more balanced model
of growth in the world, with more saving by Americans while other countries concentrate on boosting internal demand. "I am
more optimistic than three months ago and I think that we are doing better than we could have imagined at the beginning of 2009,"
he said. "The confidence in the policies being carried out in the United States and in the world in general, are having results." He
also said the size of the U.S. fiscal deficit should not hurt investor confidence. "The deficit is very large because of the policies
carried out in recent years and because of the recession," he said.
Investor confidence up – CIT group and credit swap decline
Abigail Moses, Staff Writer for Bloomberg, 7/20/2009
(http://www.bloomberg.com/apps/news?pid=20601087&sid=azVVCwhu6AW8)
Investor confidence was also boosted by speculation CIT Group Inc., the 101-year-old commercial finance company seeking to
ward off bankruptcy, may announce an agreement for $3 billion in financing from bondholders as soon as today. Credit-default
swaps on the Markit iTraxx Crossover Index of 45 companies with mostly high-yield credit ratings dropped 24 basis points to 678,
the lowest since June 11, JPMorgan prices show. The cost of protecting European bank bonds from default also declined, with the
Markit iTraxx Financial index of 25 European banks and insurers dropping 8 basis points to 98.5, the lowest since November, and
the subordinated index falling 12 to 182. Credit-default swaps pay the buyer face value in exchange for the underlying securities
or the cash equivalent should a company fail to adhere to its debt agreements. A decline signals improved perceptions of credit
quality.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Investor Confidence
Investor confidence high – market indicators
Stephen Bernard, Staff Writer for AP, 7/15/2009
(http://www.google.com/hostednews/ap/article/ALeqM5jmT59dgLTTziX4p9X9MRBRpWZGdQD99EVIKO0)
NEW YORK (AP) — Investors are betting on the economy again. Stocks are surging at midday following a better-than-expected
earnings report and forecast from chip maker Intel Corp. Intel's strong results and outlook suggested that computer sales are
picking up faster than had been expected. Strength in factories is also boosting hopes that the economy could soon show signs of
recovery. Industrial companies cut back production again in June, but not nearly as much as they did in previous months. At
midday, the Dow Jones industrial average is up 180 to 8,539. The Standard & Poor's 500 index is up 19 to 925, and the Nasdaq
composite index is up 48 to 1,848.
Investor confidence high – global index
Reuters 6/30/2009 (http://www.guardian.co.uk/business/feedarticle/8584573)
LONDON, June 30 (Reuters) - Confidence among institutional investors rose for the sixth month in a row in June, hitting the
highest level in a year, U.S. financial services firm State Street said on Tuesday. The global State Street Investor Confidence Index
hit 115.5 this month from an upwardly revised 108.5 last month. The index has been above 100 -- the level considered to be
neutral -- for three consecutive months, coinciding with most of the stock market rally that began in March. It has also increased
every month since December. "Notwithstanding some concerns around the long-run sustainability of fiscal positions and the
impact of quantitative easing on inflation, institutional investors continue to endorse the long-run outlook," said Ken Froot, codeveloper of the index. Confidence was up most strongly in Europe, where the index rose to 95.0. Morale also improved robustly
among North American investors, climbing 6.2 points to 113.6.
Confidence high – multiple indicators
AP 7/21/2009 (http://www.google.com/hostednews/ap/article/ALeqM5jmT59dgLTTziX4p9X9MRBRpWZGdQD99IEH6O0)
Stocks jumped again Monday, giving the Dow Jones industrials their sixth straight advance, as investors got more robust earnings
news from big companies and data that suggests the economy is closer to a recovery. News that CIT had struck a financing deal
that will keep the troubled commercial lender out of bankruptcy also drove the market higher. A 100-point gain pushed the Dow
back into the black for the year, while the Standard & Poor's 500 climbed to its highest finish since November. CIT Group Inc.'s
deal with bondholders stoked the market's growing sense of optimism, which got a big boost last week from a string of good
earnings news. The company's future was cast in doubt after negotiations with federal regulators for bailout funds fell through. Its
failure would have been a blow to investor confidence and would have hurt industries like retailing, which has suppliers who rely
on CIT for financing. The market also got a stream of news that bolstered the argument that the economy is in fact heading for a
recovery. A surprisingly large rise in a predictor of future economic activity also supported stocks. The Conference Board's index
of leading economic indicators rose 0.7 percent in June, more than the 0.4 percent forecast. It was the third straight month of gains.
Market indicators jumped about 7 percent last week following a monthlong slide driven by discouraging reports on the economy.
Solid earnings and outlooks from leading companies including Goldman Sachs Group Inc., Intel Corp. and International Business
Machines Corp. gave investors hope that the worst of the recession could be past.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Investor Confidence
Investor confidence up – surveys and benchmark index
Anusha Shrivastava, Dow Jones Newswires, 7/21/2009 (http://online.wsj.com/article/BT-CO-20090721-715243.html)
Investors continue to favor investment-grade corporate debt, causing risk premiums to drop. Wal-Mart's (WMT) 6.2% issue due
2038, which was reopened Monday for a spread of 130 basis points over Treasurys, was recently quoted at 117 basis points over
Treasurys on 45 trades. Citigroup's (C) 8.125% 30-year note priced Monday at 380 basis points over Treasurys traded as tight as
351 basis points over Treasurys Tuesday. It was recently quoted at 377 basis points over Treasurys on 104 trades, according to
MarketAxess. "Allocations to corporates are at decade highs, according to Stone & McCarthy's manager surveys, and look poised
to increase more," wrote FTN Financial's Jim Vogel. A lot of investors were waiting for spreads to widen, and then had to
scramble to get bonds, said Richard Lee, managing director of fixed-income trading at Wall Street Access, a broker-dealer in New
York. But there aren't enough bonds in the secondary market, because of brokers paring back, and the lack of liquidity is
exaggerating the moves tighter, he said. Still, investor confidence is much stronger than before. "People feel comfortable that the
markets are in a better shape than they were six months ago," Lee said. The benchmark high-grade derivatives index, the Markit
CDX North America Investment Grade IG12, was recently quoted at 124 basis points, according to CMA DataVision. The index
closed at 125 basis points, according to Markit. Credit default swaps on Caterpillar Financial Services, the financing arm of the
heavy equipment maker, tightened as Caterpillar (CAT) beat earnings expectations. The annual cost to insure senior bonds against
default for five years was $182,500, compared to $255,000 Monday, according to CMA DataVision.
Investor confidence up – housing market rally
Anusha Shrivastava, Dow Jones Newswires, 7/21/2009 (http://online.wsj.com/article/BT-CO-20090721-715243.html)
Residential Mortgage-Backed Bonds Rally Ever since the government last week announced the selection of nine fund managers
to run funds seeded with public and private money that will invest in residential mortgage-backed securities, home-loan-backed
debt has been gaining steadily in price, sending yields lower. Prime, riskier Alt-A and risky subprime bonds have all gained as
confidence has returned and investors, in the knowledge that there will be buyers for these securities, are more willing to trade.
One market participant noted several so-called bid lists - offers to sell securities - were circulating in the market Tuesday as
investors took advantage of the new-found demand to sell. "The bidlist activity in a frenzied rally is to be expected," he wrote in
an e-mail.
Investor confidence up – corporate earnings
E.S. Browning, Wall Street Journal, 7/18/2009 (http://online.wsj.com/article/SB124787583487460881.html)
The first wave of quarterly corporate earnings reports arrived stronger than expected, soothing investor fears of another economic
crisis and helping push the Dow Jones Industrial Average to its strongest weekly gain since March. The Dow ended the week up
7.3% at 8743.94, taking just five days to recover almost all the 7.4% decline of the previous four weeks, as investors took heart
from blowout earnings by Goldman Sachs Group Inc. and positive comments from J.P. Morgan Chase & Co. and Intel Corp. Even
less-than-stellar reports from Bank of America Corp., Citigroup Inc. and General Electric Co. failed to halt the Dow's advance.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Investor Confidence
Confidence up – polls prove
PR Newswire 7/21/2009 (http://news.prnewswire.com/DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/0721-2009/0005063841&EDATE=)
NEW YORK, July 21 /PRNewswire/ -- The world's most influential investors give Federal Reserve Chairman Ben S. Bernanke
high praise for combating the worst financial crisis since the Great Depression, according to the first-ever Bloomberg Global Poll,
a quarterly survey of economic, financial and political attitudes among Bloomberg users worldwide. The first Bloomberg Global
Poll interviewed a random sample of 1,076 subscribers to the BLOOMBERG PROFESSIONAL(R) service, a universe of more
than 300,000 decision makers in finance, the markets and economics. The survey provides a window on how this valuable
community of investors views the prospects for economic recovery, investment opportunities and risks in the wake of the first
financial crisis since the Great Depression. Nearly 75 percent of investors surveyed hold a favorable view of Bernanke's policies
and 61 percent say the world economy is stable or improving. They are willing to take on more risk as they hunt for investment
opportunities, and see the greatest potential in China and India. While investor confidence is growing, 71 percent are pessimistic
about Eastern Europe, 67 percent about Western Europe, 62 percent about Japan and 55 percent about the U.S., according to
survey results, which are available at www.bloomberg.com. The Bloomberg Global Poll was conducted by Selzer & Company,
whose survey of Iowa Caucus voters in 2008 was the only one to accurately predict Barack Obama's victory. The firm has
conducted surveys for more than two dozen major newspapers in the U.S., and was named the best of 32 polling firms ranked by
polling Web site FiveThirtyEight.com.
Confidence up – quantitative analysis
Chris Reidy, Staff Writer Boston Globe, 6/30/2009 (http://www.boston.com/business/ticker/2009/06/state_street_in_3.html)
Global investor confidence rose 7 points from a revised May reading of 108.5 to reach 115.5 this month, said State Street Global
Markets, the investment research and trading arm of State Street Corp. Headquartered in Boston, State Street Corp. provides
financial services to institutional investors. Updated on a monthly basis, the index seeks to measure investor confidence on a
quantitative basis by analyzing the actual buying and selling decisions of institutional investors, State Street Global Markets said.
The graph that tops this post was included in State Street Global Markets' press release. The index was developed through State
Street Global Markets’ research partnership, State Street Associates, and by Ken Froot and Paul O’Connell. “June marks the third
consecutive month that the Global Index has remained above the neutral level of 100, the level above which institutional investors
are increasing their allocations to risky assets,” Froot said in a statement. “Notwithstanding some concerns around the long-run
sustainability of fiscal positions and the impact of quantitative easing on inflation, institutional investors continue to endorse the
long-run outlook.”
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Investor Confidence
Investor confidence high, but lack of discipline causes pullout
Cass, former editor-in-chief of Worth, a magazine devoted to wealth management and related issues for the affluent readers, 612-09[Dwight Cass, former editor-in-chief of Worth, a magazine devoted to wealth management and related issues for the affluent
readers, June, 12th, 2009, “Bond bust fears overblown-for now”,
http://money.cnn.com/2009/06/12/markets/bondcenter/bond_bust_fears_overblown.breakingviews/index.htm?postversion=200906
1211]
The U.S. Treasury bond market has been feeling distinctly unloved. A 10-year bond auction went badly on June 10 after
Russia, Brazil and China said they were taking steps to diversify their foreign currency reserves. Worries that
Thursday's $11 billion auction of 30-year bonds would follow suit rattled the market. But central banks flocked to buy
the bonds, meaning dollar diversification fears were overblown -- at least for now. Treasury officials may be relieved,
but they shouldn't relax. The factors that could push up the cost of issuing U.S. government debt continue to mount. The
behavior of the inflation-linked bond market shows investors are beginning to worry more about inflation than deflation,
as signs of an approaching economic recovery proliferate. And the sheer volume of debt the U.S. has to issue this fiscal
year -- $3.25 trillion worth, or nearly four times as much as last year -- has unnerved investors. Nonetheless, the 30-year
bond auction received a lot more interest than usual. The ratio of total bids to accepted bids, an indicator of demand,
was 2.68, up from an average of 2.21 in recent auctions. Encouragingly, foreign investors, mainly central banks,
purchased nearly half the bonds. They normally take only about a third. That's notable because big Treasury bond
investors like China have been shifting their purchases toward shorter-term securities to reduce their risk of loss from
interest rate rises. And that's a significant risk. The 4.72% yield at which the bonds were sold was admittedly the highest
at auction in nearly two years. But assume inflation returns to a long-term average of about 3%, and the real return on
the bonds starts to look parsimonious. Add the likelihood of long bond yields rising significantly at times over three
decades, and the price of this bond could slide. While the willingness of foreign central banks to shoulder this risk is
encouraging, Treasury officials shouldn't be high-fiving each other just yet. The long bond has plummeted 10% in price
in the last month alone. The patience of many foreign investors is already strained. Some may soon reach their limit.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Small Businesses
Small businesses safe - bailout
Wingfield 7/10
Brian
Wingfield,
Business
reporter
at
Forbes
“A
Possible
Bailout
For
Small
Business”
http://www.forbes.com/2009/07/10/tarp-small-business-business-beltway-stimulus.html[LO//AS]
Under pressure for not doing enough to fix the economy, the Obama administration is now considering allowing small
businesses to access the government's $700 billion bailout kitty. "This is just one idea among many that the
administration is considering as part of our ongoing efforts to serve taxpayers by stabilizing the economy," says
an administration official who spoke on condition of anonymity. "We are still in the early stages of discussion, and no
decisions have been made on this matter." Under the proposal, the administration would use money from the Trouble
Asset Relief Program, or TARP, to expand a Small Business Administration program for small-business loans.
The discussions were first reported by the Friday evening. TARP funds have already been redirected from financial institutions to
automakers--General Motors and Chrysler--and to American International Group ( AIG - news - people ) and other smaller life
insurance companies
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness - T-Bills Up
T-bills up - Bernanke
Anusha Shrivastava, Dow Jones Newswires, 7/21/2009 (http://online.wsj.com/article/BT-CO-20090721-715243.html)
Treasury prices rallied Tuesday as Bernanke soothed Treasury market investors with word that the federal funds rate will likely
remain near zero for an extended period of time, despite recent improvements in the economy. The fed funds rate is currently at a
0%-to-0.25% range. In late trade, intermediate Treasurys were outperforming, also helped by another round of Treasury buying
from the Fed. The seven-year note was 22/32 higher to yield 3.02%, and the 10-year note was up 31/32 at 3.46%. The two-year
note was up 3/32, with its yield having fallen back below 1%, to 0.91%.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness - Recovery Now
Recovery now despite job losses – increased liquidity and stimulus
The Economist, 7/9/2009 (http://www.economist.com/world/unitedstates/displaystory.cfm?story_id=14002741)
At one level, the hand-wringing is overdone. The economy is doing a bit better than June’s employment report suggests. Jim
O’Sullivan of UBS argues that the early date on which the job-market survey was done, combined with fewer than usual summer
jobs for students, exaggerated the weakness. He notes that stockmarkets, home sales and consumer confidence are all showing the
gradual improvement typical of turning-points. The deep freeze in the financial markets is thawing: issuance of stocks and
corporate bonds hit $338 billion in the second quarter, according to Thomson Reuters, the highest for a year. The odds are that the
economy will begin to grow again in the current quarter for two reasons: the dramatic inventory liquidation, which led
manufacturers to slash output and payrolls starting in late 2008, seems to be ending; and the impact of the fiscal stimulus is
growing. Other countries, who bore much of the brunt of the inventory liquidation because they provide such a large share of what
Americans consume, are already benefiting. Global manufacturing expanded in June for the first time since May 2008, according
to a global purchasing-managers index compiled by JPMorgan (see chart).
Econ recovering – earnings are beating estimates
Abigail Moses, Staff Writer for Bloomberg, 7/20/2009
(http://www.bloomberg.com/apps/news?pid=20601087&sid=azVVCwhu6AW8)
More than 70 percent of the 55 companies in the Standard & Poor’s 500 index that have posted second-quarter earnings so far
exceeded analysts’ forecasts by an average 11.2 percent, according to Deutsche Bank AG. The index of U.S. leading indicators
probably rose in June for a third consecutive month, economists said before a report today. “The bulls are back,” said Philip
Gisdakis, a Munich- based credit strategist at UniCredit SpA. “It will be difficult to break this positive mood as earnings
expectations were revised downwards significantly ahead of this earnings season.” Credit-default swaps on the Markit iTraxx
Europe index of 125 companies with investment-grade ratings dropped 6 basis points to 101.5, JPMorgan Chase & Co. prices
show. The index is at the lowest since Sept. 9, six days before the collapse of Lehman Brothers Holdings Inc. Morgan Stanley and
Wells Fargo & Co. are among 143 companies in the S&P 500 index to post earnings this week, while in Europe, automakers
Volvo AB and Fiat SpA as well as telecoms firms Vodafone Group Plc and TeliaSonera AB are due to report. “Although we’ve
now seen eight successive quarters of declining earnings, 63 percent of companies have still beaten final estimates over this
period,” Jim Reid, head of credit strategy at Deutsche Bank in London, wrote in a note to investors. “So there is no reason to
suggest that second- quarter earnings will do anything other than beat estimates.”
Econ recovering – laundry list of indicators
Ben Benanke, Chairman of the Federal Reserve, 7/21/2009
(http://money.cnn.com/news/newsfeeds/articles/djf500/200907211037DOWJONESDJONLINE000426_FORTUNE5.htm)
At the time of our February report, financial markets at home and abroad were under intense strains, with equity prices at
multiyear lows, risk spreads for private borrowers at very elevated levels, and some important financial markets essentially shut.
Today, financial conditions remain stressed, and many households and businesses are finding credit difficult to obtain.
Nevertheless, on net, the past few months have seen some notable improvements. For example, interest rate spreads in short-term
money markets, such as the interbank market and the commercial paper market, have continued to narrow. The extreme risk
aversion of last fall has eased somewhat, and investors are returning to private credit markets. Reflecting this greater investor
receptivity, corporate bond issuance has been strong. Many markets are functioning more normally, with increased liquidity and
lower bid-asked spreads. Equity prices, which hit a low point in March, have recovered to roughly their levels at the end of last
year, and banks have raised significant amounts of new capital.
Econ recovering
Ben Benanke, Chairman of the Federal Reserve, 7/21/2009
(http://money.cnn.com/news/newsfeeds/articles/djf500/200907211037DOWJONESDJONLINE000426_FORTUNE5.htm)
Better conditions in financial markets have been accompanied by some improvement in economic prospects. Consumer spending
has been relatively stable so far this year, and the decline in housing activity appears to have moderated. Businesses have
continued to cut capital spending and liquidate inventories, but the likely slowdown in the pace of inventory liquidation in coming
quarters represents another factor that may support a turnaround in activity. Although the recession in the rest of the world led to a
steep drop in the demand for U.S. exports, this drag on our economy also appears to be waning, as many of our trading partners are
also seeing signs of stabilization.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Recovery Now
Market signs of econ recovery
Reuters 7/20 [Herbert Lash, staff writer. “Global Stocks, crude gain on signs of economic recovery.”
http://www.reuters.com/article/hotStocksNews/idUSTRE56J58L20090720. 2009]
NEW YORK (Reuters) - Crude oil and global stocks rose on Monday, lifting a number of major indexes to new 2009 highs, on
fresh signs that the U.S. economy is pulling out of recession and as a rescue package for lender CIT sparked optimism about credit
markets. The dollar weakened broadly, slipping to a six-week low against the euro, as investors jumped back into riskier assets
amid further news of solid second-quarter U.S. earnings. Commodities benefited from the improving sentiment. Crude oil settled
just shy of $64 a barrel, copper hit a nine-month high and gold rose more than 1 percent to settle above $950 an ounce for the first
time in more than a month. An index gauging the U.S. economy's prospects increased for a third straight month in June,
suggesting the recession was drawing to a close, the New York-based Conference Board said. The index of leading economic
indicators, which is supposed to forecast economic trends six to nine months ahead, rose 0.7 percent in June following a revised
1.3 percent gain in May. "The confirmation of recovery is coming from top down and bottom up," said Georgina Taylor, equity
strategist at Legal & General Investment Management. "Companies are suggesting that things are starting to improve. Economic
data is stabilizing." Global stocks, as measured by MSCI's all-country world index .MIWD00000PUS, rose to a 2009 high as did
MSCI's emerging markets index .MSCIEF while Asian stocks outside of Japan .MIAPJ0000PUS rose to their highest since world
stocks plunged following Lehman Brothers' collapse last September. In the United States, the benchmark Standard & Poor's 500
.SPX notched its highest close since early November, while for the tech-rich Nasdaq .IXIC had its highest close for the year.
Equity markets built on last week's rally, with Britain's top share index and a regional index of European shares rising for a sixth
straight day. Banks led the surge, while commodity shares jumped on the stronger crude oil and metals prices. The FTSE 100
index .FTSE closed up 1.3 percent at 4,443.62 and the FTSEurofirst 300 .FTEU3 index of top European shares rose 1.2 percent to
881.19. Helping lift U.S. and European shares was news that lender CIT Group Inc (CIT.N) clinched a $3 billion rescue with
bondholders, a person close to the matter said. For more see [ID:nN206604]. CIT rose almost 79 percent to $1.25 a share. CIT 's
private-sector bailout was seen as a sign of health in the credit markets. "I think it's a healthy sign for the market and a sign of
liquidity and a willingness of private participants to step up to the plate," said Tom Alexander, head of Alexander Trading in
Savannah, Georgia. Machinery maker Caterpillar Inc (CAT.N) rose 7.8 percent and was the top boost to the Dow after Bank of
America-Merrill Lynch upgraded the stock to "buy," saying the second quarter may mark a bottom for the construction market.
.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Fiscal D
Fiscal responsibility high – re-instatement of pay-go proves
Steny Hoyer, House Majority Leader, and George Miller, Chair of the House Committee on Education and Labor, 6/25/2009
(http://online.wsj.com/article/SB124588708823850591.html)
President Obama has made the pay-as-you-go rule -- a.k.a. "paygo" -- a central part of his campaign for fiscal responsibility. Under
paygo, Congress is compelled to find savings for the dollars it spends. In the 1990s, paygo proved to be one of our most valuable
tools for climbing out of a budgetary hole. As President Obama put it earlier this month, "It is no coincidence that this rule was in
place when we moved . . . to record surpluses in the 1990s -- and that when this rule was abandoned, we returned to record deficits
that doubled the national debt." President George W. Bush and the Republican Congress set paygo aside, turning borrowed money
into massive tax cuts for the most privileged. Borrowing made those tax cuts politically pain-free as long as Mr. Bush was in
office, but it only passed the bill on to the next generation -- along with ever-inflating interest payments. Democrats, on the other
hand, understand that we owe it to our fiscal future to pay our bills up-front. As soon as our party took back Congress in 2007, we
made the principle of paying for what we buy part of the House rules. To be sure, Congress hasn't always lived up to that
commitment, usually when the Senate rejected House bills that were paid for. But that is all the more reason to give paygo the
force of law. On Mr. Obama's behalf, we have introduced legislation to keep Congress, whether controlled by Democrats or
Republicans, from sacrificing our fiscal health to the political pressures of the moment.
Pay-go signals fiscal discipline
Taylor 7/22
Andrew Taylor, writer for the Associated Press “House passes measure to require 'pay-as-you-go'”
http://www.google.com/hostednews/ap/article/ALeqM5giSoolIfWOKtaayFimI6hMt5Du9QD99JR5LG0
With the deficit smashing records, the Democratic-controlled House passed legislation Wednesday designed to make it more
difficult to pass tax cuts or new spending programs that would pile even more billions of dollars onto it. The legislation, passed by
a 265-166 vote, would reinstate a "pay-as-you-go" statute that requires tax cuts or new benefit programs be paid for with tax
increases or cuts to other programs. If the "pay-go" law is broken and new legislation adds to the deficit, automatic spending cuts
would kick in to make up the difference. By itself, pay-go does nothing to address the government's deficit woes. The deficit for
the current year is estimated to top $1.8 trillion, and the Congressional Budget Office projects unsustainable deficits over the
coming decade. The pay-go measure wouldn't force lawmakers to find the courage to actually do anything to stanch the flow of red
ink; it instead seeks to prevent lawmakers from making it even worse. "By insisting on offsets and deficit neutrality, pay-go
buffers the bottom line," said House Budget Committee Chairman John Spratt Jr., D-S.C. "It is a common-sense rule that everyone
can understand: when you are in a hole, stop digging." If new spending or tax reductions are not offset, there would be automatic
cuts in so-called mandatory programs — although Social Security payments, food stamps and the Medicaid health care program
for the poor and disabled would be exempt and cuts to Medicare would be sharply limited. The idea is that the threat of automatic
cuts would ensure lawmakers wouldn't violate pay-go. Existing rules are routinely waived. But even if pay-go has the force of law,
it can be waived.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
AT: Inflation Now
Bernanke will maneuver a soft landing
Associated Press, 7-21-09 [Associated Press is a newswire article, “Bernanke tells Congress that Fed has exist strategy”, July
21,
2009,
http://www.realclearmarkets.com/news/ap/finance_business/2009/Jul/21/bernanke_tells_congress_that_fed_has_exit_strategy.html
]
Federal Reserve Chairman Ben Bernanke sought to assure Wall Street and Congress Tuesday that the Fed will be able
to reel in its extraordinary economic stimulus and prevent a flare up of inflation when the recovery is more firmly
rooted. Bernanke, in prepared testimony before the House Financial Services Committee, also said any such steps will
be far off in the future and that the central bank's focus remains "fostering economic recovery." To that end, he again
pledged to keep its key bank lending rate at a record low near zero for an "extended period." Economists predict rates
will stay at record lows through the rest of this year. Bernanke is expected to face tough questions from lawmakers
about taxpayer bailouts of financial companies, slow-moving government efforts to curb home foreclosures and efforts
by the Obama administration to expand its regulatory duties.
No inflation absent fiscal irresponsibility
Kaletsky, Former economics editor and now the Editor-at-large of the Financial Times, 7-16-09 [Anatole Kaletsky, Former
economics editor and now the Editor-at-large of the Financial Times, ”Don’t Worry about rate rises, fear stagflation”,
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article6715405.ece]
But what about inflation? Even if unemployment keeps prices and wages down in the next year or two, won’t central
banks want to pre-empt the inflationary threat they have created by printing extra money? Won’t this mean raising
interest rates to normal levels as soon a decent recovery appears? The answer is no. Central banks have certainly
created a lot of money. The so-called monetary base, consisting of cash and the central banks’ electronic deposits, has
roughly doubled in the US and Britain since 2007. However, the creation of all this central bank money has been offset
by shrinking private bank credit, which accounts for a much larger part of the total money supply. As a result, growth in
total money the world over has been very slow, implying that the threat of a purely monetary inflation in the next
few years is almost non-existent. If growth does recover faster than expected, bank lending could revive and
deflationary pressures abate. But even if that happens, central banks are unlikely to raise interest rates quickly. Instead,
the focus of economic policy will shift to the huge expansion of government deficits during the crisis. A revival in
growth will probably be viewed, both by central banks and governments, as a signal for drastic cuts in public spending
and tax increases to reduce deficits.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness - Won’t Switch From the Dollar Now
Dollar will remain the reserve currency – treasury secretary concludes
Reuters 7/17/2009 (http://www.washingtonpost.com/wp-dyn/content/article/2009/07/17/AR2009071700645.html)
Geithner, who has just finished a 4-day trip to Europe and the Middle East, noted there had already been an increase in the U.S.
savings rate. "I tend to think that for households it's a lasting change in behavior. But we do not know how long that will last," he
said. He said it was not yet the moment to decide whether the United States needed a second stimulus plan. Geithner repeated his
belief that the U.S. dollar would remain the world's reserve currency. "The dollar plays a very important role in the international
financial system and I think it will stay the main reserve currency," he said.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Brink
Obama has capped social service spending
Pannepento
5/7/2009
[Pannepento
writer
for
the
chronicle
of
philanthropy
May
http://philanthropy.com/news/government/8169/obama-budget-would-eliminate-some-social-services-programs]
7
The Obama administration’s proposed 2010 budget would eliminate money for some social-services programs that had
been staples of the Bush era. Several other longstanding programs would receive about as much as they do now. The
White House would eliminate spending for the Compassion Capital Fund, which helps charities and religious
groups provide social services through the Department of Health and Human Services. The fund received $48-million in
2009. Mr. Obama sought no money for abstinence education; the government now spends about $133-million on
such efforts. Mr. Obama is, however, asking for $164-million for programs designed to reduce pregnancy among
teenagers. The budget also proposed no money for a program that now offers about $10-million to rural community
facilities. Several other programs to provide services to children and families would receive the same amount as they
did in fiscal 2009. Child-welfare services, for example, would receive $242-million — the same amount set aside for
such services in 2009. The department’s Social Service Block Grant program would also remain flat at $1.7-billion. The
program supports groups that provide services to low-income families and individuals, including day care, employment
counseling, home meal delivery, and transitional housing.
Premature pullout always fails
2009
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Dollar Heg Brink
China already making moves against the dollar – the brink is now
Willie, statistical analyst with a Ph.D in Statistics, 09 (Jim, “Chinese Diversification Strategy”, Hat Trick Letter, 4/23/2009,
http://www.financialsense.com/fsu/editorials/willie/2009/0423.html)
Since last December, China has signed deals with six countries, including Indonesia, South Korea, Hong Kong, Malaysia, Belarus,
and most recently Argentina, for currency swaps that would inject Chinese money into foreign banking systems. That would allow
foreign companies to pay for goods they import from China in yuan, bypassing the USDollar. This is an international settlement
function. Beijing is taking initiatives to use the yuan to settle trade accounts between some Chinese provinces and neighboring
states, starting with Hong Kong. Shanghai and the four cities Guangzhou, Shenzhen, Dongguan and Zhuhai have been designated
to use the yuan in overseas trade settlements, ordered by a State Council under the auspices of Premier Wen Jiabao. This Pearl
River Delta region is the location of the biggest concentration of export oriented factories. The motive is to reduce the risk from
exchange rate fluctuations, and to encourage their overseas trade in decline. Chinese officials have called attention to the risks of
an international monetary system that relies on the USDollar, seen as increasingly unstable and subject to further indirect
devaluation. A broad campaign has been underway for a couple months that seems coordinated, with participation by many bank
and economic leaders.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – Dollar Dumping
China is sending a signal that the US needs to be fiscally responsible – decreased treasuries prove
AFP, 6-18-09
(Agence France-Presse, dedicated broadcast journalists in 30 production centres around the world producing
daily reports, features and interviews, 6-18-09, China selling US bonds 'to show concern, Brisbane Times:
Business Day, http://news.brisbanetimes.com.au/breaking-news-business/china-selling-us-bonds-to-showconcern-20090618-cicd.html
A decision by China to reduce its US Treasury holdings suggests concern about the US attitude towards its economic woes,
Chinese economists were quoted as saying in state media. The remarks, coming after US data showed a modest decline in Chinese
investments in US government bonds, were in contrast to an earlier statement in Beijing which had said the recent sell-off was a
routine transaction. "China is implying to the US, more or less, that it should adopt a more pragmatic and responsible attitude to
maintain the stability of the dollar," He Maochun, a political scientist at Tsinghua University, told the Global Times. According to
US Treasury data issued Monday, Beijing owned $US763.5 billion ($A960.62 billion) in US securities in April, down from
$US767.9 billion ($A966.16 billion) in March. It was the first month since June 2008 that Beijing failed to purchase more US Tbills.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Uniqueness – AT: Econ Down****
The Economy has stabilized- the weak industries have zeroed out
Alan S. Blinder, Chair Professor of the Princeton Economics Department and former vice Chairman of the
Federal Reserve current vice chairman of the Promontory Interfinancial Network, 7/23/2009 The Economy
has hit bottom, http://online.wsj.com/article/SB10001424052970203946904574300290585964718.html
How’s the economy, you ask? I have the proverbial good news and bad news, but in this case, they’re exactly the same:
The U.S. economy appears to be hitting bottom. First, the good news. Right now, it looks like second-quarter GDP
growth will come in only slightly negative, and third-quarter growth will finally turn positive. Compared to the
catastrophic decline we recently experienced—with GDP dropping at roughly a 6% annual rate in the fourth quarter of
last year and the first quarter of this year—that would be a gigantic improvement. Furthermore, there is a reasonable
chance—not a certainty, mind you, but a reasonable chance—that the second half of 2009 will surprise us on the upside.
(Can anyone remember what an upside surprise feels like?) Three-percent growth is eminently doable. Four percent is
even possible. Surprised? How, with all our economic travails, could we possibly mount such a boom? The answer is that
this seemingly high growth scenario isn’t a boom at all. Rather, it follows directly from the arithmetic of hitting bottom.
Bear with me for two paragraphs while I do some numbers. In recent quarters, several critical components of GDP have
declined at truly astounding annual rates—like minus 30% and minus 40%. You know the culprits: housing, automobiles
and business investment. (Also inventories, about which more later.) Eventually, those huge negative numbers must turn
into (at least) zeroes. Notice that the move to zero doesn’t constitute a boom, not even a dead cat bounce, but merely the
cessation of catastrophic decline. In fact, hitting zero growth and staying there would be a disaster scenario. We’ll almost
certainly do better. But watch what happens when—and remember, it’s when not if—the arithmetic of bottoming out
takes hold. Housing, which is down to 2.6% of GDP, will serve as an example. In the first quarter, spending on new
homes declined at a stunning 39% annual rate. If that minus 39% number turned into a zero in a single quarter, that
change alone would add a full percentage point to that quarter’s GDP growth (because 2.6% of 39% is about 1%). If the
move to zero were to happen over two quarters, it would add about a half point to each. Many people think housing may
in fact bottom out in the third or fourth quarter. Autos may already have passed their low point. And business investment
will follow suit. Now back to inventories. Recent quarters have seen an almost unprecedented liquidation of inventory
stocks, which means that American businesses were producing even less than the paltry amounts they were selling. That,
too, must come to an end. As inventory change turns from a large negative number into just zero, GDP will get another a
big boost. Now the key point: None of these events are probabilities; they are all certainties. The only issue is timing,
about which we can only guess. But if several of these GDP components happen to bottom out at roughly the same time,
we could be in for a big quarter or two. Feeling a little better? There’s more. Remember the fiscal stimulus that everyone
seems to be complaining about? One of the critics’ complaints is that little of the stimulus money has been spent to date.
OK. But that means that most of the spending is in our future. And remember all those interest-rate cuts the Federal
Reserve engineered in 2008, in a futile effort to stem the slide? The Fed’s efforts were futile largely because widening
risk and liquidity spreads negated any impacts on the interest rates real people and real businesses pay to borrow. Now
those spreads are narrowing, which allows the Fed’s rate cuts to start showing through to consumer loan rates, business
loan rates, corporate bond rates, and the like. In short, monetary stimulus is in the pipeline—a pipeline that was formerly
blocked. So why, then, is everyone feeling so blue? That brings me to the bad news: The U.S. economy is hitting bottom.
If things feel terrible to you, you’re not hallucinating. Economic conditions are dreadful at the bottom of a deep recession.
Jobs are scarce. Layoffs abound. Businesses scramble for penurious customers. Companies go bankrupt. Banks suffer
loan losses. Tax receipts plunge, ballooning government budget deficits. All this and more is happening right now, in
what looks to be this country’s worst recession since 1938. At such a deep bottom, few people have reason to smile.
(Bankruptcy lawyers maybe?) What’s more, GDP is not terribly meaningful to most people. Jobs are—but they will take
longer, maybe much longer, to revive. The last two recessions, while shallow, illustrated painfully that job growth may
not resume for months after GDP bottoms out. And the unemployment rate won’t fall until job growth rises “above trend”
(say, 130,000 net new jobs per month). That’s a long way from where we are today. So, even though the economy may be
making a GDP bottom about now, the unemployment rate will probably keep rising for months—which is bad news for
most Americans. One last, obvious, but unhappy, point: The bottom of a deep recession leaves the nation in a deep hole.
Our economy now has massive unemployment and vast swaths of unused industrial capacity. It will take years of strong
growth to return to full employment. After the last big recession bottomed out at the end of 1982, the U.S. economy
rebounded sharply, with a remarkable six-quarter spurt in which annual GDP growth averaged 7.7%. That spurt induced
President Ronald Reagan, running for reelection in 1984, to declare “It’s morning again in America.”
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
Spending on social service programs would create investor unease and cause investor sell-off off
Treasury bonds
Irwin, Staff writer for the Washington Post covering the economy, 6-4-9 [Neil Irwin, Staff writer for the Washington Post
covering the economy, June, 4th, 2009, “Bernanke Presses for Fiscal Restraint”, http://www.washingtonpost.com/wpdyn/content/article/2009/06/03/AR2009060301367.html]
The nation needs to begin planning now to eventually bring taxes and spending in line, Federal Reserve Chairman Ben
S. Bernanke said yesterday, arguing that large budget deficits, if sustained, could deepen the financial crisis and choke
off the economy. Bernanke's testimony to Congress reflected growing concern among economists and investors that the
nation's long-term fiscal imbalances could stand in the way of economic recovery by driving up the interest rates that
the government, businesses and consumers pay to borrow money. The rate the government pays has already risen in
recent weeks. The Fed chairman argued that even as the government spends massive amounts of money to contain the
financial crisis, it must be prepared to move toward fiscal balance. "Congress and the administration face formidable
near-term challenges that must be addressed," Bernanke told the House Budget Committee. But "unless we demonstrate
a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy
economic growth." The financial crisis is driving the country deeply into the red, with the national debt projected to
double from about 41 percent of the economy last year to more than 82 percent by the end of the next decade.
Thereafter, things will only get worse, budget analysts say, as the baby boom generation lays claim to benefits from
Social Security and costly federal health programs. So far, President Obama has offered no plan to rein in those costs,
though he has stressed the importance of reducing the deficit generally. Bernanke frequently delivers messages on the
need for fiscal responsibility to congressional budget committees. But his comments yesterday carried more weight
given recent swings in the market for Treasury bonds. In particular, the global investors who finance the nation's large
budget deficits have grown more antsy. The U.S. Treasury must now pay 3.5 percent to borrow money for 10 years -low by historical standards, but up from about 3.1 percent a month ago and 2.9 percent three months ago. The increase
has come even as the Fed has launched a program to buy up to $300 billion in Treasury bonds -- purchases designed to
push down rates and did, when the program was rolled out in March. The higher rates for government borrowing have
many likely causes, and some of those reflect improvement in financial markets. For example, as investors have become
more comfortable investing in risky assets such as stocks, they have been willing to move money out of safe U.S.
Treasury bonds and into other investments. But other reasons for the shift are less positive. Investors are also worried
that Congress and the Obama administration will continue to rely heavily on borrowed money to fund the government
and thus are demanding a higher premium to lend it money. "These increases appear to reflect concerns about large
federal deficits," Bernanke said in his testimony, before naming other causes that are also playing a role. Some analysts
worry that the Fed will succumb to political pressure in the future to effectively print money to fund government
borrowing -- a process known as monetizing the debt. Two congressmen raised that possibility explicitly in yesterday's
hearing. "This can be a dangerous policy mix. The Treasury is issuing debt. And the central bank is buying it," said Rep.
Paul D. Ryan (R-Wis.). "It gives the alarming impression that the U.S. one day might begin to meet its financial
obligations by simply printing money. And we all know what happens to a country that chooses to monetize its debt. It
gets runaway inflation, a gradual erosion of workers' paychecks and family savings." Bernanke said that the Fed takes
its political independence seriously, and while it is now focused on using all the tools at its disposal to ease the pain of
the recession, it will respond aggressively if inflation becomes a problem. The Fed has given no strong indication of
whether it will expand its purchases of Treasury bonds. Without doing so, though, the Fed would have less flexibility to
stimulate the economy. It has already cut a key interest rate it controls to nearly zero. "They definitely have less leeway"
to buy more Treasury bonds, said Michael Feroli, an economist at J.P. Morgan Chase. "The Fed hasn't done a stellar job
of communicating its strategy" with the bond purchases, which, he argued, has allowed the discussion to be dominated
by people who argue that the Fed's actions are effectively monetizing the debt. Doing so would increase the money
supply, thereby weakening the dollar and leading to high inflation. One thing that would help assuage those fears would
be for government leaders to signal that they will manage the nation's finances well in the long run. That would tend to
keep long-term interest rates low, which in turn would help encourage an economic recovery. Bernanke, as is his habit,
did not recommend specific ways that Congress should aim to reduce long-term budget deficits; he views tax and
spending decisions as the domain of elected officials. "In the end, the fundamental decision that the Congress, the
administration and the American people must confront is how large a share of the nation's economic resources to devote
to federal government programs, including entitlement programs," Bernanke said. "Crucially, whatever size of
government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending
and revenues in the long run."
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
Increased entitlement spending creates fiscal crisis
Crane, founder and president of the Cato Institute, 2009
(Edward H. Crane, founder and president of the Cato Institute, 2009, “Cato Handbook on Policy,” Cato
Institute, http://books.google.com/books?id=OOgV_Eu-ASAC&printsec=frontcover&source=gbs_navlinks_s)
Given the difficult of amending the Constitution, statutory changes
to budget rules can provide a way forward
to control spending. In particular, a cap should be placed on the overall annual growth in federal
outlays. While the Budget Enforcement Act imposed multiyear caps on discretionary spending,
entitlement spending was not capped. Yet it is mainly entitlement spending that is pushing the
government toward financial crisis, and thus entitlements should be included under a federal budget
cap.
Social service spending is expensive
Riedl 07 [Brian M. Riedl April 17, 07 Senior Policy analyst of Budget Affairs "What your Taxes go for"
http://www.heritage.org/Press/Commentary/ed041707b.cfm
Washington will spend $24,106 per household in 2007 the highest total since World War II, and an
inflation-adjusted $4,000 more than in 2001. The federal government will collect $21,992 per
household in taxes. The remaining $2,114 represents this year's budget deficit per household, which,
along with all prior government debt, will be dumped in the laps of our children. Washington will
spend this $24,106 per household as follows: Social Security/Medicare: $8,301. The 15.3 percent payroll tax, split evenly between the employer and
employee, covers most of these costs. This system can remain sustainable only if there are enough workers to support all retirees, which is why it risks collapsing under the weight of 77 million retiring
Baby Boomers. If nothing is done, taxes eventually will need to rise by $11,651 per household (adjusted for both inflation and rising incomes) to pay all promised benefits. Defense: $4,951. The
defense budget covers everything from military salaries to operations in Iraq and Afghanistan to the research, development and acquisition of new technologies. Lawmakers drastically reduced defense
spending following the collapse of communism in the early 1990s. The September 11, 2001, attacks reversed this trend, and the inflation-adjusted $1,618 per household increase since 2001 has
Anti-poverty programs: $3,550. Nearly half of this spending subsidizes
state Medicaid programs that provide health services to poor families. Other low-income spending
includes: Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, childcare subsidies, Supplemental Security Income (SSI) and low-income tax credits. Despite recent
rhetoric about "cuts for poor," federal anti-poverty spending now tops 3 percent of gross domestic
product (GDP) for the first time ever, and state and local governments add another 2 percent of
GDP.
returned defense spending closer to its historical levels.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
Social spending exacerbates economic decline.
Boskin 7-22
professor of economics at Stanford University and senior fellow at the Hoover Institution (09, “Obama Needs a Move
to the Middle”, Michael J. Boskin, The Wall Street Journal,
http://online.wsj.com/article/SB10001424052970203946904574302332578189864.html?mod=googlenews_wsj)
While strong recoveries sometimes follow deep recessions, historically recoveries following financial crises have been
slow and painful. The specter of massive future tax hikes and inflation is worsening the outlook . We
need a better, more coherent policy path back to a strong market economy—not to a European style
social-welfare state, permanent government lifelines and stagflation.
The last time we had a comparable economic crisis—the double-digit inflation, 20% interest rates, near 11%
unemployment, and even larger inflation-adjusted stock market decline of the late 1970s and early ’80s—a new policy
path was charted consisting of low tax rates, sound money, slower spending growth, free trade and less intrusive
regulation. Those policies pulled us out of stagflation and led to a quarter-century of growth. Moving so far in
the exact opposite direction invites eventual disaster for American workers and firms.
Social spending hurts the economy and American diplomacy
Shoup 7-20
Staff Writer (09, Bob, “Preparing for the coming economic tsunami”, Canada Free Press,
http://canadafreepress.com/index.php/article/13048)
The U.S. Debt
Following many years of deficit spending and massive social entitlement programs, the U.S. is now
saddled with a tremendous debt. Like a family addicted to credit cards, we, as a country, continue to live
above our means. According to the debt clock the current U.S. National Debt is $11.5 Trillion dollars
and increasing at a rate of $3.9 Billion A DAY. To give you a feel for the size of that number, there are just
over 3 Billion seconds in 100 years. It takes 45,000 years to have a Trillion seconds.
The simple fact is that we, as a Nation, can not sustain this rate of debt increase. To pay the current debt off, every man,
woman, and child in the U.S. will need to contribute, by way of taxes, just under $40,000. Unfortunately, most
Americans could not “contribute” anywhere near that amount.
The nature of that debt
Of our $11.5 Trillion Dollar debt, $4.4 Trillion is in Intergovernmental Holdings. These include various Federal
obligations such as the Federal Old Age and Survivors Insurance Trust Fund, aka Social Security (2.2 Trillion), the
Federal Employees Retirement funds ($740 Billion) and a number of other government funds. The remaining $7.1
Trillion dollars of U.S. debt is held by the public, which includes notes, bills, bonds, and other debt instruments.
Of our public debt, almost half is held by foreign countries and foreign-based companies. Of the
foreign held debt, the Peoples Republic of China holds 24% and Japan holds almost 21%. As a result,
“Foreign interests have more control over the US economy than Americans, leaving the country in a
state that is financially imprudent. More and more of our debt is held by foreign countries – some of
which are our allies and some are not. The huge holdings of American government debt by
countries such as China and Saudi Arabia could leave a powerful financial weapon in the hands
of countries that may be hostile to US corporate and diplomatic interests.” David Walker, the US
comptroller general. 23 July 2007.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
Social service spending destroys investor confidence and exacerbates economic instability
Hall 7-19
Staff Writer for McClatchy Times (09, “Ballooning federal deficits putting US in dire straits”, Kevin G, Arizona Star,
http://www.azstarnet.com/business/301459)
WASHINGTON — As
the Obama administration wrestles with how to pay for a costly revamp of the
health-care system and whether to spend more to spark a nearly lifeless economy, it faces shrinking fiscal
room to maneuver. With each passing day, the outlook for the government's finances grows dimmer.
Skyrocketing federal budget deficits increasingly are limiting the government's ability to take on
new financial commitments. Investors also are starting to worry about something once unthinkable:
that the U.S. government could default on its debts someday.
The federal budget deficit is the annual sum of what government spends beyond what it collects in revenues. This year's
deficit is on course to balloon to a figure equivalent to 12 percent of the nation's gross domestic product, the total annual
value of all goods and services produced.
That's double the peak Reagan-era deficit, which was the post-World War II high until now.
A June study by the Brookings Institution, a center-left policy research group, found that current increases in spending
and continuation of most George W. Bush-era tax cuts will combine to produce a 10-year deficit of $9.1 trillion. That
will drive interest payments on the national debt — the total of accumulated annual deficits — to about 3.8 percent of
the GDP by 2019. Worries about sustainability
Interest payments on the debt that high would surpass defense spending as a percentage of the GDP.
Taxpayers would get nothing in return. All that spending on interest would go only to holders of
government bonds who'd financed the past deficit spending.
"All of these figures are poised to rise further after 2019, implying that the situation is unsustainable," wrote the
Brookings authors, William Gale and Alan Auerbach.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
Social Services always snowball – once one is passed others come along
Haulk and Gamrat, Ph. D. and President/Senior Research Associate for Allegheny Institute for Public Policy, 07
Jack Haulk and Frank Gamrat, Ph. D. and President/Senior Research Associate for Alleghemy Instiute for Public Policy, 7-607, Alleghemy Institute
The Governor and Budget Secretary warn advocates of spending caps that they “must be prepared to explain how they
propose to restrain growth in the very limited number of programs with high rates of spending. They then postulate
worse case scenarios showing how people will be harmed by drastic cuts to social service programs. The problem
with this argument is that rapid growth in social services spending inevitably begets demand for more
spending. Besides, no one is seriously recommending cutting social services spending drastically or
otherwise. However, there is a clear and overwhelming need to slow their rate of increase. It’s an old
rhetorical trick: Claim that advocates of slower growth are calling for drastic cuts when that is obviously not the case. In
any event, if health and social services spending increases are deemed of overriding importance by the Governor and
the Legislature, a spending cap would simply mean having to decide which budget items rank lower on the funding list
and cut those.
New spending on social services hurts growth - mismanagement
Edwards, Director of fiscal policy studies at the Cato Institute, 04
Chris Edwards, Director of fiscal policy studies at Cato, 6-2-04, Cato, “Downsizing the Federal
Government,” No. 515
Federal spending has grown rapidly in recent years, rising 35 percent between fiscal years 1999 and 2004.1 Congress
and the president have driven the budget deep into deficit just a few years before the costs of entitlements for the elderly
soar when the babyboom generation starts retiring in 2008. Rising entitlement costs would be a huge fiscal
challenge even if the rest of the federal government were lean and efficient. But unneeded programs
are found throughout the federal budget, and mismanagement is widespread. Experts agree that
entitlement programs should be overhauled, but the rest of the government also needs major reforms. Some of
the agencies recently making headlines for gross mismanagement include the Army Corps of Engineers, the Bureau of
Indian Affairs, the Department of Energy, the Federal Bureau of Investigation, and the National Aeronautics and Space
Administration.2 Even the National Zoo in Washington has been grossly mismanaged in recent years.3 The Office of
Management and Budget’s most recent “scorecard” of federal agency performance includes only 8 green grades for
good performance out of 130 total grades given.4 A major report on federal performance by the Senate
Committee on Government Affairs in 2001 concluded that the government has “terrible”
management and a “staggering” problem of waste, fraud, and abuse.5
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
The administration of the program will cost billions
Edwards, Director of fiscal policy studies at the Cato Institute, 04
Chris Edwards, Director of fiscal policy studies at Cato, 6-2-04, Cato, “Downsizing the Federal
Government,” No. 515
Federal spending requires the extraction of resources from the private
sector and the substitution of political preferences for the private preferences of individuals . Do
government activities create higher value than the private activities that are forgone? Many federal
activities do not. Much spending is wasteful—either mismanaged, duplicative, or ineffective. Wasteful
programs can be thought of as those the benefits of which are less than the added burden on taxpayers. Some federal
programs are worse than wasteful—they are actively damaging. Such programs can negatively
affect Americans in a number of ways beyond the tax costs. First, programs can damage the
economy and reduce income levels. Second, programs can restrict individual freedom. Third, programs can
Actively Damaging Programs
create negative social consequences. Fourth, federal programs can damage the environment. Those negative effects are
discussed in turn. Economic Damage Many federal programs damage the economy beyond the added cost of taxes
needed to fund them. For example, the government operates a huge regulatory structure that pushes up production costs,
stifles business innovation, and restricts consumer choice. Wayne Crews summarizes the scope of the federal
regulatory state in his annual report “Ten Thousand Commandments.”146 His latest figures show that the budget
cost of administering federal regulations is about $25 billion annually, but the cost to the economy
of federal regulations is about $860 billion annually.147 Many regulations aim at particular social
ends, while others are supposed to help the economy. Yet even the regulations that are supposed to
help the economy can end up damaging it. Consider federal antitrust policy. The antitrust bureaucracies in the
Depart- ment of Justice and the Federal Trade Commission will cost $215 million this year.148 But the economic harm
created by antitrust laws might be much higher than that. Antitrust laws restrict commercial freedom on the assumption
that the government knows best how markets should be organized. But the government does not have sufficient
knowledge to make such determinations, and its interventions are hit-or-miss at best. Antitrust laws are more than a
century old, and experts still have no clear rules to determine when intervention might be a good idea. Two top
Brookings Institution scholars recently surveyed a century of antitrust policy and found “little empirical evidence that
past interventions have provided much direct benefit to consumers or significantly deterred anticompetitive behavior.”
149 Indeed, the authors discuss numerous large cases in which the government got it wrong and pursued actions that
damaged the economy.
Social service spending increases taxes and creates an environment hostile to business and investment
Pandya, PhD., global risk advisor, CEO of Risk Group, ‘09
Jayshree Pandya, global risk advisor, CEO of Risk Group, 3-3-09, “Are Welfare Nations at Risk in Globalizing
Economies?,” Risk Group Blog, (Risk Group is an independent, non-partisan, neutral, pro-active and
progressive global organization addressing the risks, issues, obstacles and challenges facing the global
community and its impact across the industries, nations, regions and societies.),
http://www.riskgroupllc.com/blog/2009/02/24/are-welfare-nations-at-risk-in-globalizing-economies/)
Globalization and rapidly changing environment is probably necessitating need for limits or elimination on social spending by
nations and its governments. Significant changes are occurring globally from the way we work, the way we learn to the way we
adapt. Amidst these changing global fundamentals, Nations, its industries and businesses are struggling to stay competitive and
profitable. It is therefore very important that nations and its governments maintain or create a business friendly environment within
their respective nations. Social welfare programs are directly proportional to higher taxes. In the pursuit of getting votes and
staying in power, Nations and its governments irresponsibly increase taxes to finance social spending agenda. When nation’s
policies fail to adapt to changing global fundamentals and governments deliberately use welfare and other social programs as a
tactic to get votes and stay in power, there are significant risks that nation’s faces in the globalizing economies. Nations need to
create an environment of growth, competition, education, employment, opportunity, innovation and adaptation over welfare and
dependencies
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
Social spending (especially health care) is causing a debt scare – just the appearance of spending is
enough to kill investor confidence
Reich, 22nd Secretary of Labor and is a professor at the University of California at Berkeley, ‘09
(Robert Reich, 22nd Secretary of Labor and is a professor at the University of California at Berkeley, 6-10-09,
“The Great Debt Scare: Why Has It Returned?,” Robert Reich’s Blog,
http://robertreich.blogspot.com/2009/06/great-debt-scare-why-has-it-returned.html)
The Great Debt Scare is back. Odd that it would return right now, when the economy is still mired in the
worst depression since the Great one. After all, consumers are still deep in debt and incapable of buying.
Unemployment continues to soar. Businesses still are not purchasing or investing, for lack of customers. Exports are still dead,
because much of the global economy continues to shrink. So the purchaser of last resort -- the government -- has to create larger
deficits if the economy is to get anywhere near full capacity, and start to grow again. Odder still that the Debt Scare returns
at the precise moment that bills are emerging from Congress on universal health care, which, by almost
everyone’s reckoning, will not increase the long-term debt one bit because universal health care has to be
paid for in the budget. In fact, universal health care will reduce the deficit and cumulative debt -- especially
if it includes a public option capable of negotiating lower costs from drug makers, doctors, and insurers, and
thereby reducing the future costs of Medicare and Medicaid. Even odder that the Debt Scare rears its
frightening head just as the President’s stimulus is moving into high gear with more spending on
infrastructure. Every expert who has looked closely at the nation’s crumbling infrastructure knows how badly it suffers from
decades of deferred maintenance -- bridges collapsing, water pipes bursting, sewers backed up, highways impassable, public transit
in disrepair. The stimulus, along with the President’s long-term budget, also focus on the nation’s schools, as well as America’s
capacity to reduce emissions of greenhouse gases. These public investments are as important to the nation’s future as are private
investments. First, some background: Deficit and debt numbers mean nothing in and of themselves. They take on
meaning only in relation to something else. And the most important something else, in terms of deciding
whether the nation can afford such deficits or debts, is the size of the national economy.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services
Social spending by Obama is tantamount to declaring war on investors.
Kudlow, anchor, The Kudlow Report, Money and Politics, ‘09
(Larry Kudlow, anchor, The Kudlow Report, Money and Politics, 2-27-09, “Obama Declares War on Investors,
Entrepreneurs, Businesses, And More,” CNBC, http://www.cnbc.com/id/29434104) [DH]
Let me be very clear on the economics of President Obama’s State of the Union speech and his budget. He is declaring
war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds. That
is the meaning of his anti-growth tax-hike proposals, which make absolutely no sense at all — either for this recession
or from the standpoint of expanding our economy’s long-run potential to grow. Raising the marginal tax rate on
successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a
repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program,
which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.
This is nearly double the government-spending low-point reached during the late 1990s by the Gingrich Congress and
the Clinton administration. While not quite as high as spending levels in Western Europe, we regrettably will be gaining
on this statist-planning approach. Study after study over the past several decades has shown how countries that spend
more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts. And as far as
middle-class tax cuts are concerned, Obama’s cap-and-trade program will be a huge across-the-board tax increase on
blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent
production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less. The tax
hikes will generate lower growth and fewer revenues. Yes, the economy will recover. But Obama’s rosy scenario of 4
percent recovery growth in the out years of his budget is not likely to occur. The combination of easy money from the
Fed and below-potential economic growth is a prescription for stagflation. That’s one of the messages of the falling
stock market. Essentially, the Obama economic policies represent a major Democratic party relapse into Great Society
social spending and taxing. It is a return to the LBJ/Nixon era, and a move away from the Reagan/Clinton period. House
Republicans, fortunately, are 90 days sober, as they are putting up a valiant fight to stop the big-government onslaught
and move the GOP back to first principles. Noteworthy up here on Wall Street, a great many Obama supporters —
especially hedge-fund types who voted for “change” — are becoming disillusioned with the performances of Obama
and Treasury man Geithner. There is a growing sense of buyer’s remorse.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Social Services – Perception
It is about perception – the news cycle controls investment decisions
Johnson, Economic Analysts for Reuters, 5-25
Steven C. Johnson, economic analysts for reuters, 5-25-09, Reuters
Some analysts say the dollar will rebound later this year as U.S. policies start to help the economy recover,
allowing the Federal Reserve to raise interest rates before other central banks and increasing the dollar's
allure. Indeed, if the euro and yen get much stronger, Marta said, Germany and Japan may increase Treasury purchases, which
"would have a salutary effect." But for now, the bears are in control, with all the major market themes translating
into dollar weakness. "If the news stream is good, we are told investors are less risk averse and do not need
the dollar's security," said Brown Brothers Harriman currency strategist Marc Chandler. "If the news stream is poor, we
are told the U.S. is in horrific shape and the budget deficit will swell even more. It is difficult to see what
will break this psychology in the coming weeks."
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Deficit Spending
Social services create precedent for runaway deficit spending
Wall Street Journal 9
(“The Deficit Spending Blowout”, January 8, http://online.wsj.com/article/SB123137375313762735.html)
We've long argued that deficits per se are not worth losing sleep over, though we do recall when Robert Rubin and
Larry Summers claimed that reducing them was itself an economic virtue because it reduced interest rates. With their
acquiescence in the magnitude of these deficits, we trust they will now admit to burying Rubinomics as a serious
economic philosophy. Democrats are once again all Keynesians now -- at least until they want to use the deficits as an
argument to raise taxes in a year or two.
As an economic matter, it does make sense to run deficits in a recession rather than to raise taxes in a way that would
delay any recovery. Borrowing money to finance a war (Reagan's aircraft carriers in the 1980s) or to pay for tax cuts
that promote growth (Reagan and Bush's tax cuts) is often money well spent. Had bipartisan Washington passed a big
pro-growth tax cut a year ago, rather than settle in February for $165 billion in no-growth rebates and spending, the
economy would be stronger and the deficit lower today.
The economically crucial issue for the long term is how much the government spends, because that is what becomes a
claim on current or future taxpayers. This is where the CBO forecast gets scary. Including the Obama stimulus spending
and assuming the full $700 billion of bailout money for the banks, insurance companies, auto firms and so forth gets
fully spent, federal outlays could approach $4 trillion in 2009. That's double the $2 trillion Congress spent only seven
years ago.
Federal expenditures are now rapidly outpacing the growth of the economy, which is expected to be negative this year.
CBO estimates that even before the stimulus federal spending will climb to an all-time high 24.9% of GDP, up from the
previous post-World War II high of 23.5% in 1985. Add the stimulus and bailout cash and we estimate the federal
spending share of GDP will climb to 27.5%. All of this is fast pushing the U.S. to European spending levels, and that's
before Mr. Obama's new health-care entitlements.
The problem with most of this spending is that it will be hard to stop once it becomes part of the annual CBO baseline. Congress
never reduces spending year over year. While much of the $700 billion in Troubled Asset Relief Program money will probably be
returned to the Treasury as banks redeem the government's preferred shares, Congress will want to turn around and spend that cash
on other things unless the Obama Administration says no.
Current spending will not trigger a crisis, but more deficit spending would lead to an inability to sell
treasury debt, causing a rise of interest rates and leading to a worldwide crisis
Samuelson, contributing editor to Newsweek and The Washington Post where he has written about economic issues since 1977,
5-18-9[Robert J. Samuelson, contributing editor to Newsweek and The Washington Post where he has written about economic
issues since 1977, May, 18th, 2009, Barak Obama’s Risky Deficit Spending Strategy”,
http://www.realclearmarkets.com/articles/2009/05/barack_obamas_risky_deficit_sp.html
It's true that since 1961 the federal budget has run deficits in all but five years. But the resulting government debt has consistently
remained below 50 percent of GDP; that's the equivalent of a household with $100,000 of income having a $50,000 debt. (Note:
Deficits are the annual gap between government's spending and its tax revenue. The debt is the total borrowing caused by past
deficits.) Adverse economic effects, if any, were modest. But Obama's massive, future deficits would break this pattern and
become more threatening. At best, the rising cost of the debt would intensify pressures to increase taxes, cut spending -- or create
bigger, unsustainable deficits. By the CBO's estimates, interest on the debt as a share of federal spending will double between 2008
and 2019, to 16 percent. Huge budget deficits could also weaken economic growth by "crowding out" private investment. At
worst, the burgeoning debt could trigger a future financial crisis. The danger is that "we won't be able to sell [Treasury debt] at
reasonable interest rates," says economist Rudy Penner, head of the CBO from 1983 to 1987. In today's anxious climate, this hasn't
happened. American and foreign investors have favored "safe" U.S. Treasurys. But a glut of bonds, fears of inflation -- or
something else -- might one day shatter confidence. Bond prices might fall sharply; interest rates would rise. The consequences
could be worldwide because foreigners own half of U.S. Treasury debt
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Deficit Spending
High Spending will be seen as counter-productive and cause investors to bail
Epstein, Professor of Law at the University of Chicago, 7-21-09 [Richard A. Epstein, the James Parker Hall Distinguished
Service Professor of Law at the University of Chicago, “Why the Obama Stimulus Plan Must Fail”,
http://www.forbes.com/2009/07/20/obama-stimulus-plan-fail-opinions-columnists-richard-a-epstein.html]
Ideally, we should like to organize spending so that the marginal dollar spent in each sector has equal value. But that
won't happen if the government proposals are uninformed efforts to spur industrial policy. The president takes pride that
he is spending on clean energy sources. But he never explains why he gives to certain energy companies and not to
others. In the end, the likely result will be that the unwise government programs will drive out better private ones. On
net, shrinking productivity translates into fewer jobs, which explains the spike in unemployment rates. To these first two
strikes, we should add a third. The president and the Democrats are now in control of Congress. The Republicans are in
disarray. So we have to face these grim prospects: continued record deficits, a huge nationalization of health care, the
imposition of heavy carbon taxes, an insane Employee Free Choice Act and higher tax rates and special assessments in
2011 on the most productive individuals of our society. Today's investors have figured out that tomorrow does not look
so rosy. So they are holding back on investment until the storm passes. No new investment, no new jobs. As libertarians
well know, each new extension of government power should be examined under a presumption of error. By that
standard, the president's stimulus package--indeed his entire legislative program--should be scrapped.
Large deficits would make borrowing unsustainable by 2020
Kaletsky, Former economics editor and now the Editor-at-large of the Financial Times, 7-16-09 [Anatole Kaletsky, Former
economics editor and now the Editor-at-large of the Financial Times, ”Don’t Worry about rate rises, fear stagflation”,
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article6715405.ece]
If governments do undertake large fiscal retrenchments from 2011 on, the last thing central bankers will want to do is to
risk another slump by raising rates significantly. But what if governments do nothing to reduce their deficits in 2011
and beyond? This brings me to the bad news: the three genuine dangers that lie ahead. The first is that nothing is done
to rein in public borrowing, even after a world recovery. A political consensus seems to be forming in America and
Britain for large-scale deficit reduction starting in 2011, but this could be an illusion. If so, trouble would lie ahead in
the very long-term future as current levels of government borrowing might become unsustainable by around 2020. But
excessive borrowing by profligate governments is only a potential problem for the long-term future, after the world
economy has recovered, not an immediate threat.
Plan is perceived as fiscal irresponsibility, freaking out investors worldwide
Kaletsky, Former economics editor and now the Editor-at-large of the Financial Times, 7-16-09 [Anatole Kaletsky, Former
economics editor and now the Editor-at-large of the Financial Times, ”Don’t Worry about rate rises, fear stagflation”,
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article6715405.ece]
The second genuine danger is the need for a rebalancing of the world economy between countries with excess
consumption — the US, Britain and the periphery of the eurozone — and those with excess savings and production,
especially China, Germany and Japan. In the past ten years, China and Japan have powered export growth by selling
goods to US consumers, recycling a large part of the earnings back to America by buying dollars from the US
Government, which in turn gave the money to American consumers, who spent it on more Asian goods. A similar
circle of manipulation has been spinning in Europe, with Germany recycling the revenues of its export industries to
Spain, Italy, Britain, France and the smaller Eastern European and Mediterranean economies. While there were hopes
that the financial crisis might force both excess consumers and excess savers to adjust their behaviour, there is not much
evidence of this, especially in Germany and China. As a result, further financial crises may lie ahead. Such a crisis
could strike Europe very soon, if the German election in September provokes debate about the enormous monetary
transfers Germany is committed to paying to consumers elsewhere in the eurozone under the single currency project.
These effective subsidies to Eastern Europe and the Club Med countries are already approaching the cost of German
reunification and will eventually dwarf it. If German voters begin to understand this, their reaction could trigger a
financial crisis in the eurozone at least comparable to the Lehman shock.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Deficit Spending
Social service deficit spending is uniquely bad.
Buchanan July 16 PhD Economics [Neil H. Buchanan Ph. D. (economics), is a Visiting Scholar at Cornell Law
School, an Associate Professor at The George Washington University Law School, and a former economics
professor. July 16, 2009 "Everyone Seems to Agree that Budget Deficits are Harmful"
http://writ.news.findlaw.com/commentary/20090716_buchanan.html]
In addition to the possibility of over-using or misusing deficits in their roles as medication or vitamins, it is always
possible that we could increase the deficit in a way that neither helps mitigate recessions nor enhances long-term
growth. If we run deficits simply to give money to people who neither need it for immediate spending, nor use it to hire
people or build up businesses, then we are doing the equivalent of dosing the economy with toxic drugs. This possibility
requires us to be vigilant in making sure that any borrowed money is not shoveled to those with political connections, or
used to fund projects that simply are not in the long-run interests of the country. That balancing act is the essence of
governing, and there is no short cut that will guarantee that we always get it right. Calling for "balanced budgets" does
not do the trick because, as I have explained above, the budget affirmatively should not be balanced during a downturn,
and it need not be balanced during prosperous times.
Deficit spending causes Obama to raise taxes
Montgomery and Connolly
Lori Montgomery and Ceci Connolly, Washington Post Staff Writers “Obama’s budget first seeks to trim deficit”
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/21/AR2009022100911_pf.html[LO//AS]
Reducing the deficit, he said, is critical: "We can't generate sustained growth without getting our deficits under control." Obama
faces the long-term challenge of retirement and health programs that threaten to bankrupt the government years down the road, as
well as the more immediate problem of deficits bloated by spending on the economy and financial system bailouts. His budget
proposal takes aim at the short-term problem, administration officials said, but also would begin to address the nation's chronic
budget imbalance by squeezing savings from federal health programs for the elderly and the poor. Even before Congress approved
the stimulus package this month, congressional budget analysts forecast that this year's deficit would approach $1.2 trillion -- 8.3
percent of the overall economy, the highest since World War II. With the stimulus and other expenses, some analysts say, the
annual gap between federal spending and income could reach $2 trillion when the fiscal year ends in September. Obama proposes
to dramatically reduce those numbers, said White House budget director Peter Orszag: "We will cut the deficit in half by the end of
the president's first term." The plan would keep the deficit hovering near $1 trillion in 2010 and 2011, but shows it dropping to
$533 billion by 2013, he said -- still high but a more manageable 3 percent of the economy. To get there, Obama proposes to cut
spending and raise taxes. The savings would come primarily from "winding down the war" in Iraq, a senior administration official
said. The budget assumes continued spending on "overseas military contingency operations" throughout Obama's presidency, the
official said, but that number is lower than the nearly $190 billion budgeted for Iraq and Afghanistan last year. Obama also seeks
to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and
2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers,
defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That
means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15
percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45
percent. Obama also proposes "a fairly aggressive effort on tax enforcement" that would target corporate loopholes, the official
said. And Obama's budget seeks to tax the earnings of hedge fund managers as normal income rather than at the lower 15 percent
capital gains rate.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Deficit Spending
Catastrophic levels of inflation from excessive deficit spending
Devine 7-23
Columnist (09, “Excessive debt can lead to catastrophic consequences”, Aiken Standard,
http://www.aikenstandard.com/Editorial/devine-column2009-07-22T21-15-50)
But in fairness to the writer, he actually is in pretty good company, in that his thesis is implicitly endorsed by the
Obama administration. The president wags his finger at us for being greedy, he pins the financial crisis on an era of
irresponsibility, of living beyond our means. In a recent interview, Treasury Secretary Gaithner postulated that the
ultimate positive effects of this ugly recession will be more prudent, cautious spending by all of us.
But at the same time, both are insistent that the administration's current plan to spend our way back into prosperity, and
in so doing to run up an annual deficit four or five times higher than ever in history, is not only prudent, it's essential. In
effect, they are suggesting that the laws of economics can be applied or suspended on demand.
I think it's pretty simple. The fundamental principles of economics are always in play - for governments, big companies,
small companies, families.
As a prime example, excessive debt is a killer, always, in every circumstance. What proves to be excessive may vary
from case to case, but the principle always applies.
To illustrate: Millions of American families own houses, but few could pay them off with accumulated savings. So
instead, homeowners take on long-term debt - a mortgage. This kind of deficit spending is a perfectly sensible thing to
do, provided that: (1) the borrower is reasonably confident that the house will hold its value, at least to the extent that
the borrowed amount is covered and (2) the monthly payment is manageable, now and in the future. Different people
have different tolerance for debt, but clearly a mortgage payment that doesn't leave room in the family budget for food
and fuel would be a big, big mistake.
What's different on the government level? Not much. As with individuals, it gets harder and harder for the nation to
borrow money at attractive rates (e.g., from China) as we slide deeper into debt. And printing gobs of money is a
delusion - inflation is right around the corner with its whole new set of economic consequences.
Like the family whose mortgage payment eats up the lion's share of its monthly income, our government is now
plunging headlong into a level of debt which is a much larger share of our gross domestic product than we will be able
to afford to repay.
As another example, let's bring the concept of economic stimulus payments down to family level as well. Suppose you
choose to hire your unemployed neighbor to wash your car every day, and you're generous enough to pay him enough
money to keep food on his family's table and a roof over their heads - a truly compassionate act on your part. And your
largesse would, temporarily and incrementally, help the broader economy as well by putting that money in circulation
each week - your own private stimulus package.
But that stimulating effect would last only as long as you're willing or able to keep up the payments. When it's over,
you'd have a very clean car and a very appreciative neighbor - but your investment would have been spent and the
benefit would be long gone. And if you had funded your generosity by borrowing against your credit card, you probably
would both end up in worse shape than before, with compounded debt to be repaid and your neighbor still out of a job.
How is that different from government trying to stimulate the economy by borrowing money to fund temporary jobs say city beautification projects - with no long-term benefit or return on investment? Not much.
A more powerful alternative might be to stake your neighbor in a fledgling business. That could be a stimulus gift that
keeps on stimulating and could even be worth your carrying some debt. Or if you're a government, why not spend some
of your stimulus money on a new nuclear plant, with compounded benefits of jobs now (engineering and construction),
jobs later (life of plant maintenance and operation) and community benefit (gobs of carbon-free electricity?).
The lesson is simple. Moderate deficit spending can be necessary and manageable, but excessive debt can be catastrophic. Forward
thinking investment can help people through hard times and stimulate the economy, but make-work spending doesn't accomplish
either very well. Economic principles are always in play, for you and for your president
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Deficit Spending
Investors assume expect spending programs on the table and are still investing, but the plans new
unexpected spending would kill investor confidence
Johnson, professor at MIT Sloan school of Management and a senior fellow at the Peterson Institute for International
Economics, oh, also the former chief economist at the International Monetary fund and Kwak, a student at Yale Law school, cofounders of baselinescenario.com, which tracks the global economic crisis, 2-4-9 [Simon Johnson, professor at MIT Sloan school
of Management a senior fellow at the Peterson Institute for International Economics, and former chief economist at the
International Monetary fund, and James Kwak, a student at Yale Law school, co-founders of baselinescenario.com, which tracks
the
global
economic
crisis,
February
4th,
2009,
Planet
Money,
“National
Debt
for
Beginners”,
http://www.npr.org/templates/story/story.php?storyId=99927343]
The other way to see how much debt is too much is to ask the market. If investors think there is a risk that they won't be paid back,
they will demand a higher interest rate, for the same reason that subprime mortgages have higher rates than prime mortgages.
Interest rates on U.S. Treasury bonds are at historic lows, because people looking for a safe place to put their money are falling
over themselves trying to lend to the U.S. government. The U.S. is able to borrow money cheaply despite everything we know
about the recession, the government deficit, the Obama stimulus package and the looming retirement savings problems. So the
short answer to the question of how much debt is sustainable is simple: We don't know. If we were close to the edge of some fiscal
cliff, the market would warn us, under ordinary circumstances. But these are not ordinary times: Due to the upheaval in all
markets, there is a level of demand for Treasuries that is . . . how shall we put this . . . probably not justified by economic
fundamentals, and as a result market signals don't work as well as they should. Right now, the markets are saying that the U.S.
government is as good a place to lend money as any and are implicitly giving us time to sort out our fiscal problems. At what point
that will change, though, no one can predict.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Paygo
Plan means Obama breaks his budget balancing rule
The Economist, 7/9/2009 (http://www.economist.com/world/unitedstates/displaystory.cfm?story_id=14002741)
Mr Obama himself has proposed a budget-balancing rule that he would have to break to inject more stimulus—a formality,
perhaps, but one that would further erode his fiscal credibility given the gargantuan deficits his policies will produce even beyond
2010. “We could afford to borrow a bit more over the next year if we had a plausible plan to get the deficit under control
thereafter,” says Len Burman of the Urban Institute, a think-tank. “But nobody has articulated such a plan.”
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Welfare
Child care, health care, training and job search assistance mean that welfare either costs billions or
outright fails
DeLong and Levine 1996
Brad DeLong, professor of economics at the University of California and David Levine, Distinguished Professor of Economics at
Washington University in St. Louis “Welfare Reform Is Expensive”
http://econ161.berkeley.edu/OpEd/welfarereformisexpensive.html
Proponents of welfare reform always hope to move people off of welfare rolls and onto payrolls: this was the hope of the 1960's
War on Poverty, of reforms passed in the 1970s and 1980s, and of Clinton Administration proposals in the 1990s. Now the
Congress has passed a welfare reform that it hopes will move people off the rolls and save taxpayers tens of billions of dollars.
Given the popularity of moving people from welfare to work, why have past efforts at reform failed? As usual with tough political
questions, the answer is simple: Time and Money. Time, because it takes years for the investment in welfare reform to pay off, and
Money, because it is expensive to enable single mothers to support their families. Consider the easier task faced by mothers in
non-welfare, two-parent households. Fewer than one in three married women work full time year round. Even these women face
difficulties juggling child care (especially when a child is sick), parental responsibilities, and work. Welfare recipients and other
single mothers--many of whom have not graduated high school, have disabled children, or live where jobs are scarce--find fulltime work particularly difficult to find and keep. Thus, real welfare reform requires money: for child care, for health care, for
training, and for job search assistance. It is plausible that real welfare reform could save the federal budget money in the longterm. But real welfare reform costs money in the short term: the support services needed to end welfare as we know it without
making hundreds of thousands of children homeless cost tens of billions of dollars in the first five and ten years. Without such
initial investments in reform--for child care, training, job search assistance, and so on--it will fail, and leave a much worse mess to
be dealt with in a decade. So what makes the Republican Congressional leadership confident that it can reform welfare and save
$10 billion or so in each of the next 7 years? Unfortunately, they have not discovered a magic bullet that reduce the cost of
training, job search assistance, and childcare.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Census
Man power and technological requirements mean that Censuses empirically cost billions
Thibodeau 3/6
Patrick Thibodeau, writer for Computerworld “2010 U.S. census will be 'most expensive' ever, officials say”
http://www.computerworld.com/s/article/9129157/2010_U.S._census_will_be_most_expensive_ever_officials_say
A government watchdog agency is sending up warning flares about the readiness of U.S. Census Bureau IT systems being used in
the 2010 census project, which is set to begin on April 1 of next year. In a report released yesterday, the U.S. Government
Accountability Office predicted (download PDF) that the 2010 census will be "the most expensive census in the nation's history,
even after adjusting for inflation." The Census Bureau has estimated the total cost of the project at more than $14 billion. The first
U.S. census was conducted in 1790 at a cost of $44,000 and counted 3.9 million people. (See chart showing cost of past censuses.)
The cost of the 2010 census includes $3 billion for IT equipment, the GAO noted. One of the biggest costs for the Census Bureau
is for the 600,000 temporary workers needed to collect data from an 47 million households not expected to respond to mailed
questionnaires. The bureau had planned to use handheld computers for that effort, but it was forced to revert to paper-based
follow-up surveys after testing turned up problems with the handhelds. The bureau's decision to use paper adds up to $3 billion to
the total cost of the census, the GAO said.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – China
China is worried about US Treasuries
Michael Wines, staff writer, ‘09
(Michael Wines, staff writer, 3-13-09, China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries, New York Times,
http://www.nytimes.com/2009/03/14/business/worldbusiness/14china.html?_r=2&ref=world) [David Herman]
The Chinese premier Wen Jiabao expressed concern on Friday about the safety of China’s $1 trillion investment in American
government debt, the world’s largest such holding, and urged the Obama administration to provide assurances that its investment
would keep its value in the face of a global financial crisis. The Chinese premier Wen Jiabao spoke at a news conference on
Thursday at the end of the Chinese parliament’s annual session. Speaking at a news conference at the end of the Chinese
parliament’s annual session, Mr. Wen said he was “worried” about China’s holdings of Treasury bonds and other debt, and that
China was watching United States economic developments closely. “President Obama and his new government have adopted a
series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,” Mr. Wen said. “We
have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am
definitely a little worried.” He called on the United States to “maintain its good credit, to honor its promises and to guarantee the
safety of China’s assets.”
Continued deficit spending halts Chinese treasury purchases
Declan McCullagh, Adjunct Professor of Law at Case Western Reserve University, ‘09
(Declan McCullagh, Adjunct Professor of Law at Case Western Reserve University who has received
credentials from the press gallery of the U.S. Congress, spoken at schools including Stanford University, MIT,
Harvard University, Georgetown University, the University of Chicago, and Duke University, and has testified
twice before the Federal Trade Commission, 3-13-09, If China Stops Lending Us Money, Look Out, CBS News
Blogs, http://www.cbsnews.com/blogs/2009/03/13/business/econwatch/
entry4864398.shtml)
What China's premier may be worried about is the possibility of the U.S. running up so much debt -- the projected
2009 deficit is $1.75 trillion -- that it may not be able or willing to pay it back without devaluing the currency. (If that
happens, hello, inflation!) For its part, the White House tried to reassure its Chinese creditors. Spokesman Robert Gibbs
said Friday afternoon: "There's no safer investment in the world than in the United States." It's unlikely that China
would dump its Treasurys; for one thing, substantial sales would depress prices of the rest of its portfolio. The Wall
Street Journal suggests that the gold market isn't large enough to represent a viable option, and "it's not clear,
meanwhile, that euro, or yen-denominated debt is any safer, more liquid, or profitable than U.S. debt -- key criteria for
China's leadership." But China could reduce or halt future purchases. A less ravenous appetite for Treasurys is already
evident: a New York Times article in January was titled: "China Losing Taste for Debt From U.S." One reason for
fewer purchases would be diversification. Another would be to divert money toward its own 4 trillion yuan ($586
billion) stimulus package. Reduced demand for Treasurys would drive up U.S. interest rates, probably pushing down
home prices even more than they've already fallen, and also could start a run on the dollar. This is why Secretary of
State Hillary Clinton pleaded with the Chinese government last month to keep the loans flowing to Washington, D.C.
("So by continuing to support American Treasury instruments, the Chinese are recognizing our interconnection.")
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – China
Continued deficit spending causes China to halt treasury purchases
Leonhardt, economics staff writer, New York Times, ‘09
(David Leonhardt, economics staff writer, New York Times, 5-13-09, The China Puzzle, http://www.nytimes.com/2009/05/17/
magazine/17china-t.html?_r=2&sq=leonhardt%20china%20geithner%20kissinger&st=cse&scp=2&pagewanted=all) [David
Herman]
Over the past decade, China and the United States have developed a deeply symbiotic, and dangerous, relationship. China
discovered that an economy built on cheap exports would allow it to grow faster than it ever had and to create enough jobs to
mollify its impoverished population. American consumers snapped up these cheap exports — shoes, toys, electronics and the like
— and China soon found itself owning a huge pile of American dollars. Governments don’t like to hold too much cash, because it
pays no return, so the Chinese bought many, many Treasury bonds with their dollars. This additional demand for Treasuries was
one big reason (though not the only reason) that interest rates fell so low in recent years. Thanks to those low interest rates,
Americans were able to go on a shopping spree and buy some things, like houses, they couldn’t really afford. China kept lending
and exporting, and we kept borrowing and consuming. It all worked very nicely, until it didn’t. The most obviously worrisome
part of the situation today is that the Chinese could decide that they no longer want to buy Treasury bonds. The U.S. government’s
recent spending for bank bailouts and stimulus may be necessary to get the economy moving again, but it also raises the specter of
eventual inflation, which would damage the value of Treasuries. If the Chinese are unnerved by this, they could instead use their
cash to buy the bonds of other countries, which would cause interest rates here to jump, prolonging the recession. Wen Jiabao,
China’s premier, seemed to raise this possibility in March, in remarks to reporters at the end of the annual session of China’s
Parliament. “We have lent a huge amount of money to the U.S.,” Wen said. “Of course we are concerned about the safety of our
assets. To be honest, I am definitely a little worried.” In all likelihood, this was mostly posturing. Were China to cut back sharply
on its purchase of Treasury bonds, it would send the value of the bonds plummeting, hurting the Chinese, who already own
hundreds of billions of dollars’ worth. Yet Wen’s comments, which made headlines around the world, did highlight an underlying
truth. The relationship between the United States and China can’t continue on its current path.
China will do it - consensus
Dyer, Beijing Bureau Chief, Financial Times, ‘09
(Geoff Dyer, Beijing Bureau Chief, Financial Times, 2-22-09, China’s Dollar Dilema, http://www.ft.com/cms/s/0/299e404c011b-11de-8f6e-000077b07658.html?nclick_check=1) [David Herman]
China’s near $2,000bn (£1,380bn, €1,560bn) in reserves, the world’s largest, are often viewed outside the country as a
great strength – an insurance policy against economic turbulence. But within China, they are increasingly seen by the
public and even some policymakers as something of an albatross – a huge pool of resources not being used at home that
will plunge in value if the US dollar collapses. Why, people ask, should such a relatively poor country bankroll such a
rich one? Even at the elite level, the sense of frustration occasionally bubbles over. “We hate you guys,” Luo Ping, a
director-general at the China Banking Regulatory Commission (CBRC), complained last week on a visit to New York.
“Once you start issuing $1-$2 trillion ... we know the dollar is going to depreciate, so we hate you guys, but there is
nothing much we can do.” As China’s economy slows sharply, the debate on how to manage its reserves is
intensifying. Some propose spending the money at home; others want more diversification of investments. But the
consensus behind recycling foreign currency into US government securities is coming under attack.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Abortion
Abortions cost a lot per person
Dudley, Ph.D, 03
(Susan Dudley, Ph.D, Associate Professor Department of Biology McMaster University, 2003, http://www.prochoice.org
/about_abortion/facts/economics.html) JW
The exact cost of an abortion depends on many factors, such as how far along the pregnancy is, the kind of procedure
and anesthetic that are used, and the kind of facility (clinic, physician's office, or hospital).
In general, though, women getting an abortion between six and ten weeks' gestation can expect to pay about
$350 at an abortion clinic and $500 at a physician's office. Providing abortions later in pregnancy is somewhat
more complicated, and is usually more expensive. For example, at 16 weeks gestation, abortion clinics generally charge
around $650 and physicians' offices generally charge around $700. After the 20th week, the cost rises to above
$1,000
Abortion is a huge financial burden – strain on taxpayers
Scott, Healthcare reporter for Crain, 08
Gale Scott, healthcare reporter for Crain, 8-11-08, Crain’s New York Business, “High abortion rate worries NY experts; Higher
cost and health complications lead to concerns”
In most of the United States, 24 abortions are carried out for every 100 live births. In New York, 72 abortions occur for
every 100 live births. The continuing boom in abortions--90,157 were performed in the city in 2006, the last year
for which statistics are available--apparently means that many women are using abortion as their birth control method of
choice. That concerns health advocates, who point out that the procedure sometimes causes complications
and is more expensive than contraception. The high rate also shows that these women are not protected against AIDS
and other sexually transmitted diseases. ``No doctor would ever tell a woman that abortion was one of the choices she
should rely on for contraception,'' says Iffath Hoskins, chief of obstetrics and gynecology at Lutheran Medical Center in
Brooklyn. The high rate is especially troubling because it indicates that more city residents are turning to abortion.
Years ago, most abortions in the city--up to two-thirds in some years--were performed on women from out of town who
flocked to New York because of its liberal abortion policies. Now, however, 93% of the abortions in New York City are
performed on city residents. The easy availability of abortion and not enough access to affordable contraception may be
reasons behind the city's high abortion rate. An average of 250 abortions are performed in the city each day at more than
200 clinics and doctor's offices. And even though free or low-cost contraception is offered through 59 publicly funded
programs at 218 sites in New York state, mostly in New York City, more could be provided, says Deborah Kaplan,
deputy commissioner of the city Department of Health and Mental Hygiene. ``To me, the problem is access,'' says Ms.
Kaplan. ``If we improved access to contraceptives, there would be a reduction in abortion.'' Costly to taxpayers That
would be good news to taxpayers. In a time of fiscal constraints, abortion is costing the state at least $16
million in Medicaid spending annually, and city taxpayers still more through a city Health and
Hospitals Corp. policy that provides free abortions to poor women at its facilities. The surgical costs
alone are between $1,000 and $1,800 per abortion, compared with the $425 average annual cost for
birth control pills.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Hyde Amendment
Statistics prove that abortion costs absent the Hyde Amendment would be upwards of 100 million
dollars a year
NCHLA 08
National Committee for a Human Life Amendment “The Hyde Amendment” http://www.nchla.org/factdisplay.asp?ID=41
How much would it cost Medicaid to repeal the Hyde Amendment? According to an estimate by the Alan Guttmacher Institute, the
cost to the federal government of funding poor women’s abortions in FY 1994 if the Hyde Amendment were repealed would have
been between $62.5 million and $75 million for 312,000 abortions. This estimate is very low. Others estimate that 500,000 or more
abortions would have been funded by Medicaid in FY 1994 if the Hyde Amendment were repealed.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Education
Head start and federal K-12 programs are incredibly expensive --- only way to solve is to convert to
block grants instead of entitlements (can also be a net benefit to a CP to do block grants not entitlements)
Crane, founder and president of the Cato Institute, 2009
(Edward H. Crane, founder and president of the Cato Institute, 2009, “Cato Handbook on Policy,” Cato
Institute, http://books.google.com/books?id=OOgV_Eu-ASAC&printsec=frontcover&source=gbs_navlinks_s)
Since the institution of ESEA and Head Start in 1965, federal K-12 programs have cost taxpayers roughly
$1.85 trillion in 2008 dollars. To get a feel for how large that number is, 1.85 trillion seconds equals 58,726 years
– about 20 times the entire span of recorded human history. After four decades and nearly $2 trillion dollars,
after unsuccessfully cycling through an endless series of programs, we have enough evidence and
experience to draw a solid conclusion: the federal government cannot significantly improve school
performance. One thing that the federal government could do that would undeniably help American families would
be to stop taking vast sums of their money and funneling it into patently ineffective programs. By phasing out futile
federal efforts in education, taxpayers would regain control of 70 billion of their hard-earned dollars
every year. The effect of their financial windfall on America society would be significant: creating
jobs, stimulating investment, and raising the overall standard of living. It is well within the power of
Congress to bring about these benefits. The first step would be to convert all existing federal K-12
education programs into block grants to the states. These grants should then be phased out
completely over three years. Giving states the time to reallocate their own personnel and resources.
As the block grants are phased out, federal income tax rates should be proportionately reduced so
that taxpayers retain the money that was previously being spent on ineffective federal programs. At
the end of the three-year period, Americans would enjoying a permanent $70 bullion annual tax cut.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Education (Head Start)
Increasing head start funding would expand the federal deficit
Lips, Spero News, ‘09
(Dan Lips, Spero News, 3-27-09, “Obama proposes increased education spending,”
http://www.speroforum.com/a/18614/Obama-proposes-increased-education-spending)
Increasing Funding for All Levels of Education The budget proposes new federal funding to encourage state and localities to
enact early childhood education programs, following significant increases for the federal Head Start program in the
stimulus and omnibus legislation. The Obama Administration does not include details about proposed funding levels for the
main K-12 education programs, such as Title I. However, the omnibus and stimulus packages included a 76 percent for Title I, Part
A, and a 112 percent increase for Title I, Part B. The budget also includes new funding for higher education
programs. Specifically, the budget proposes new funding for Pell grants, which received a 132 percent increase in the omnibus
and stimulus and calls for the Pell grant program to become mandatory to ensure that it receives continuous funding increases in
future years. Spending Has Not Solved Problems Considering how these proposed spending increases will expand the
ballooning federal deficit and grow the long-term debt burden, American taxpayers and students alike should
consider whether increasing federal spending programs will yield meaningful benefits. Unfortunately, past
experience suggests that expanding federal support for early childhood, K-12, or post-secondary education will not solve the
persistent problems in American education:
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Elder Care
Expanding Elderly Care is expensive
FERRARA 90 associate professor at the George Mason University Law School and a senior fellow of the Cato
Institute
[Peter J., “Long-Term Care: Why a New Entitlement Program Would Be Wrong,” December 13, 1990, Policy Analysis no. 144]
new nursing home and home health care entitlement program would cost $60 billion to $80
billion a year in net new federal spending, a massive burden that taxpayers will not support. Such a program
would cause substantial unnecessary utilization, produce massive displacement of private care givers,
eliminate incentives to control costs, send prices for long-term care soaring, and expose the government to
uncontrollable abuse. Adopting such a huge new entitlement obligation to the elderly in the face of the pending retirement of
Conclusion A
the baby-boom generation, and the immense short- and long-term fiscal problems that already exist, would be foolhardy.
Elderly Care is very very expensive
FERRARA 90 associate professor at the George Mason University Law School and a senior fellow of the Cato
Institute
[Peter J., “Long-Term Care: Why a New Entitlement Program Would Be Wrong,” December 13, 1990, Policy Analysis no. 144]
The Entitlement Fiasco A new entitlement program for long-term care would take the government beyond
providing for those in need to paying for the nursing home and home health care costs of everyone, regardless
of wealth or income, including millionaires. Such a program would be enormously costly. Total nursing home expenditures
in the United States this year are likely to be at least $55 billion,(37) and total home health care expenditures
are likely to be at least $15 billion.(38) But that is only the beginning. Less than one-fourth of those who need longterm care are in nursing homes. The remaining three-fourths are in the community receiving care from their families and
others.(39) If the government were to start picking up nursing home costs across the board, many more people would enter nursing
homes, sharply increasing the program's costs. With three-fourths of those who need assistance still outside nursing homes, the
potential for a sharp increase in nursing home utilization once the government starts paying all the bills is enormous. Moreover, the
problem for home health care is even worse. As noted above, in-home medical care and related supplemental services to aid
recovery from acute illnesses and injuries are already covered for all of the elderly by Medicare. What is at issue is whether the
government should provide the softer personal care services for everyone as well. As noted above, around three-fourths of the
elderly who need personal care receive it entirely from family members and others without charge, and most of the rest receive at
least part of their care in that way; only 5 percent rely entirely on paid care. If the government offered paid professional personal
care to everyone, such care would massively displace the current voluntary care. This is especially so since the volunteers find
providing the care burdensome, while the elderly and their families find home health personal care, unlike nursing home residence,
quite attractive. People do not want to go into nursing homes. But as discussed above, the personal care services at issue here
involve professionals coming into the home to provide cooking, cleaning, laundry services, bathing, dressing, grooming, feeding,
shopping, and other similar services--the equivalent of the services of a battery of free maids and cooks. All of the elderly who can
qualify for such service will want it, and their families will want them to have it. Indeed, the energy of family members that
formerly went into caring for an elderly person will go into lobbying the bureaucracy for government-funded professional care. In
addition, because the home health personal care services are so attractive, many of the elderly who do not receive such assistance
now will try to qualify for the government-provided personal care, and many will succeed. The history of the Social Security
disability program, which includes a relatively objective, strict requirement that beneficiaries not be able to work at all, shows that
the government is unable to prevent many ineligible people from receiving assistance even with such a clear and stringent test. The
question of whether an elderly retiree needs personal care assistance is far more murky and subjective. Taking the abuse even
further, many family members who formerly provided free care will instead arrange to receive free services themselves when the
government is paying the bill. For example, a home health aide who is cooking for an elderly recipient will often end up cooking
for the whole family. Or when a home health aide is doing housecleaning or laundry or shopping for an elderly recipient, the aide
will often end up doing those chores for the whole family. This is natural when the elderly recipient lives with a
spouse, but it will also happen often when the elderly recipient lives with the family of an adult child. It
happens today with Medicaid-financed home health care. Because home health care is provided in the
privacy of the home, controlling such abuses would be impossible. All this abuse and unnecessary utilization
of home health care would again sharply increase the costs of the program.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Food Stamps
Food Stamps Cost About $20 billion a year and counting
US Department of Agriculture ‘08
(Christopher Logan and William Rhodes, Abt Associates Inc., and Joseph Sabia, University of Georgia, 1/08, “Food Stamp
Program Costs and Error Rates, 1989-2001,” http://www.ers.usda.gov/Publications/CCR15/ccr15.pdf) JW
The administration of the FSP is a major expense to FNS and the States. In Federal Fiscal Year
(FFY) 2001, the cost of State and local FSP administration was $4.44 billion (according to estimates
computed for this study). The Federal share of this cost was $2.23 billion, or about 50 percent. FNS
spent more on FSP administration than on the School Breakfast Program or the Child and Adult Care
Feeding Program, including meal costs. During FFY2001, about 7.4 million households participated
in the FSP in the average month, so the annual administrative cost was $597 per household. The total
cost of FSP benefits was $15.55 billion, so the total cost of the FSP was $19.99 billion, of which
administrative costs represented 28 percent. (In this report, the term “cost” refers to expenditures of
Federal, State and local funds for the FSP. The cost figures do not include FNS expenditures for
federal-level FSP administration.)
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Full Employment
Government job creation requires massive deficit spending and destabilizes the economy
Lingle 8
Research Scholar at the Centre for Civil Society in New Delhi and Visiting Professor of Economics at
Universidad Francisco Marroquin in Guatemala (“The Expensive Fallacy of Government Job Creation”,
Christopher Lingle, Jakarta Post, December 16th, http://www.thejakartapost.com/news/2008/12/16/theexpensive-fallacy-government-job-quotcreationquot.html)
Despite having a stake driven through its heart after being identified as the primary cause of the Stagflation of the
1970s, a failed economic policy has arisen from the dead. Yet the consensus evident at the recent G-20 Meeting is that
governments can create jobs and end recessions simply by spending more money. The myth that higher public spending
is good economic policy is so resilient that its supporters are unperturbed by all the evidence that contradicts it.
Consider that Japan 's policy makers began throwing massive amounts of money at the local economy in the late 1980s
to re-ignite it. This constant flow of deficits brought only a growing mountain of public-sector debt with the economy
regaining its long-term growth trajectory. Nor did it deter Japan from officially ushering in yet another recession. More
recently, the Economic Stimulus Act of 2008 gave so-called tax rebates worth US$100 billion to U.S. households in
May, June, and July. But the rise in spending was very small since most went into savings, including paying down debt.
Despite this recent failure, President-Elect Barack Obama promises he will direct government spending to create jobs.
But numerous studies show that one-time tax rebates cannot bring higher economic activity. This is because temporary
increases in disposable income do not create incentives to increase consumption over time. The only certain thing is that
stimulus packages based on increased public-sector deficits will add to the national debt. Belief in the efficacy of
deficit spending is based on a naive notion that consumption is the important driver of economic growth. It is as though
consumer goods and services are merely gifts of nature. Such nonsense has been appropriated by profligate politicians
and bureaucrats to promote inappropriate overreach of public-sector spending. But reality demands that the path for
sustainable economic growth is for there to be more saving so that there can be more capital goods. As it is, capital
goods are the basis of higher output and increased wages by boosting productivity. And the provision of capital goods
requires that consumption be deferred. It seems that saving is not only a natural instinct, but it is also promoted by
many fables, Biblical and otherwise, that show the merits of thrift. In recent years, central bankers removed the
incentives to save by driving interest rates to unsustainable and artificially-low levels while inducing more
consumption. This leads to a "paradox of spending" whereby consumers, deterred from saving by low deposit rates, are
lured into low-interest borrowing to boost their current living standards. This distortion in credit markets induces
individuals to make decision that lead to greater misery in the future for themselves and for others. Indeed, increased
spending may cause incomes to fall by a greater amount since the attempt to buy more today backfires in that there are
fewer jobs and less to consume later. Buying more now can leave everyone worse off in the future in the same way that
a community suffers from eating its seed-corn. Therefore, policies that aim to raise consumption now lead to less capital
being available for future production so there will be less future consumption. An enduring fable has it that
governments can "create" jobs either through public-spending to employ people in the public-sector or to increase
overall demand. During his campaign, Barack Obama promised to use $150 billion to promote windmills, solar panels
and 'energy efficiency' that would supposedly create 5 million "green" jobs. In the first instance, government spending
to "create" jobs costs more than jobs created in the private sector since public-sector recruitment involves massive
bureaucracies. And since adding workers to the public payroll creates a new burden on taxpayers that have less to spend
or invest, this means that there can be no net gain to the economy. In all events, government-funding to "create" Green
jobs may be the worst of both worlds. Much of the support for Green projects is that they create more jobs because they
involve more labor-intensive production. For example, supporters of initiatives for alternative fuels insist that they
would boost employment than would the building of conventional power stations. But conventional power stations
operate with enormous economies of scale that bring lower unit costs so that more jobs can be created throughout the
economy. Job creation based on real economic merit does not require government involvement. But providing
subsidies to support inefficient technology raises the labor-to-capital ratio so that the demand for labor will be lower and
real wages would fall. It would be bad enough that deficit spending on job creation was simply ineffective. What is
worse is that government spending schemes that expand public-sector debt imposes several burdens on future
generations. Most obvious is their additional tax burden they must pay for debts incurred in the present. By spending
beyond their means to conjure up jobs, governments undermine or eliminate employment that would have been created
in the private sector in the future. If increasing the share of GDP claimed by government leads to lower long-term
economic growth, "creating" jobs today will mean fewer jobs in the future .
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Premature pullout always fails
Econ Generic
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Full Employment
Employment initiatives require deficit spending.
Cummings 7-14
Staff Writer (09, “Experts: Obama Too Optimistic on Economy”, Jeanne Cummings,
http://www.cbsnews.com/stories/2009/07/14/politics/politico/main5157452.shtml)
The administration is already under intense pressure over its economic calculations on the most
politically sensitive statistic: employment. The administration once vowed to use stimulus policies
to keep the jobless rate below 8 percent; it is now just shy of 10 percent.
Deficit figures do not pack the same emotional punch as unemployment lines do. But they matter greatly to
policymakers and the financial markets as a measure of whether the country can afford Obama’s big agenda.
And the general public is paying attention, too.
In a June NBC/Wall Street Journal poll, a bare majority - 51 percent - of respondents approved of Obama’s handling of
the economy, down from 56 percent in February.
In addition, 58 percent said the president and Congress should focus on keeping deficits down, even if
that delays an economic recovery, the poll found.
Employment initiatives destabilize the economy and destroy confidence.
Askari and Krichene 7-26
Professor of International Business and International Affairs at George Washington University and Economist at the
International Monetary Fund (09, “It’s Time to Revamp the Federal Reserve”, Hossein Askari and Nourreddine Krichene,
Asia Times Online, http://www.atimes.com/atimes/Global_Economy/KG26Dj02.html)
In pursuit of its full-employment mandate, using aggressive monetary policy since 2001, the Fed has driven
nominal interest rates to record low levels, making real interest rates largely negative. Low interest rates
, in turn have fueled speculation by reducing its cost, resulting in a number of assets bubbles, the most prominent in housing. This
policy, in turn, has compromised the creditworthiness and soundness of the entire US banking and financial
system.
The Fed’s reckless monetary policy has cost the US government trillions of dollars in bailouts for banks, the
automobile industry, and homeowners. More precisely, on July 21, Neil Barofsky, the overseer of the Troubled Asset Relief
Program (TARP), estimated in a prepared statement to a committee of the US House of Representatives that the total exposure of
the US government to the financial crisis at US$23 trillion to $27 trillion. Fed policies set off commodity price inflation, most
notably in oil prices, and exchange rates instability; it aggravated external current account deficits; and it has already
pushed unemployment to 9.5% in June 2009, with the expectation that it may reach around 11% before it is
all
done.
In the process, the Fed has created considerable distortions in the economy and has heightened economic
uncertainty. The full extent of the damage and how long recession will last cannot be predicted today. There are in fact clear
dangers that this unparalleled monetary expansion could be paving the ground for even bigger bubbles, more
intense financial instability and larger bankruptcies in the future
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Full Employment
Past attempts set a price tag at near $800 billion
Kestenbaum 1/13
David Kestenbaum, science correspondent for NPR, “Employer of Last Resort”
http://www.npr.org/blogs/money/2009/01/employer_of_last_resort.html
The Obama administration says it wants to create or save some 3 million jobs. They even have a rough plan and a
price tag, $775 billion. But how exactly do you spend $775 billion? The 2009 federal budget is just over a three
trillion, so that's a huge increase. Even among Democrats there is disagreement.
Plan is far too expensive – ranging between $50 billion to $2 trillion
Tcherneva 04
Pavlina R. Tcherneva Ph.D., is an Assistant Professor of Economics at Franklin and Marshall College “Job or
Income Guarantee?*” http://www.usbig.net/papers/079-Tcherneva-BIG-v-ELR.doc.
Much discussion has been devoted to financing job or income guarantee schemes. Charley Clark (2003)
estimates that the program costs of running a BIG in the United States in 1999 would have averaged about $2
trillion. Harvey (2003) offers his own calculations of running a Public Service Employment program for 1999 and
compares them to Clark’s estimates, arriving at about a tenth of the cost (for details see Clark 2003 and Harvey 2003). Wray
alternatively approximates that an ELR program would cost about $50 billion a year (Wray, 1998) and for Australia,
Mitchell and Watts (1997) argue that a job guarantee will run about A$7.4billion a year.
Full Employment Link: Government-created jobs kill business confidence.
The Detroit News 9
(“Editorial: Obama Can’t Win War on Business”, February 26 2009,
http://www.detnews.com/apps/pbcs.dll/article?AID=/20090226/OPINION01/902260349/1008)
war on business is no way to stimulate an economy. But read between the lines of President Barack
Obama's address to Congress and you find a battle plan for a broad attack on industrial America.
His proposals reflect a stunning disregard for the impact of government policies on economic output and a
clear preference for jobs created by government spending rather than private investment.
Making
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare
Medicaid already overburdening budget—any expansion requires massive deficit spending.
Koff 7-23
Washington Bureau Chief (09, “George Voinovich Says “No” to New Health Care Entitlements, While Lee Fisher Urges
Him to Say Yes”, Stephen Koff, http://www.cleveland.com/open/index.ssf/2009/07/george_voinovich_says_no_to_ne.html)
"The Medicare Part A Hospital Insurance Trust Fund is on the path to insolvency by 2017," Voinovich said. "States
budgets are already overburdened by Medicaid costs even with the temporary $87 billion the federal
government provided to them earlier this year in the stimulus bill. The last thing we need to do is pass
legislation that would expand the government's role in health care or create new entitlement
program without first controlling costs."
Medicaid spending wrecks business confidence and the economy—multi-trillion dollar deficits
Koff 7-23
Washington Bureau Chief (09, “George Voinovich Says “No” to New Health Care Entitlements, While Lee Fisher Urges
Him to Say Yes”, Stephen Koff, http://www.cleveland.com/open/index.ssf/2009/07/george_voinovich_says_no_to_ne.html)
we face a fiscal train-wreck but are choosing to ignore our current
economic reality as they push forward with trillion dollar health care proposals . Americans are paying
America's elected leaders know
attention, and are asking how in the world can this government of ours - with the financial difficulties we have continue to spend and borrow, taking on new health care responsibilities at a time when we can't handle the
responsibilities we already have.
A bureaucratic Washington-run government plan is not the answer. The Medicare Part A Hospital Insurance Trust Fund
is on the path to insolvency by 2017. States budgets are already overburdened by Medicaid costs even
with the temporary $87 billion the federal government provided to them earlier this year in the stimulus bill. The last
thing we need to do is pass legislation that would expand the government's role in health care or
create new entitlement program without first controlling costs.
Furthermore, proposing to pay for it by placing further financial burdens on our nation's businesses
will only further impede their ability to compete in the global economy. America spends more
money as a percent of our GDP on health care than any nation in the world. We must figure out how
to do a better job with the money we're already spending before we borrow trillions more.
Fortunately, many respected voices are being intellectually honest about the health care debate. Congressional Budget
Office Director Doug Elmendorf has said the bills currently being debated would "significantly expand the
federal responsibility for health care costs," putting the nation further into debt. David Broder says the
Democratic plans are "badly flawed and overly expensive.
And, the Mayo Clinic says the proposal "...misses the opportunity to help create higher-quality, more
affordable health care for patients. It fact, it will do the opposite," and "the real losers will be the
citizens of the United States."
*From George Voinovich’s Congressional address
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare
Health Care costs 1 trillion dollars.
Miller July 23 Staff Writer [S.A. Miller July 23, 2009, “Obama health-care claims disputed”
http://www.washingtontimes.com/news/2009/jul/23/sale-of-health-care-plan-doesnt-always-meet-thefa/?feat=article_top10_read&]
Striving to calm concerns in his own party about the plan's budget-busting $1 trillion price tag, Mr.
Obama pledges that the overhaul will be "deficit neutral" and funded, in part, with savings from
"bending the curve" of skyrocketing health care costs. But the Congressional Budget Office,
Congress' nonpartisan accountant, last week said the bills taking shape on Capitol Hill would not
lower costs and would drive up government spending at an unsustainable pace.
Health Care increases taxes and kills the deficit.
Morris July 17 Political Strategist [Dick Morris July 17, 2009 Strategist for Clinton “Healthcare: Obama’s Waterloo?”
http://www.dickmorris.com/blog/2009/06/17/599/]
First of all, the very fact of a focus on healthcare reform inevitably stirs discussion of the deficit. Americans
are allergic to deficit spending and worry the more the deficit grows. As interest rates rise and the government
finds it more and more difficult to borrow enough to cover Obama’s massive spending, the
economy is likely to show the negative effects. It is a matter of a few months, certainly no more, before voters
start to realize that it is the deficit, not the pre-existing conditions Obama inherited, which is causing the prolongation of
the recession. Already the jump in mortgage rates has slowed the refinancing, which was the only aspect of the Obama
economic program that was working well. But the foreign and domestic focus on the deficit has a harsher
political impact: It forces the Democrats to come up with money to fund healthcare reform. In other
words, it makes them raise taxes. The Democratic Party is good at fooling itself that tax increases don’t matter and
are politically palatable, but they do and they are not. The massive spending healthcare will require dwarfs
the capacity for the rich alone to pay the bill, no matter how confiscatory Obama chooses to
become. Only broader taxes will do the job. Obama faces two practical choices: a value added tax
or taxing health insurance benefits.
Health care costs 1 trillion dollars and increase taxes.
CBO Report 09 [Douglas W. Elmendorf director of the CBO
http://www.cbo.gov/ftpdocs/103xx/doc10310/06-15-HealthChoicesAct.pdf
approved
the
report
June
15,
2009
On a preliminary basis,
CBO and the JCT staff estimate that the major provisions in title I of the Affordable
Health Choices Act affecting health insurance coverage would result in a net increase in federal deficits of
about $1.0 trillion for fiscal years 2010 through 2019. That estimate primarily reflects the subsidies that would be
provided to purchase coverage through the new insurance exchanges, which would amount to nearly $1.3 trillion in that period.
The average subsidy per exchange enrollee (including those who would receive no subsidy) would rise from roughly $5,000 in
2015 to roughly $6,000 in 2019. The other element of the proposal that would increase the federal deficit is a credit for
small employers who offer health insurance, which is estimated to cost $60 billion over 10 years. Because a given firm would be
allowed take the credit for only three consecutive years, the pattern of outlays would vary from year to year. Those costs would be
partly offset by receipts or savings from three sources: increases in tax revenues stemming from the decline in
employment-based coverage; payments of penalties by uninsured individuals; and reductions in outlays for
Medicaid and CHIP (relative to current-law).
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare
Health care will cost 1.6 trillion dollars.
Tax Policy Center 08 [September 12, 2008 Tax Policy Center is nonpartisan "An Updated Analysis of the 2008
Presidential Candidates' Tax Plans: Revised August 15, 2008"
http://www.taxpolicycenter.org/UploadedPDF/411749_updated_candidates.pdf
As noted below, important details of both plans are not known, so we made assumptions that might or might not be consistent with
the final plans proposed by each campaign. Under our assumptions, if the plans took effect in 2009, the McCain plan would
cost about $1.3 trillion over ten years and the Obama plan would cost about $1.6 trillion. Both campaigns propose
measures that they believe will reduce the rate of growth of health insurance premiums, which would reduce the cost of their new
subsidies and existing public programs. We did not evaluate the effectiveness of those measures and did not include savings from
health care cost efficiencies in our estimates. Under our assumptions, Senator Obama’s plan would reduce the number of
uninsured Americans by about 18 million in 2009, and 34 million in 2018. Almost all children would have coverage
because the law would require it, but nearly 33 million adults would still lack coverage in 2018. Senator McCain’s plan would
have far more modest effects, reducing the number of uninsured by just over 1 million in 2009, rising to a maximum of almost 5
million in 2013, after which the number of uninsured would creep upward because the tax credits grow more slowly than
premiums. Both plans are highly progressive, although Senator Obama’s plan targets subsidies more toward low- and middleincome households and is thus significantly more progressive than Senator McCain’s proposal.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare (Medicaid)
Increasing Medicaid funding would destroy the deficit.
CATO Institute 07 [July 19 2007 "The Soaring Cost of Medicaid" http://www.cato.org/pressroom.php?]
If current trends and policies continue, Gokhale writes, federal Medicaid outlays will take up 36
percent of lifetime federal taxes paid by males born in 2025 and 69 percent for females born in that
year. For females born after 2050, almost all of their lifetime federal non-payroll taxes will be
consumed by their lifetime Medicaid benefits. Clearly, Gokhale contends, this is a recipe for fiscal
disaster. On average, Gokhale writes, today's 35 year old males are projected to have 15 percent of their lifetime tax
contributions returned in the form of Medicaid benefits; for females the percentage is even higher at 69 percent. With
the current expected lifespan for Americans in the early 80s, and climbing every year with medical breakthroughs, this
is a policy shortfall that cannot be ignored. The Medicaid program itself is hobbled by its structure; its very
design provides incentives to private individuals, medical care providers, and state governments to
drive outlays ever upward. This is evidenced by the program's sustained increases in enrollments, costs per
enrollee and the rising share of national output consumed by the program. Federal Medicaid expenditures have
increased at a much faster rate than inflation. Growth in the share of the population enrolled in Medicaid,
and growth in the spending per enrollee have together added up to a sustained increase in Medicaid
outlays as a share of GDP. Last year, federal Medicaid spending was 11.9 percent of federal general
revenues, and 1.5 percent of GDP. Over the next 100 years, Gokhale writes, Medicaid outlays will take up 24
percent of the present value of federal general revenues and 3.7 percent of GDP. Gokhale argues that the current
spending trajectory is unsustainable, and that tax increases cannot make up for this drunken sailor governmental
spending spree. "Higher tax rates cannot plausibly cover this growing spending commitment," says Gokhale.
"Limiting Medicaid spending growth is, thus, an essential component of putting the federal
budget on a sustainable course without imposing crushing tax burdens on younger and future
generations.”
Medicaid destroys fiscal discipline – huge costs
Butler, Fellow at the Institute of Politics in Harvard, Adjunct Prof at Georgetown Graduate School. Ph. D., 2-12
Stuart Butler, Fellow at the Institute of Politics in Harvard, Adjunct Prof at Georgetown Graduate School, 2-12-09, The
Washington Times, “Congress needs cover to reform entitlements”
there's a far bigger problem threatening to undermine overseas confidence in America's
finances. That's the looming fiscal tsunami due to wash over us as baby boomers start retiring in ever-growing
numbers and start claiming Social Security and Medicare benefits Congress has promised them. They are promises even the
The bad news is
most robust economy could not afford to keep. Some lawmakers fear that Congress is incapable of addressing this problem, given
the way it currently does business. They say the entitlement tsunami needs a very different approach. They are right. Let's
understand the situation. Over the next 10 years, Congress says the stimulus will cost about $800 billion we don't have. In its
single most expensive year - 2010 - Congress will borrow just over $350 billion to create "energy-efficient visitors centers" and
otherwise "stimulate" the economy. That's a lot of money. But let's look at what Medicare alone must borrow - every year - to
cover the gap between what it spends and takes in through premiums and payroll taxes. It's already costing taxpayers almost
$200 billion this year. Within 10 years, yearly borrowing will hit the equivalent of $285 billion in today's
economy. In 20 years it will be close to $600 billion, with hundreds of billions more from red-ink saturated
Social Security and Medicaid spending
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare (Medicaid)
Medicaid-Medicare fragment creates huge financial burden
Brown, senior vice president and general counsel of UMass Memorial Health Care in Worcester and a former state Medicaid
director 7-20
Douglas S. Brown, 7-20-09, Boston Globe
NATIONAL health reform is on a fast track. And most proposals draw heavily on the experiment in Massachusetts,
which has led to a phenomenal coverage success. But there is a lesser-known innovation in Massachusetts that may
offer greater lessons to our nation in improving health and lowering cost. It is called Senior Care Options, and it targets
a population largely ignored by health reform - seniors. To understand its novelty, a quick review of Medicare and
Medicaid is instructive. Both public programs are overseen through one federal agency, the Centers for Medicare and
Medicaid Services. Medicare is administered by the federal government and provides health insurance to seniors 65 and
older. Medicaid is funded by the states and the federal government, but administered by individual states. Medicaid
provides insurance to low-income families, disabled individuals, and seniors. Families represent three-quarters of
Medicaid's enrollment, but only 30 percent of the costs. Seniors account for a big portion of the rest. A child on
Medicaid costs $1,700 per year. A senior in a nursing home costs $70,000. Herein lies an irony.
Medicare was created to provide care for seniors. But that care is what is putting the greatest pressure on state Medicaid
budgets. Why? Medicare does not pay for most long-term care services - the most expensive care for
this population. And since most seniors cannot afford long-term care, once they become frail they ``spend down''
their assets (or previously transferred them to their children) to qualify for Medicaid. Medicaid thereafter picks up the
tab. In order to deal with this growing burden, states are investing in innovative community supports
and services - like home health and personal care services - to keep seniors out of nursing homes. To do this well,
a state must effectively manage the entire care for this population. But for the 9 million nationally
who are on both Medicaid and Medicare, it is almost impossible to do so. This is because each
program operates in its own silo with different rules, providers, and services, resulting in enormous
fragmentation and added cost. And this cost is significant. Seniors in this circumstance - so-called ``dual
eligibles'' - account for over $200 billion in
spending per year.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare (Medicaid)
Medicaid is Expensive; further spending makes deficit insurmountable
Holtz-Eakin + Gray fellows of the Heritage Foundation 6/ 30/ 2009
(Douglas Holtz-Eakin is President of DHE Consulting, LLC, and a Visiting Fellow at The Heritage Foundation.
Gordon Gray is a Senior Adviser at DHE Consulting, LLC.
http://www.heritage.org/Research/SocialSecurity/bg2291.cfm) Creds to DV
The U.S. faces a fundamental budgetary challenge that will have severe economic implications over
the long term. However, the scale of these challenges and the severity of an attendant economic collapse demand a
near-term approach to bring the U.S. fiscal situation back into balance.
Entitlement spending seriously threatens U.S. fiscal solvency. Left unchecked, it will contribute to a
crippling national debt burden, which will stifle economic growth and force later and unluckier
generations to bear the cost of these imbalances through severe federal cuts or draconian tax increases.
The U.S. still has a window, however indeterminate, during which it could implement sensible reforms to return Social
Security to solvency without incurring massive future deficits and to rein in the health care costs that are driving
the increasing Medicare and Medicaid spending. Properly implemented, reforms along the lines suggested in this
paper would return federal spending to a sustainable path and ensure a foundation for prosperity throughout the
coming decades
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare (Single-payer)
Their authors exclude key details – Single payer is more expensive than it seems
Hogberg 07
David Hogberg, reporter and writer for The Free Market Cure “The Myths of Single-Payer Health Care”
http://www.freemarketcure.com/singlepayermyths.php#3
Single-payer advocates often claim that the U.S. private sector health care system is wasteful, spending far more
on administrative costs than do government-run single-payer systems. According to single-payer advocates David Himmelstein
and Steffie Woolhandler, "Streamlining administrative overhead to Canadian levels would save approximately $286.0 billion in
2003, $6,940 for each of the 41.2 million Americans who were uninsured as of 2001." Yet comparisons of private sector
administrative costs with those of government are misleading. Many government administrative expenses are
excluded in such comparisons, such as what it costs employers and government to collect the taxes needed to
fund the single-payer system, and the salaries of politicians and their staff members who set government healthcare policy (the salary costs of executives and boards of directors who set company policy are included in private sector
administrative costs). But even if the U.S. would save money on administrative costs by switching to a single-payer
system, the savings would prove temporary. The main cause of rising health care costs is not administrative costs, but overuse of health care. A single-payer system would not solve that problem. Indeed, it would make it worse
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Healthcare – Small Businesses
Health care kills small businesses – increased taxes
Lambro 2/27
Donald Lambro is the chief political correspondent of The Washington Times, the author of five books on the government and the
economy, and a nationally syndicated columnist He won the 1995 Warren Brookes Award for Excellence in Journalism
“LAMBRO:
Obama's
budget
to
raise
small-business
taxes”
February
27,
2009
(http://www.washingtontimes.com/news/2009/feb/27/obamas-budget-to-raise-small-business-taxes/)[LO//AS]
Business advocates charged that multiple tax increases on Americans earning more than $250,000 a year would whack small
businesses who pay the individual income tax, too, and produce as much as 60 percent of all jobs. "You don't build a house by
blowing up its foundations. Small businesses and the entrepreneurs who lead them have been the primary drivers of job growth
over the past decade. This plan would punish them with higher taxes, resulting in less government revenue, less economic growth,
and fewer jobs - not more," said Bruce Josten, chief lobbyist at the U.S. Chamber of Commerce. On Capitol Hill, House Minority
Leader John A. Boehner of Ohio called the budget plan a "job killer," saying that "small businesses, family farms, middle-class
families, retirees, charities, everyone with a 401(k), and anyone who flips on a light switch is going to pay higher taxes under this
plan." Mr. Obama ran for president saying he will raise taxes on wealthy Americans by boosting the present 35 percent top
income tax rate to the nearly 40 percent rate under President Clinton in the 1990s. Then, as the recession deepened last year, he
changed his mind, saying that this was not the time to raise taxes on higher income people because it would further weaken the
economy. But Mr. Obama needs increased revenue to launch his national health care plan - which will cost an estimated $1
trillion over 10 years - and his budget calls for letting President George W. Bush's two top tax rates expire at the end of 2010. The
White House expects the economy to be in a recovery at that time, but many economists, including members of the Federal
Reserve Board, say it could still be in a recession or in a weakened condition well into 2011.
Health-care funding kills small businesses
Lubell 7/19
Jennifer Lubell, writer for Modern Physician, “Freshman Democrats say reform bill could hurt small business”
http://www.modernhealthcare.com/article/20090719/REG/307199994 [LO//AS]
Provisions in the Affordable Health Choices Act of 2009 could hurt small businesses, a coalition of freshmen Democrats wrote in
a letter to House Speaker Nancy Pelosi (D-Calif.). Under the proposed legislation, tax cuts set by the previous administration
would be allowed to expire, “causing the marginal rate paid by wealthy individuals and small businesses to increase by 4.6% to
39.6%,” according to the letter, which was signed by more than 20 House Democrats. Lawmakers announced this tax on the
wealthy last week, as a means to pay for healthcare reform. This levy, however, would tax income above $1 million at a new rate
of 45%, according to the letter. “This surcharge, combined with state taxes, could result in many successful small businesses being
taxed at over 50%,” the letter to Pelosi stated. Although the House Ways and Means Committee claims the proposed surcharge
would only impact 4.1% of small businesses, this does not paint a complete picture of the situation, the letter said. Seventy-five
percent of all small businesses are S corporations, where the business income is passed through to the business owners’ individual
tax return, “increasing the chances that it will be impacted by the proposed surcharge,” the letter states. “By concentrating the cost
of healthcare reform in one area, and in one that will negatively affect small businesses, we are concerned that this will discourage
entrepreneurial activity and job growth,” the letter stated.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Immigration
Granting Health Care/Amnesty to Immigrants costs over $2.6 trillion
Rector, researcher at the Heritage Foundation, ‘07
(Robert Rector, researcher at the Heritage Foundation, 6/6/07, http://www.heritage.org/Research/Immigration/wm1490.cfm) Creds
to DV
Giving amnesty to illegal immigrants will greatly increase long-term costs to the taxpayer. Granting amnesty to illegal
immigrants would, over time, increase their use of means-tested welfare, Social Security, and Medicare. Fiscal
costs would rise in the intermediate term and increase dramatically when amnesty recipients reach retirement.
Although it is difficult to provide a precise estimate, it seems likely that if 10 million adult illegal immigrants currently
in the U.S. were granted amnesty, the net retirement cost to government (benefits minus taxes) could be over $2.6
trillion.
The calculation of this figure is as follows. As noted above, in 2007 there were, by the most commonly used estimates,
roughly 10 million adult illegal immigrants in the U.S. Most illegal immigrants are low-skilled. On average, each
elderly low-skill immigrant imposes a net cost (benefits minus taxes) on the taxpayers of about $17,000
per year. The major elements of this cost are Social Security, Medicare, and Medicaid benefits. (The
figure includes federal state and local government costs.) If the government gave amnesty to 10 million adult illegal
immigrants, most of them would eventually become eligible for Social Security and Medicare benefits or Supplemental
Security Income and Medicaid benefits.
However, not all of the 10 million adults given amnesty would survive until retirement at age 67. Normal mortality rates
would reduce the population by roughly 15 percent before age 67. That would mean 8.5 million individuals would reach
age 67 and enter retirement.
Of those reaching 67, their average remaining life expectancy would be around 18 years.[17] The net cost to taxpayers
of these elderly individuals would be around $17,000 per year.[18] Over 18 years, the cost would equal
$306,000 per elderly amnesty recipient. A cost of $306,000 per amnesty recipient multiplied by 8.5
million amnesty recipients results in a total net cost of $2.6 trillion.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Immigration
Immigration promotion would kill the economy – unskilled labor and strain on health care.
McNeill May 18 Policy Analyst ["Jena Backer McDeill May 18, 2009 "Amnesty as an economic stimulus" Policy analyst for
homeland security http://www.heritage.org/Research/Immigration/wm2451.cfm
the reality is that such a decision would be
very costly to the United States. While it is true that immigrants generally add to the economy, there
has been a flood of low-skill, low-educated migrants, most of whom have come to the country
illegally and many of whom bring with them similarly educated and skilled family members. These
migrants use public services, health care facilities, and schools while paying few of the taxes that
support these public sector activities--at a very high price tag. Overall, households headed by immigrants
Despite the claims that legalization would be an economic stimulus,
without a high school diploma (or low-skill immigrant households) received an average of $30,160 per household in
direct benefits, means-tested benefits, education, and population-based services in FY 2004. This cost would far
exceed the economic benefits of legalization.
Immigration kills short-term spending – Taxes and retirement.
Rector 07 Senior Researcher [Robert Rector June 6 2007 “Amnesty Will Cost U.S. Taxpayers at Least $2.6
Trillion” http://www.heritage.org/Research/Immigration/wm1490.cfm
Giving amnesty to illegal immigrants will greatly increase long-term costs to the taxpayer. Granting amnesty to illegal immigrants
would, over time, increase their use of means-tested welfare, Social Security, and Medicare. Fiscal costs would rise in the
intermediate term and increase dramatically when amnesty recipients reach retirement. Although it is difficult to provide a
precise estimate, it seems likely that if 10 million adult illegal immigrants currently in the U.S. were granted amnesty, the
net retirement cost to government (benefits minus taxes) could be over $2.6 trillion. The calculation of this figure is as
follows. As noted above, in 2007 there were, by the most commonly used estimates, roughly 10 million adult illegal
immigrants in the U.S. Most illegal immigrants are low-skilled. On average, each elderly low-skill
immigrant imposes a net cost (benefits minus taxes) on the taxpayers of about $17,000 per year. The major
elements of this cost are Social Security, Medicare, and Medicaid benefits. (The figure includes federal state and local government
costs.) If the government gave amnesty to 10 million adult illegal immigrants, most of them would eventually
become eligible for Social Security and Medicare benefits or Supplemental Security Income and Medicaid
benefits. However, not all of the 10 million adults given amnesty would survive until retirement at age 67. Normal mortality rates
would reduce the population by roughly 15 percent before age 67. That would mean 8.5 million individuals would reach age 67
and enter retirement. Of those reaching 67, their average remaining life expectancy would be around 18 years.[17] The net cost
to taxpayers of these elderly individuals would be around $17,000 per year.[18] Over 18 years, the cost would equal
$306,000 per elderly amnesty recipient. A cost of $306,000 per amnesty recipient multiplied by 8.5 million amnesty recipients
results in a total net cost of $2.6 trillion
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Legal Services
LSC is a key cause of the deficit- lawsuits
Howard Phillips, president of the conservative caucus foundation and Peter Ferrara, 1995, legal service
corporation must be zeroed out http://www.conservativeusa.org/lsc-news.htm
Measuring the true cost of the LSC, therefore, should be included in the impact of actual, threatened,
and feared LSC-related suits and other activities, on Federal, state, and local government spending for
increased welfare or other government benefits. Viewed in this way, the LSC is properly seen as a
central player in our current national deficit and debt problem.
Legal Services cost 93,000 dollars a lawyer
Jobemploymentguide.com 2007
(http://www.job-employment-guide.com/average-lawyer-salary.html) Creds to DV (temporary card; want
something better + qualed)
The average lawyer salary varies with experience, location and qualification. But to get an indicative figure of what lawyers are
earning, here are some figures. The average lawyer salary in the US was pegged at USD 90,300 p.a. by the Bureau of Labour
Statistics. The range spreads from the lower end of about USD 44,500 p.a. to the higher end of over USD 146,000 p.a. The more
successful lawyers normally practice privately. However a considerable number of lawyers are hired by the following industries
and the average salaries paid to the lawyers are given in brackets – Companies and enterprises: USD131, 900 p.a., Federal
government USD 98,800 p.a., Legal services USD 93,900 p.a., Local government USD 69,700 p.a. and State government USD
67,900 p.a. Naturally these are the industries that a successful lawyer would be looking at getting employed if he or she is not in
private practice
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Postal Service
The Postal Sevice runs a deficit
Federal Times 2009, Long recession could stymie USPS struggle for solvency,
http://www.federaltimes.com/index.php?S=3939859
The U.S. Postal Service is taking drastic steps to close a multibillion-dollar budget deficit, but experts
and postal officials say even those actions might not keep the Postal Service solvent through what
could be a long recession. The Postal Service plans to cut 100 million work hours this fiscal year. It
wants Congress to change the way it pays for its retirees’ health benefits, a move that could save
about $2 billion this year. And it asked Congress for permission to switch to five-day delivery if its
financial condition doesn’t improve. Those steps would help to plug a deficit that will almost
certainly hit $3 billion this year, and could reach as high as $6 billion, according to some experts. But if
mail volume continues to drop, or if legislators don’t approve the changes — they’re very resistant to five-day delivery — the Postal Service will have
to pursue even more drastic changes. The Postal Regulatory Commission (PRC) estimates the switch to five-day delivery could save about $2 billion a
year. The Postal Service’s internal forecast is more optimistic: It predicts about $3 billion in savings. But the plan also comes with costs. Dan Blair, the
PRC chairman, said the move to five-day delivery could decrease mail volume by up to 2 percent — though he stressed that was a rough estimate. “It
would end mail as we know it,” Blair said in an interview. “Consumers rely on six-day delivery. Moreover, senders rely on it. If you don’t receive the
mail as often, it may not be as valuable.” That would accelerate the already rapid drop in mail volume. The Postal Service released its first-quarter
financial results last week, and the numbers were bleak. Mail volume was down 9 percent compared with the same quarter in 2008 — a drop of more
than 5 billion pieces — in what is typically the Postal Service’s busiest time of year. It was the eighth consecutive quarter of accelerating declines in
volume. “These are the most challenging financial times for us in over 60 years,” said Alan Kessler, chairman of the Postal Service Board of
Governors. “Our
efforts [in cost reduction] just will not provide the relief necessary to keep the Postal
Service solvent.”
The Postal Service Runs a Deficit- it can’t provide for itself
James Gattuso, Research Fellow in Regulatory Policy at the Heritage Foundation, 2003, Can the Postal
Sevice be changed, http://www.heritage.org/Press/Commentary/ed081403c.cfm
It’s been clear for some time that the Postal Service is in trouble. Over the past several years, mail
volume has been melting like a Popsicle in August, leading to deficits three years running for USPS
(though a surplus is expected this year). The reason isn’t hard to find: the Internet. Americans have
increasingly been turning to e-mail and other electronic communication rather than go to the post
office, a trend that’s expected to accelerate
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Prisons
Prison services cost a lot of money – Michigan proves
The Grand Rapids Press newspaper 6/20/2009 http://www.mlive.com/opinion/grandrapids/index.ssf/2009/06/editorial_analyze_privatizing.html
DOC needs to consider additional ways to reduce the costs of proving
prisoner meals. Analysts estimated the state could save up to $38 million if it used a private contractor for
food service operations, as is done in Kansas and other states. During fiscal year 2006-07, Michigan spent $37.2 million
on food service staff wages. At that time, there were 490 state employees plus 5,400 prisoner employees. Some states such as
Ohio and Virginia don't have their whole system under contract. Rather, they use contracts in a couple facilities. DOC food
purchases cost taxpayers about $46 million. The report said staff did not consistently ensure that they obtained food
The auditor's June 2008 report stated that
commodities at the best prices, missing out on savings. In December, auditors reported the DOC could increase efficiency and save
money through management improvements in prisoner transportation services. Some of the recommendations were suggested
more than a decade earlier. The cost of prisoner transportation was $23.6 million during fiscal year 2006-07. In
1996, it was $14.2 million. These two services could be prime candidates for cost savings from privatization. The numbers, not
union pressure or fear of trying something new, should decide if it's in the public's interest. Michigan cannot afford any sacred
cows as it tries to regain its financial footing.
Prison Health Care costs a lot
Bedard & Frech, profs UCSB, ‘07
(Kelly Bedard & Ted E. Frech, both Economics professors at UCSB, 11/07, http://repositories.cdlib.org/cgi/viewcontent.cgi?
article=1215&context=ucsbecon) JW
There has been a large increase in contracting out for health care in U.S. prisons. As of 2004, 32 states
contract for some or all prison health services (LaFaive 2006). Despite the massive shift towards contracting out for
prison health care, the popular press has voiced concerns about the resulting quality of service for inmates. For example,
a recent series of New York Times articles by Paul von Zielbauer (2005A, B, C) blames contracting out for poor health
care in New York and Alabama, including inmate suicides and prisoners dying after being denied treatment. He blames
these poor outcomes on Prison Health Services (PHS), a large health care company which has recently received large
contracts in the states he studies. In fact, PHS is the largest private healthcare provider for penal
institutions (both prisons and jails), providing care in 28 states for 237,000 inmates, about 10 percent of the penal
population, grossing $690 million in 2004 (Zeilbaurer 2005A).1 While this is a big company, the market for
outsourced medical care is much larger still. The president of PHS estimates that $3 billion of the $7 billion spent on
penal medical care is contracted out (Business Week 2005).
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Links – Welfare
Welfare Reform is Expensive
DeLong, prof econ Berkeley, ‘96
(Brad DeLong, Associate Professor of Economics at UC Berkeley, 7/29/1996, “Welfare Reform Is Expensive: How the
Welfare
Reform
Debate
Shows
that
Our
Political
System
Is
Broken,”
http://econ161.berkeley.edu/OpEd/welfarereformisexpensive.html) JW
Now the Congress has passed a welfare reform that it hopes will move people off the rolls and save taxpayers tens
of
billions
of
dollars.
Given the popularity of moving people from welfare to work, why have past efforts at reform failed? As usual with tough
political questions, the answer is simple: Time and Money. Time, because it takes years for the investment in welfare
reform to pay off, and Money, because it is expensive to enable single mothers to support their families.
Consider the easier task faced by mothers in non-welfare, two-parent households. Fewer than one in three married women work
full time year round. Even these women face difficulties juggling child care (especially when a child is sick), parental
responsibilities, and work. Welfare recipients and other single mothers--many of whom have not graduated high school, have
disabled children, or live where jobs are scarce--find full-time work particularly difficult to find and keep.
Thus, real welfare reform requires money: for child care, for health care, for training, and for job search
assistance.
It is plausible that real welfare reform could save the federal budget money in the long-term. But real welfare
reform costs money in the short term: the support services needed to end welfare as we know it without
making hundreds of thousands of children homeless cost tens of billions of dollars in the first five and ten
years. Without such initial investments in reform--for child care, training, job search assistance, and so on--it will fail,
and leave a much worse mess to be dealt with in a decade.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
AT: Status Quo Social Services  Impact
Social Security & Medicare are only paid out of current taxes
COOK 5 – 16 – 09
Senior Editor of The Atlantic, National Journal Columnist, MBA Oxford & London School of Economics
[Clive, http://www.nationaljournal.com/njmagazine/wn_20090516_3269.php]
No sooner had the administration released this bad news than the Social Security and Medicare trustees issued their annual report.
Again because of revenue shortfalls, both programs are running down their assets faster than expected. According to the new
projections, Social Security's trust fund will be gone by 2037, four years sooner than in the previous report, and Medicare's by
2017, two years sooner than projected. Admittedly, the trust-fund structure of these programs is a bookkeeping fiction. In
economic terms, Social Security and Medicare are really just enormous pay-as-you-go programs, financed out of current taxation.
The disappearance of the funds has no economic significance. The point is simply that at present levels of payments and receipts,
they are adding faster than before to projected fiscal deficits.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Fiscal Discipline*
New commitment to fiscal discipline key to check economic collapse
Ben Benanke, Chairman of the Federal Reserve, 7/21/2009
(http://money.cnn.com/news/newsfeeds/articles/djf500/200907211037DOWJONESDJONLINE000426_FORTUNE5.htm)
Our economy and financial markets have faced extraordinary near-term challenges, and strong and timely actions to respond to
those challenges have been necessary and appropriate. I have discussed some of the measures taken by the Federal Reserve to
promote economic growth and financial stability. The Congress also has taken substantial actions, including the passage of a fiscal
stimulus package. Nevertheless, even as important steps have been taken to address the recession and the intense threats to
financial stability, maintaining the confidence of the public and financial markets requires that policymakers begin planning now
for the restoration of fiscal balance. Prompt attention to questions of fiscal sustainability is particularly critical because of the
coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in
the costs of Medicare and Medicaid. Addressing the country's fiscal problems will require difficult choices, but postponing those
choices will only make them more difficult. Moreover, agreeing on a sustainable long-run fiscal path now could yield considerable
near-term economic benefits in the form of lower long-term interest rates and increased consumer and business confidence. Unless
we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable
economic growth.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Deficit Spending
Deficit spending creates disastrous levels of inflation and loss of investor confidence.
Ing 7-16
President and Executive Chief Officer of Maison Placements Canada (09, “Gold: The Audacity of
Hyperinflation”, John Ing, http://www.safehaven.com/article-13928.htm)
Hyperinflation Redux
Today, pundits defend Obamanomics by noting the lack of inflation. Wrong. Along the way, inflation is soon to
return. We do not have price inflation, we have monetary inflation. Inflation in goods and services will
come later. We believe inflation is now inevitable, stoked by the Fed-led expansion of the money supply. Eventually
this inflation will spiral to hyperinflation. Obama's profligate monetary and fiscal policies threatens America's
financial stability, sowing the seeds for the next crisis. Government borrowings are at a record pace and it is
unlikely to be met by demand. Either the Treasury will have to raise rates to attract funding or the Fed
will have to expand their purchases. Eventually sooner rather than later, a Fed auction will fail and
then the illusive inflation cycle will begin.
The rescue of the financial system and deleveraging exercise has been accomplished by the printing
of money. US monetary base, consisting of bills and coins in circulation plus bank deposits grew at a whopping 114
percent over the past year. In the past 48 years, money supply growth averaged 6 percent.
Nowhere in history has there been an orderly or even an exit without some dislocation. To date, foreign central banks
have claims of nearly $10 trillion foreign exchange reserves of which most are in US dollar assets. Most investors today
are now familiar about the lessons of the Great Depression, but few are so sanguine about the lessons of the Twenties
and Weimar Republic's hyperinflation.
We believe this excess liquidity will eventually swamp the economy with an inflationary surge.
Furthermore the US government's torrent of borrowings has crowded out private investment
borrowings on a never seen scale. Massive government borrowings and state guarantees have dominated the
capital markets, ironically creating another re-financing problem since a scarcity of capital has increased
the cost of borrowings. US Treasuries reached four percent in June doubling in less than six months. We believe
the uptick in rates reflect concern about the future of inflation, future fiscal deficits and the future
risk appetite of foreign investors.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Deficit Spending Kills Confidence
Spending in this economy uniquely destroys investor confidence and exacerbates economic instability
Hall 7-19
Staff Writer for McClatchy Times (09, “Ballooning federal deficits putting US in dire straits”, Kevin G, Arizona Star,
http://www.azstarnet.com/business/301459)
WASHINGTON — As the Obama administration wrestles with how to pay for a costly revamp of the health-care
system and whether to spend more to spark a nearly lifeless economy, it faces shrinking fiscal room to maneuver. With
each passing day, the outlook for the government's finances grows dimmer.
Skyrocketing federal budget deficits increasingly are limiting the government's ability to take on new financial
commitments. Investors also are starting to worry about something once unthinkable: that the U.S. government could
default on its debts someday.
The federal budget deficit is the annual sum of what government spends beyond what it collects in revenues. This year's
deficit is on course to balloon to a figure equivalent to 12 percent of the nation's gross domestic product, the total annual
value of all goods and services produced.
That's double the peak Reagan-era deficit, which was the post-World War II high until now.
A June study by the Brookings Institution, a center-left policy research group, found that current increases in spending
and continuation of most George W. Bush-era tax cuts will combine to produce a 10-year deficit of $9.1 trillion. That
will drive interest payments on the national debt — the total of accumulated annual deficits — to about 3.8 percent of
the GDP by 2019. Worries about sustainability
Interest payments on the debt that high would surpass defense spending as a percentage of the GDP. Taxpayers would
get nothing in return. All that spending on interest would go only to holders of government bonds who'd financed the
past deficit spending.
"All of these figures are poised to rise further after 2019, implying that the situation is unsustainable," wrote the
Brookings authors, William Gale and Alan Auerbach.
Fear of rising federal debt is hardly new. It's intensifying now, however, because America's deep recession comes on the
eve of retirement for 75 million baby boomers, those born from 1946 to 1964. The first wave of boomers already is
reaching retirement age. Boomer retirement will strain federal health and Social Security spending as never before.
Deficit spending erodes international investor confidence
Hall 7-19
Staff Writer for McClatchy Times (09, “Ballooning federal deficits putting US in dire straits”, Kevin G, Arizona Star,
http://www.azstarnet.com/business/301459)
Another reason to fear the nation's eroding financial outlook: It could raise the cost of borrowing for everyone. If
investors who purchase U.S. government debt, mostly China and Japan, view it as risky or fret that inflation could
result, they may demand a higher interest-rate return in exchange for their investments.
That higher interest rate would mean even greater interest payments on the debt. That's no farfetched possibility. In
March, Chinese Prime Minister Wen Jiabao worried publicly about the safety of investing in U.S. government debt.
"The fears of the market about higher interest rates, inflation … are legitimate. They're justifiable," said Marty Regalia,
the chief economist of the U.S. Chamber of Commerce. "They may prove wrong, but it's not like the meandering of
deranged minds.”
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Deficit Spending Dollar Dumping
Deficit spending prompts dollar dump—kills economy.
Goodman 8
Staff Writer (Debt Sweat: Printing Money—And Its Price, December 27, New York Times,
http://www.nytimes.com/2008/12/28/weekinreview/28goodman.html?_r=1&pagewanted=all)
Borrowing and spending beyond ordinary limits largely explains how Americans got into such economic trouble. For
decades, businesses and consumers feasted relentlessly, as if gravity, arithmetic and the tyranny of debt had been
defanged by financial engineering.
Armed with credit cards and belief in a bountiful future, Americans brought home ceaseless volumes of iPods and
cashmere sweaters, and never mind their declining incomes and winnowing savings. Banks lent staggering sums of
money to homeowners with dubious credit, convinced that real estate prices could only go up. Government spent as it
saw fit, secure that foreigners could always be counted on to finance American debt.
So it may seem perverse that in this new era of reckoning — with consumers finally tapped out, government coffers
lean and banks paralyzed by fear — many economists have concluded that the appropriate medicine is a fresh dose of
the very course that delivered the disarray: Spend without limit. Print money today, fret about the consequences
tomorrow. Otherwise, invite a loss of jobs and business failures that could cripple the nation for years.
Such thinking carries the moment as President-elect Barack Obama puts together plans to spend more than $700 billion
on projects like building roads and classrooms to put people back to work. It is the philosophy behind the Federal
Reserve’s decision to drop interest rates near zero — meaning that banks can essentially borrow money for free —
while lending directly to financial institutions. This is the mentality that has propelled the Treasury to promise up to
$950 billion to aid Wall Street, Detroit and perhaps other recipients.
But where does all this money come from? And how can a country that got itself in peril by borrowing and spending
without limit now borrow and spend its way back to safety?
In the case of the Fed, the money comes from its authority to print dollars from thin air. Since late August, the Fed has
expanded its balance sheet from about $900 billion to more than $2.2 trillion, creating $1.3 trillion that did not exist to
replace some of the trillions wiped out by falling house prices and vengeful stock markets. The Fed has taken
troublesome assets off the hands of banks and simply credited them with having reserves they previously lacked.
In the case of the Treasury, the money comes from the same wellspring that has been financing American debt for
decades: Investors in the United States and around the world — not least, the central banks of China, Japan and Saudi
Arabia, which have parked national savings in the safety of American government bonds.
Americans have gotten accustomed to treating this well as bottomless, even as anxiety grows that it could one day
run dry with potentially devastating consequences.
The value of outstanding American Treasury bills now reaches $10.6 trillion, a number sure to increase as dollars are
spent building bridges, saving auto jobs and preventing the collapse of government-backed mortgage giants. Worry
centers on the possibility that foreigners could come to doubt the American wherewithal to pay back such an
extraordinary sum, prompting them to stop — or at least slow — their deposits of savings into the United States.
That could send the dollar plummeting, making imported goods more expensive for American consumers and
businesses. It would force the Treasury to pay higher returns to find takers for its debt, increasing interest rates for
home- and auto-buyers, for businesses and credit-card holders.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – China Will Dump
China is willing to shift from treasury bills to gold
Browne, Senior Market Strategist, Euro Pacific Capital, 5-7-09
(John Browne, Senior Market Strategist, Euro Pacific Capital, 5-7-09, “China Stirs a Pot of Gold,” Financial
Sense University, http://www.financialsense.com/fsu/editorials/schiff/2009/0507.html) [David Herman]
The outlook for America is for hyper-stagflation, or continued economic recession accompanied by rapidly rising prices. This calls
into question the continued role of the U.S dollar as the world's reserve. Surplus nations, particularly China, are voicing their
growing concern. They are exploring other, less volatile arrangements. They may be considering a return to the bulwark of
monetary stability: gold. Now the world's largest gold producer, China would benefit tremendously from a shift away from the
U.S. dollar and toward gold. She is clearly interested in world leadership, but would never dream of challenging the U.S.
militarily. However, in the 21st Century, the weight of economics renders martial might largely irrelevant. Still, she can't afford to
act irresponsibly. There are a few considerations that should temper her ambitions. Even with the 600 metric ton increase over the
past five years, China's gold holdings amount to only 1.6 percent of its total monetary reserves. Also, at 1,050 metric tons total,
China's holdings are still dwarfed by the 8,132 metric tons held by the United States. Nevertheless, the Chinese call for a new,
gold-linked reserve currency, combined with the near doubling of their own gold reserves, points to a major strategic trend that can
be expected to spread to other surplus nations. The biggest winners, personal or governmental, will trade their dollars for gold
before there's a rush for the door.
Despite possible consequences, China might be forced to stop investing in US treasuries if they believe
we will default on loans
Richardson, senior research fellow at the Institute of South-East Asian Studies in Singapore, ‘09
(Michael Richardson, senior research fellow at the Institute of South-East Asian Studies in Singapore, 2-16-09, “
Money test for US-China ties,” The Institute of South East Asian Studies for The Canberra Times,
http://www.canberratimes.com.au/news/opinion/editorial/general/money-test-for-uschina-ties/1434337.aspx?storypage=2)
[David Herman]
Asked whether China would continue buying US Treasury bonds or use some of its reserves for spending programs at home to
stimulate the economy, Mr Wen replied that the reserves, which China says rose to $A2.95 trillion by the end of last year, ''reflect
the economic strength of a country''. He added: ''We are now having discussions about how to make rational and effective use of
the Chinese foreign exchange reserves to serve the purpose of economic development in China.'' Of course, having parked so much
money in the US, China does not want to take any action that would undermine the value of its investments or the recovery of one
of its main export markets. But Beijing's hand might be forced and Mr Wen seemed to be warning that US officials could be
entering dangerous territory when he described continuing Chinese investment in Treasury bonds as ''a very sensitive issue''. In
April, the Treasury is due to issue the latest of its six-monthly reports on the currency policy of US trading partners. The Obama
Administration will have to determine whether to charge China with currency manipulation and trigger possible sanctions. With
the economic and financial stakes so much higher now, it will be a critically important decision and one that will test the strength
of US-China ties
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Investor Confidence
Investor confidence decline collapses the economy
The Economist 6/11/2009 (http://www.economist.com/opinion/displaystory.cfm?story_id=13829461)
This alarming trajectory puts policymakers in an increasingly tricky bind. In the short term government borrowing is an essential
antidote to the slump. Without bank bail-outs the financial crash would have been even more of a catastrophe. Without stimulus
the global recession would be deeper and longer—and it is a prolonged downturn that does the greatest damage to public finances.
But in the long run today’s fiscal laxity is unsustainable. Governments’ thirst for funds will eventually crowd out private
investment and reduce economic growth. More alarming, the scale of the coming indebtedness might ultimately induce
governments to default or to cut the real cost of their debt through high inflation. Investors have been fretting on both counts.
Worries about default have been focused on weaker countries in the euro area, particularly Greece, Ireland, Italy, Portugal and
Spain, where the single currency removes the option of unilateral inflation (see our special report). Ireland’s debt was downgraded
for a second time on June 8th. Fears of inflation have concentrated on America, where yields on ten-year Treasuries reached nearly
4% on June 10th; in December the figure was not much above 2%. Much of this rise stems from confidence about economic
recovery rather than fiscal alarm. Yet eye-popping deficits and the uncharted nature of today’s monetary policy, with the Federal
Reserve (like the Bank of England) printing money to buy government bonds, are prompting concerns that America’s debt might
eventually be inflated away. Justified or not, such worries will themselves wreak damage. The economic recovery could be
stillborn if interest rates rise too far too fast. And today’s policy remedies could become increasingly ineffective. Printing more
money to buy government debt, for instance, might send long-term bond yields higher rather than lower. What should
policymakers do? A sudden fit of fiscal austerity would be a mistake. Even when economies stop shrinking, they will stay weak.
Japan’s experience in 1997, when a rise in consumption taxes pushed the economy back into recession, is a reminder that a rush to
fiscal tightening is counterproductive, especially after a banking bust. Instead of slashing their deficits now, the rich world’s
governments need to promise, credibly, that they will do so once their economies are stronger. Lord, make me prudent—but not
yet But how? Politicians’ promises are not worth much by themselves. Any commitment to prudence must include clear principles
on how deficits will be shrunk; new rules to stiffen politicians’ spines; and quick action on politically difficult measures that would
yield future savings without denting demand much today, such as raising the retirement age. Broadly, governments should pledge
to clean up their public finances by cutting future spending rather than raising taxes. Most European countries have scant room for
higher taxes. In several, the government already hoovers up well over 40% of GDP. Tax reform will be necessary—particularly in
places, such as Britain and Ireland, which relied far too much on revenues from frothy financial markets and housing bubbles.
Even in the United States, where tax revenues add up to less than 30% of GDP, simply raising tax rates is not the best answer.
There too, spending control should take priority, though there is certainly room for efficiency-enhancing tax reforms, such as
eliminating the preferential tax treatment of housing and the deductibility of employer-provided health insurance.
Confidence decline kills the economy
Seeking Alpha, 7/22/2009 (http://seekingalpha.com/article/150348-global-recession-off-the-menu-for-2010)
Investor confidence during recessions is hard won, but easily lost. Pessimism is contagious. Selling pressure can intensify,
accelerating the downside momentum. Forecasts of new lows become self-fulfilling prophecies as sellers scramble to reduce
exposure to risky assets. We saw this scenario late in 2008 and again into March 2009 when equity markets fell repeatedly to new
multi-year lows.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Investor Confidence
New stimulus freaks out financial advisors – study proves
Brinker Capital, Leading Independent Investment Management Firm, 7/21/2009
(http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20090721005870&newsLang=en)
Financial advisors continue to be critical of the Obama Administration’s policies and general effectiveness in righting the
economy. In a series of questions related to their views on Washington, respondents indicated as follows:
* Which of the
Obama Administration policies do you consider to be more effective?
o Domestic (23%)
o Foreign (13%)
o
Neither (64%) * Do you think the economic stimulus plan is working?
o Yes (39%)
o No (61%)
* Do you think
the stimulus plan has any chance of delivering on its promise?
o Yes (32%)
o No (68%)
Brinker study info
Brinker Capital, Leading Independent Investment Management Firm, 7/21/2009
(http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20090721005870&newsLang=en)
About the Study The Brinker Barometer® was conducted online by Brinker Capital in June 2009. Results are based on responses
from 253 advisors affiliated with insurance companies, independent broker-dealers and in sole practice. The study’s copyright is
held by Brinker Capital.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Investor Confidence
Deficit spending collapses investor confidence – Debt defaulting and inflation.
Hall
09
[Kevin G.
Hall
07.19.2009 "Ballooning Federal
deficits
putting US
in
Dire
straits"
http://www.azstarnet.com/business/301459
Skyrocketing federal budget deficits increasingly are limiting the government's ability to take on new financial
commitments. Investors also are starting to worry about something once unthinkable: that the U.S. government could
default on its debts someday. The federal budget deficit is the annual sum of what government spends beyond what it
collects in revenues. This year's deficit is on course to balloon to a figure equivalent to 12 percent of the nation's gross
domestic product, the total annual value of all goods and services produced. That's double the peak Reagan-era deficit,
which was the post-World War II high until now. A June study by the Brookings Institution, a center-left policy
research group, found that current increases in spending and continuation of most George W. Bush-era tax cuts will
combine to produce a 10-year deficit of $9.1 trillion. That will drive interest payments on the national debt — the total
of accumulated annual deficits — to about 3.8 percent of the GDP by 2019. Interest payments on the debt that high
would surpass defense spending as a percentage of the GDP. Taxpayers would get nothing in return. All that spending
on interest would go only to holders of government bonds who'd financed the past deficit spending.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Small Businesses (HELLO ASHISH)
Increased taxes uniquely damage small businesses
Senator Grassley 7/15
Senator Chuck Grassley, Masters from University of Northern Iowa and senator for 28 years, “U.S. Sen.
Grassley: Floor speech on proposed small business tax increases”
http://www.iowapolitics.com/index.iml?Article=164632 [LO//AS]
Some of my colleagues on the other side of the aisle have defended this proposal by claiming they will only raise taxes on
"wealthy" taxpayers who make over $200,000 a year. For the vast majority of people who earn less than $200,000, raising taxes on
higher earners might not sound so bad. However, this means that many small businesses will be hit with a higher tax
bill. These small businesses happen to create 70 percent of all new private sector jobs in the United States. These
small businesses that are sole proprietorships, S corporations, partnerships, and LLCs would get hit with the President's
proposal to raise the top two marginal tax rates if their owners make over $200,000. In addition, there are just under
2 million small C corporations that are subject to double taxation. To the extent these C corporations' owners
make over $200,000 and pay themselves a salary, they would get hit with the tax increase on the top two
marginal tax rates proposed by the President and Congressional Democrats. Also, owners of small C corporations that
receive dividends or realize capital gains and make over $200,000 would pay a 20 percent rate on these
dividends and capital gains after 2010 under these tax hike proposals. Currently, they pay a rate of 15 percent on these capital
gains and dividends. As if this wasn't bad enough for small business, the House Democrats have proposed a graduated surtax of up
to 5.4 percent on those making over $280,000. With this small business surtax, a family of four in the top two brackets
will pay a marginal tax rate of in the range between 43 and 46.4 percent in 2013. This would result in an
increase of the marginal tax rates by a minimum of 23 percent and a maximum of 33 percent.Candidate Obama pledged on
the campaign trail that, quote, "Everyone in America--everyone--will pay lower taxes than they would under the rates Bill Clinton
had in the 1990s." The small business surtax proposed by the House Democrats would violate President Obama's pledge.
Therefore, I stand with President Obama in opposing the small business surtax proposed by the House Democrats. According to
NFIB survey data, 50 percent of owners of small businesses that employ 20 to 249 workers would fall in the
top two brackets. According to the Small Business Administration, about two-thirds of the nation's small business workers are
employed by small businesses with 20-500 employees
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Foreign Investment
Deficit spending kills foreign investment
Ebeling, president of The Foundation for Economic Education, 2-06-09
(Richard M. Ebeling, president of The Foundation for Economic Education, B.A. in economics from California State
University, Sacramento, and his M.A. in economics from Rutgers University. Professor Ebeling has been a lecturer in
economics at the National University of Ireland at Cork (1981–1983), assistant professor of economics at the University of
Dallas (1984–1988), and Ludwig von Mises professor of economics at Hillsdale (1988–2003). He has been at FEE since
2003., 2-06-09, Who Will Fund Obama's Stimulus Spending?, American Institute for Economic Research,
http://www.aier.org/research/commentaries/1105-will-foreigners-bailout-obamas-stimulus-spending) [David Herman]
The president’s stimulus package, which in the Senate version may top $900 billion, will require the United
States government to go much further into debt to cover the cost of spending these hundreds of billions of
dollars. The question is: Who is going to lend all this money to Uncle Sam? The current decade Federal
government debt has doubled, from $5.6 trillion in 2000 to more than $10.6 trillion at the end of 2008. As the chart
below shows, almost $6.3 trillion or nearly 60 percent of the debt is held by the public (individuals, corporations,
financial institutions, or foreign holders). The remaining $4.3 trillion or 40 percent is held by intragovernmental
agencies (the Federal Reserve, the Social Security Fund, the Federal Employees Retirement Fund, and a variety of other
government entities). The Federal government is already tapping into all of the agencies, such as the Social
Security Fund, that are currently running surpluses to siphon off funds to help cover its current expenditures. On the
other hand, given the uncertainties in the financial markets, U.S. Treasuries have continued to appear as a
relative safe haven for private investors. However, the Congressional Budget Office has estimated that the Federal
government will need to borrow at least $1.5 trillion dollars in the current fiscal year to cover the implemented and
planned bailout and “stimulus” spending. To do this Uncle Sam has both to issue new debt and rollover existing debt
that matures. It is questionable whether private individuals or corporations in the United States will have either the
willingness or ability to finance deficit spending of this magnitude. At the end of 2008, foreigners held more than $3
trillion or about 30 percent of the U.S. Treasury debt. China tops the list of these foreign holders, with more than
$680 billion in its investment portfolio. Japan comes in second, holding $577 billions in U.S. government securities.
Great Britain is third with Treasury holdings of $360 billion, followed by the leading oil exporting nations holding $198
billion in Treasuries, and Brazil and Russia holding respectively more than $129 billion and $78 billion. Despite the
current economic crisis and the hit American financial institutions have taken during the last six months, foreign
holdings of government debt has continued to grow. In November 2007, foreign debt holdings totaled $2.3 trillion, and
crossed the $3 trillion mark in October and November of 2008, for a 30 percent increase over the 12 month
period.(Japan, however, decreased its holdings of U.S. Treasuries by 4 percent during this time.) The question now is
whether the U.S. government, with more than $1.5 trillion in deficit spending to finance in the current fiscal
year, can continue to count on foreign lenders to pick up a large proportion of what these expenditures are going
to cost. All the European countries are facing growing budget deficits of their own as their respective governments
all go down the same stimulus spending path being followed by Washington. It is estimated that European Union
nations will likely spend at least a combined total of $250-$300 billion on their own economic recovery programs in
2009. At the same time, the fall in oil prices has cut down on trade surpluses oil exporting countries will have to
invest in the U.S. financial markets. The global recession is hitting China’s exporting revenues as well.
Furthermore, the Chinese are becoming increasing leery of lending to the American markets. At the recent
international meeting of bankers, businessmen, and bureaucrats in Davos, Switzerland, Chinese officials made clear
their dissatisfaction with the American market, where they have suffered significant losses in banks and other financial
institutions into which they had invested. In the last five months of 2008, the Chinese sold off almost half of the $46
billion is Fannie Mae and Freddie Mac bonds that they had purchased in the earlier part of the year. If foreign lenders
do not come to the rescue, Uncle Sam will have to rely far more than in the recent past on the financial markets
at home to finance its deficit spending dollars. A lot of new bank lending--with perhaps some of the billions already
given by Washington to bailout many of these banks--will have to end up covering the federal government’s
expenditures, rather than being available for private sector investment and employment creation. This amount
of borrowing will inevitably put upward pressure on interest rates to attract that $1.5 trillion into the
government's hands. It will further exacerbate the crowding out of private sector borrowing at a time when
prospective profit margins will still be relatively weak. That leaves only one “solution” to Washington’s deficit
funding problems: more monetary expansion by the Federal Reserve to provide the spending dollars and keep
interests artificially below market-based levels. That can only set the stage for worsening price inflation and a
new unsustainable investment boom.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Interest Rates
Lack of foreign confidence in treasury bills could drive up interest rates
Aljazeera, 7-14-09
(Aljazeera, 7-14-09, US deficit surges past $1 trillion, Aljazeera.net,
http://english.aljazeera.net/business/2009/07/200971323573296121.html)
The US treasury department said on Monday that the deficit in June totalled $94.3bn, pushing the nine-month total since the
budget year started in October to $1.09 trillion. The Obama administration now forecasts that the deficit for the budget year will
reach $1.84 trillion by end September, intensifying fears over interest rates, inflation and the strength of the dollar. The debt is
largely financed by the sale of US treasury bonds and bills and the deficit is making Chinese and other foreign buyers of those
instruments nervous about their security. It could also force the US treasury department to pay higher interest rates to make US
debt attractive in the long-run.
Reduced Chinese demand for treasury bills raises interest rates
Bradsher, staff writer, ‘09
(Keith Bradsher, staff writer, 1-7-09, China Losing Taste for Debt From U.S., The New York Times,
http://www.nytimes.com/2009/01/08/business/worldbusiness/08yuan.html?pagewanted=all
China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is
starting to keep more of its money at home, a move that could have painful effects for American borrowers. The
declining Chinese appetite for United States debt, apparent in a series of hints from Chinese policy makers over the last
two weeks, with official statistics due for release in the next few days, comes at an inconvenient time. On Tuesday,
President-elect Barack Obama predicted the possibility of trillion-dollar deficits “for years to come,” even after
an $800 billion stimulus package. Normally, China would be the most avid taker of the debt required to pay for
those deficits, mainly short-term Treasuries, which are government i.o.u.’s. In the last five years, China has
spent as much as one-seventh of its entire economic output buying foreign debt, mostly American. In September,
it surpassed Japan as the largest overseas holder of Treasuries. But now Beijing is seeking to pay for its own $600
billion stimulus — just as tax revenue is falling sharply as the Chinese economy slows. Regulators have ordered
banks to lend more money to small and medium-size enterprises, many of which are struggling with lower
exports, and to local governments to build new roads and other projects. “All the key drivers of China’s Treasury
purchases are disappearing — there’s a waning appetite for dollars and a waning appetite for Treasuries, and that
complicates the outlook for interest rates,” said Ben Simpfendorfer, an economist in the Hong Kong office of the
Royal Bank of Scotland. Fitch Ratings, the credit rating agency, forecasts that China’s foreign reserves will
increase by $177 billion this year — a large number, but down sharply from an estimated $415 billion last year.
China’s voracious demand for American bonds has helped keep interest rates low for borrowers ranging from the
federal government to home buyers. Reduced Chinese enthusiasm for buying American bonds will reduce this
dampening effect. For now, of course, there seems to be no shortage of buyers for Treasury bonds and other debt
instruments as investors flee global economic uncertainty for the stability of United States government debt. This
is why Treasury yields have plummeted to record lows. (The more investors want notes and bonds, the lower the
yield, and short-term rates are close to zero.) The long-term effects of China’s using its money to increase its
people’s standard of living, and the United States’ becoming less dependent on one lender, could even be positive.
But that rebalancing must happen gradually to not hurt the value of American bonds or of China’s huge
holdings. Another danger is that investors will demand higher returns for holding Treasury securities, which will put
pressure on the United States government to increase the interest rates those securities pay. As those interest rates
increase, they will put pressure on the interest rates that other borrowers pay.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Public Sector
Expansion of the public sector gives rise to protectionism and stagflation
Kaletsky, Former economics editor and now the Editor-at-large of the Financial Times, 7-16-09 [Anatole Kaletsky, Former
economics editor and now the Editor-at-large of the Financial Times, ”Don’t Worry about rate rises, fear stagflation”,
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article6715405.ece]
The third reason for genuine worry is the threat of long-term inflation created not by central banks but by adverse
structural changes in the world economy. In the 1970s the world learnt that galloping inflation was possible even in
conditions of high unemployment, if competition was thwarted by militant unions, expanding public sectors,
protectionist governments and energy cartels. If unions and commodity cartels grow stronger, public spending keeps
increasing and trade barriers start to rise, a return to the nightmare of stagflation — the lethal combination of rising
prices and stagnant economic activity — will become a genuine threat. The consolation is that such structural changes
occur over decades, not years. Stagflation, therefore, is not a monster that will suddenly appear between now and the
end of the summer holidays. Until then enjoy a pleasant break.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Internals – Taxes
Taxes hurt small businesses
The Essene 7/19
The Essene on Daily Kos “A Universal Tax to Pay for Universal Health Care”
http://www.dailykos.com/storyonly/2009/7/16/754259/-A-Universal-Tax-to-Pay-for-Universal-Health-Care
However, the high income tax surtax is not painless for the middle class. Its cost will fall principally on those small family
businesses that create 80% of our jobs, and the middle class already suffers from a desperate shortage of jobs. Politicians can be
sure that the middle class will notice a jobless recovery, assuming recovery can even begin. Almost all small businesses have
"pass-through treatment" where the owners include the business income in their federal income tax returns and then pay tax on it,
whether they receive cash or not. Thus, family and other small businesses pay tax not at corporate rates, but at individual rates.
Small business owners, therefore, have to pay the surtax or any tax increase in marginal rates on their business income whether
they spend the money or reinvest it in their businesses, leaving the owners with less capital to expand or hire. On the other hand,
big international corporations pay nothing more in tax, leaving small businesses at a competitive disadvantage and unable to raise
prices to offset the increased tax.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
AT: Econ Resilient – Small Businesses
Small businesses are THE reason for economic resiliency
Sullivan ’02 (Thomas M, Chief Counsel for Advocacy U.S. House of Representatives, March 12,
Committee: House Government Reform, FDCH, ln)
The RFA, SBREFA and the Office of Advocacy exist because of the bedrock importance of small business
to our economy, both at the national and community levels. The latest data we have indicate that small businesses:
Represent
more
than
99
percent
of
all
employers;
Employ
51
percent
of
private
sector
workers;
Provide
about
75
percent
of
net
new
jobs;
and
Represent
96
percent
of
all
exporters
of
goods.
Small businesses are and have historically been our nation's primary source of innovation, job creation, and
productivity. They have led us out of recessions and economic downturns , offsetting job contraction by larger
firms, and providing new goods and services. They have provided tremendous economic empowerment opportunities for women
and minority entrepreneurs. They play an invaluable role in our defense industrial base. Small employers spend more
than $1.5 trillion on their payroll. In order for small businesses to continue to be such a valuable asset to our
nation's economy, they must have a level playing field. The regulatory playing field is a vital one for small
business.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Mead 2009
Economic collapse causes World War Three
Mead, 9 – Henry A. Kissinger Senior Fellow in U.S. Foreign Policy at the Council on Foreign Relations
(Walter Russell, “Only Makes You Stronger,” The New Republic, 2/4/09,
http://www.tnr.com/politics/story.html?id=571cbbb9-2887-4d81-8542-92e83915f5f8&p=2)
The damage to China's position is more subtle. The crisis has not--yet--led to the nightmare scenario that China-watchers fear: a
recession or slowdown producing the kind of social unrest that could challenge the government. That may still come to pass--the
recent economic news from China has been consistently worse than most experts predicted--but, even if the worst case is avoided,
the financial crisis has nevertheless had significant effects. For one thing, it has reminded China that its growth remains dependent
on the health of the U.S. economy. For another, it has shown that China's modernization is likely to be long, dangerous, and
complex rather than fast and sweet, as some assumed. In the lead-up to last summer's Beijing Olympics, talk of a Chinese bid to
challenge America's global position reached fever pitch, and the inexorable rise of China is one reason why so many commentators
are fretting about the "post-American era." But suggestions that China could grow at, say, 10 percent annually for the next 30 years
were already looking premature before the economic downturn. (In late 2007, the World Bank slashed its estimate of China's GDP
by 40 percent, citing inaccuracies in the methods used to calculate purchasing power parity.) And the financial crisis makes it
certain that China's growth is likely to be much slower during some of those years. Already exports are falling, unemployment is
rising, and the Shanghai stock market is down about 60 percent. At the same time, Beijing will have to devote more resources and
more attention to stabilizing Chinese society, building a national health care system, providing a social security net, and caring for
an aging population, which, thanks to the one-child policy, will need massive help from the government to support itself in old
age. Doing so will leave China fewer resources for military build-ups and foreign adventures. As the crisis has forcefully reminded
Americans, creating and regulating a functional and flexible financial system is difficult. Every other country in the world has
experienced significant financial crises while building such systems, and China is unlikely to be an exception. All this means that
China's rise looks increasingly like a gradual process. A deceleration in China's long-term growth rate would postpone indefinitely
the date when China could emerge as a peer competitor to the United States. The present global distribution of power could be
changing slowly, if at all. The greatest danger both to U.S.-China relations and to American power itself is probably not that
China will rise too far, too fast; it is that the current crisis might end China's growth miracle. In the worst-case scenario, the turmoil
in the international economy will plunge China into a major economic downturn. The Chinese financial system will implode as
loans to both state and private enterprises go bad. Millions or even tens of millions of Chinese will be unemployed in a country
without an effective social safety net. The collapse of asset bubbles in the stock and property markets will wipe out the savings of a
generation of the Chinese middle class. The political consequences could include dangerous unrest--and a bitter climate of antiforeign feeling that blames others for China's woes. (Think of Weimar Germany, when both Nazi and communist politicians
blamed the West for Germany's economic travails.) Worse, instability could lead to a vicious cycle, as nervous investors moved
their money out of the country, further slowing growth and, in turn, fomenting ever-greater bitterness. Thanks to a generation of
rapid economic growth, China has so far been able to manage the stresses and conflicts of modernization and change; nobody
knows what will happen if the growth stops. India's future is also a question. Support for global integration is a fairly recent
development in India, and many serious Indians remain skeptical of it. While India's 60-year-old democratic system has resisted
many shocks, a deep economic recession in a country where mass poverty and even hunger are still major concerns could
undermine political order, long-term growth, and India's attitude toward the United States and global economic integration. The
violent Naxalite insurrection plaguing a significant swath of the country could get worse; religious extremism among both Hindus
and Muslims could further polarize Indian politics; and India's economic miracle could be nipped in the bud. If current market
turmoil seriously damaged the performance and prospects of India and China, the current crisis could join the Great Depression
in the list of economic events that changed history, even if the recessions in the West are relatively short and mild. The United
States should stand ready to assist Chinese and Indian financial authorities on an emergency basis--and work very hard to help
both countries escape or at least weather any economic downturn. It may test the political will of the Obama administration, but
the United States must avoid a protectionist response to the economic slowdown. U.S. moves to limit market access for Chinese
and Indian producers could poison relations for years. For billions of people in nuclear-armed countries to emerge from this
crisis believing either that the United States was indifferent to their well-being or that it had profited from their distress could
damage U.S. foreign policy far more severely than any mistake made by George W. Bush. It's not just the great powers whose
trajectories have been affected by the crash. Lesser powers like Saudi Arabia and Iran also face new constraints. The crisis has
strengthened the U.S. position in the Middle East as falling oil prices reduce Iranian influence and increase the dependence of the
oil sheikdoms on U.S. protection. Success in Iraq--however late, however undeserved, however limited--had already improved the
Obama administration's prospects for addressing regional crises. Now, the collapse in oil prices has put the Iranian regime on the
defensive. The annual inflation rate rose above 29 percent last September, up from about 17 percent in 2007, according to Iran's
Bank Markazi. Economists forecast that Iran's real GDP growth will drop markedly in the coming months as stagnating oil
revenues and the continued global economic downturn force the government to rein in its expansionary fiscal policy. All this has
weakened Ahmadinejad at home and Iran abroad. Iranian officials must balance the relative merits of support for allies like
Hamas, Hezbollah, and Syria against domestic needs, while international sanctions and other diplomatic sticks have been made
Premature pullout always fails
DDI 2009
Econ Generic
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
more painful and Western carrots (like trade opportunities) have become more attractive. Meanwhile, Saudi Arabia and other oil
states have become more dependent on the United States for protection against Iran, and they have fewer resources to fund
religious extremism as they use diminished oil revenues to support basic domestic spending and development goals. None of this
makes the Middle East an easy target for U.S. diplomacy, but thanks in part to the economic crisis, the incoming administration
has the chance to try some new ideas and to enter negotiations with Iran (and Syria) from a position of enhanced strength. Every
crisis is different, but there seem to be reasons why, over time, financial crises on balance reinforce rather than undermine the
world position of the leading capitalist countries. Since capitalism first emerged in early modern Europe, the ability to exploit the
advantages of rapid economic development has been a key factor in international competition. Countries that can encourage--or at
least allow and sustain--the change, dislocation, upheaval, and pain that capitalism often involves, while providing their
tumultuous market societies with appropriate regulatory and legal frameworks, grow swiftly. They produce cutting-edge
technologies that translate into military and economic power. They are able to invest in education, making their workforces ever
more productive. They typically develop liberal political institutions and cultural norms that value, or at least tolerate, dissent and
that allow people of different political and religious viewpoints to collaborate on a vast social project of modernization--and to
maintain political stability in the face of accelerating social and economic change. The vast productive capacity of leading
capitalist powers gives them the ability to project influence around the world and, to some degree, to remake the world to suit their
own interests and preferences. This is what the United Kingdom and the United States have done in past centuries, and what other
capitalist powers like France, Germany, and Japan have done to a lesser extent. In these countries, the social forces that support the
idea of a competitive market economy within an appropriately liberal legal and political framework are relatively strong. But, in
many other countries where capitalism rubs people the wrong way, this is not the case. On either side of the Atlantic, for example,
the Latin world is often drawn to anti-capitalist movements and rulers on both the right and the left. Russia, too, has never really
taken to capitalism and liberal society--whether during the time of the czars, the commissars, or the post-cold war leaders who so
signally failed to build a stable, open system of liberal democratic capitalism even as many former Warsaw Pact nations were
making rapid transitions. Partly as a result of these internal cultural pressures, and partly because, in much of the world, capitalism
has appeared as an unwelcome interloper, imposed by foreign forces and shaped to fit foreign rather than domestic interests and
preferences, many countries are only half-heartedly capitalist. When crisis strikes, they are quick to decide that capitalism is a
failure and look for alternatives. So far, such half-hearted experiments not only have failed to work; they have left the societies
that have tried them in a progressively worse position, farther behind the front-runners as time goes by. Argentina has lost ground
to Chile; Russian development has fallen farther behind that of the Baltic states and Central Europe. Frequently, the crisis has
weakened the power of the merchants, industrialists, financiers, and professionals who want to develop a liberal capitalist society
integrated into the world. Crisis can also strengthen the hand of religious extremists, populist radicals, or authoritarian
traditionalists who are determined to resist liberal capitalist society for a variety of reasons. Meanwhile, the companies and banks
based in these societies are often less established and more vulnerable to the consequences of a financial crisis than more
established firms in wealthier societies. As a result, developing countries and countries where capitalism has relatively recent and
shallow roots tend to suffer greater economic and political damage when crisis strikes--as, inevitably, it does. And, consequently,
financial crises often reinforce rather than challenge the global distribution of power and wealth. This may be happening yet again.
None of which means that we can just sit back and enjoy the recession. History may suggest that financial crises actually help
capitalist great powers maintain their leads--but it has other, less reassuring messages as well. If financial crises have been a
normal part of life during the 300-year rise of the liberal capitalist system under the Anglophone powers, so has war. The wars of
the League of Augsburg and the Spanish Succession; the Seven Years War; the American Revolution; the Napoleonic Wars; the
two World Wars; the cold war: The list of wars is almost as long as the list of financial crises. Bad economic times can breed
wars. Europe was a pretty peaceful place in 1928, but the Depression poisoned German public opinion and helped bring Adolf
Hitler to power. If the current crisis turns into a depression, what rough beasts might start slouching toward Moscow,
Karachi, Beijing, or New Delhi to be born? The United States may not, yet, decline, but, if we can't get the world economy back
on track, we may still have to fight.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Economic Decline  Nuclear War
Prolonged Recession yields nuclear war- must avert it now- empirically proven
Sean O’Donnell Staff Writer, Baltimore Examiner, B.A. in History from the University of Maryland 2/26,
Will this recession lead to World War II, http://www.examiner.com/x-3108-Baltimore-RepublicanExaminer~y2009m2d26-Will-this-recession-lead-to-World-War-III
Could the current economic crisis affecting this country and the world lead to another world war? The answer may be
found by looking back in history. One of the causes of World War I was the economic rivalry that existed between the
nations of Europe. In the 19th century France and Great Britain became wealthy through colonialism and the control of
foreign resources. This forced other up-and-coming nations (such as Germany) to be more competitive in world trade
which led to rivalries and ultimately, to war. After the Great Depression ruined the economies of Europe in the 1930s,
fascist movements arose to seek economic and social control. From there fanatics like Hitler and Mussolini took over
Germany and Italy and led them both into World War II. With most of North America and Western Europe currently
experiencing a recession, will competition for resources and economic rivalries with the Middle East, Asia, or South
American cause another world war? Add in nuclear weapons and Islamic fundamentalism and things look even worse.
Hopefully the economy gets better before it gets worse and the terrifying possibility of World War III is averted. However
sometimes history repeats itself.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – U.S. Key to Global Economy
The US is key to global econ – rest of the world failing
Kaczmarek, Editor-in-Chief of the SAIS Review of International Affairs and M.A. Candidate, 08
(Matthew D. Kaczmarek, Editor-in-Chief of the SAIS Review of International Affairs and M.A. Candidate of 2000, Summer-Fall
2008, The SAIS Review of International Affairs, Volume 28, Number 2, pp. 207-209)
While the economic policy of the U.S. Government can no longer be printed on IMF letterhead and declared global
consensus ipso facto, it is wrong to assume that the United States has somehow relinquished its mandate to lead. The
world is awash in conflicting bilateral trade agreements, varying degrees of capital mobility, and wildly
inconsistent access within nations to the fruits of global development. If there is a time for the United States to
demonstrate sober global leadership while responsibly advancing its own interests and ideals, it is now. With the Doha
round stagnating and the Bank and Fund deep into an identity crisis, but with the memories of the economic turbulence
of the 1980s and 90s still fresh in the mind, an uncertain world continues to look toward the United States to show a
willingness to step up to engage the recalcitrant global economy. The process of reengagement is difficult and will
undoubtedly prove frustrating for the next administration. The G-8 is no longer a useful forum for building global
economic consensus unless it moves more quickly to include emerging economic powers. The IMF must continue in its
reform mission as well as embrace the need to become the explicit lender of last resort to sovereign nations. The next
administration should develop clear and thoughtful goals for engagement with each global region, and build ties,
embrace, and nurture mutually beneficial relationships with emerging regional leaders. The days of proxy wars for
spheres of influence are long gone, while the flood of economic support in exchange for political-security cooperation is
showing no faster diminishing returns than in Pakistan and Iraq. The authors in the preceding pages of this volume have
debated the costs, effectiveness, and opportunities for multilateral engagement across a wide range of specific issues.
Where the United States continues to hold absolute supremacy, such as military power, and where ideological
objectives are concerned, such as the continuing “War on Terror”, the U.S. enjoys the luxury to choose whether or not
to engage the rest of the world in a multilateral discussion and debate. On economic development, there is no such
choice. The future prosperity of billions of low and middle income citizens around the world, and the continued
success of today’s leading economies depends on a sound and stable global economic architecture, and the deferential
respect afforded the U.S. in the global economy begs for its reengagement.
American consumption key to global economic growth – other nations can’t replace the US’ spot
Sull, President and Chief Investment Officer at Pacific Partners-Capital Management, 7-2
Ajbinder Sull, President and Chief Investment Officer at Pacific Partners – Capital Management, 7-2-09, The Financial Post, “The
US Consumer: Engine of the Global Economy Gears Down”
Over the years, the world the world has looked to the US consumer to lead the way out of economic downturns.
Currently, the US consumer accounts for almost 70% of the American economy and about 15 - 17% of the global
economy. Economists had long derided the “Spend! Spend! Spend!” ways of Americans. Credit was a means to an end.
The rising real estate prices that had lasted for much of this decade allowed consumers to cash out some of the equity
from their homes to continue the odyssey of lifestyle improvement. This gave way to the notion that US consumers
were using their homes as ATM machines. But a funny thing has happened during the current economic slowdown.
US consumers have retrenched from vigorous consumption in order to save more. As the chart below shows, savings
rates in the US have gone from a negative rate (consumers adding debt to consume) to positive. Current statistics show
that the savings rate in the US is on track to approach a level of about 7% later this year. This change in behavior is
both positive and negative. The negative case for this change is that it means that other countries will have to bolster
their own consumption and investment as an offset. This will not be easy as Asian nations have a higher rate of
savings. Europe’s economy will likely take much longer to get moving as is usually the case after economic slowdowns.
For the financial markets this means that any excessive optimism should be tempered with this realization that the
coming economic recovery will be different than any we have seen in quite some time. The positive side to this change
is that it will mean less reliance by the US on foreign capital to help fund the budget deficit. These rising savings rates
are ending up in the US banking system and will provide more fuel for the US banking system to lend a helping hand to
the US economy. Not to mention - helpful to the US dollar. The irony is that just as the world would welcome the US
consumer going back to old habits of spending and consuming, Americans have realized that a little savings can go a
long way. The price of this change in behavior is that global economic growth will not rebound as fast and as
much as the markets might be hoping for.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – U.S. Key to Global Economy
US economic decline hits other nations – unsettles global financial markets
Lynch, Graduate of Wesleyan University and M.A. International Relations at Yale, 07
David J. Lynch, Graduate of Wesleyan University and M.A. International Relations at Yale, 12-10-07, USA Today, “Slowing US
Economy Inflicts Pain around the World”
The extent to which other economies have "decoupled" from their traditional dependence upon the U.S. economic
engine, however, remains a topic of debate. On one hand, three countries — China, India and Russia — accounted for
more than half of global economic growth over the past year, according to the IMF. So emerging markets are expected
to shoulder principal responsibility for keeping the global economy moving forward in 2008. But the U.S. economy
remains the world's largest, and a sharp fall in demand here for others' goods will reverberate. Canada and
Mexico, sending 81% of their exports to the USA, are the USA's top trading partners — and the countries most
exposed to a serious U.S. downturn. Economic weakness in the USA can hit other countries both by unsettling
global financial markets, thus curbing access to capital, and by depressing trade. "The U.S. and Asian economies
are not decoupled, and a slowdown here is likely to produce ripple effects lowering growth there," says Janet Yellen,
president of the Federal Reserve Bank of San Francisco. Whether the rest of the world can, in fact, shrug off slower
U.S. growth remains to be demonstrated. But the remedies central banks are choosing to fight the credit crunch are
putting strains on other parts of the global financial system, which could ultimately damage growth in some emerging
markets. Central banks in the USA, United Kingdom and Canada have cut interest rates in recent weeks, trying to
counteract banks' reluctance to make new loans. On Tuesday, the Federal Reserve, which already has trimmed the target
for its benchmark rate by three-quarters of a percentage point since September, is widely expected to cut rates again.
The Fed's actions ricochet from Beijing to Dubai. Countries such as China and the oil producers of the six-nation Gulf
Cooperation Council, which link their currencies to the level of the U.S. dollar to varying degrees, face a choice
between setting interest rates according to the needs of their domestic economies or tailoring rates to maintain stable
exchange rates. That means keeping their exchange rates stable against the dollar and importing inflation or raising
their interest rates to head off inflation at the cost of seeing their currencies appreciate. So far, the quasi-dollar-linked
countries are swallowing higher prices and the potential for overheating. In Qatar, for example, inflation runs at an
annual rate of almost 13%. Current monetary policies and exchange rates are "completely out of kilter with what these
countries need and might actually encourage the bubble in emerging markets to get bigger. … It is really only a
question of time before we have this regime change in the global monetary system," says George Magnus, senior
economic adviser of UBS (UBS) in London. That said, most economists expect the global economy to pull through —
unless another unexpected shock hits. "We're in this window of vulnerability. If something else comes along, we don't
have a lot of padding," says Harvard's Rogoff. "We're very vulnerable."
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – U.S. Key to Global Economy
The US is essential to the global economy – no other country is close to US production.
Fisher, President of the federal reserve bank, 06
Richard W. Fisher, President of the Federal Reserve Bank in Dallas. 2/6/06. “The United States: Still the Growth Engine
for the World Economy?”
My kind hosts, who had no idea that this event would follow so closely on the heels of the meager growth estimate reported for
last year’s fourth quarter, have asked me to address the question: Is the United States still the growth engine for the world? The
answer is yes. Let me explain why. The American economy has been on an upswing for more than four years. Growth advanced
briskly at 4.2 percent in 2004. It slowed to a still solid 3.5 percent in 2005, although I would not be surprised if GDP were revised
upward when we take a more definitive look at the fourth quarter. In January, the U.S. economy employed 134.6 million people,
up 2.2 million in a year. Unemployment stood at a four-year low of 4.7 percent, which compares with the latest reading of 8.4
percent for Europe and even higher rates for some of the continent’s major economies. We have weathered hurricanes’ fury and
record-high energy prices while continuing to grow and keep inflation under control. The statement the Federal Open Market
Committee released Tuesday quite summed up our current situation succinctly: “Although recent economic data have been
uneven, the expansion in economic activity appears solid.” This is especially true in what I call the “growth rim”—an arc of
population centers with favorable demographics that begins in Virginia, runs down the southeastern seaboard through Georgia to
Florida, then through the megastate of Texas and on to the uberstate of California and up to Seattle. I use “mega” and “uber” to
describe the two largest states for a reason: to illustrate the depth and breadth of our economy. In dollar terms, Texas produces 20
percent more than India, and California produces roughly the same output as China. To the extent there is weakness in the
U.S. economy, it is in the Northeast and North Central states. Netting all this out, the consensus of most economic forecasters is
that growth in the first quarter will rebound to a rate well above 4 percent. To understand what this kind of growth means, we
need only follow Margaret Thatcher’s wise hectoring to “do the math.” The United States produces $12.6 trillion a year in goods
and services. Be conservative—once again, Lady Thatcher would like it—and assume that in 2006 we grow at last year’s
preliminary rate of 3.5 percent. The math tells us we would add $440 billion in incremental activity—in a single year. That is a big
number. What we add in new economic activity in a given year exceeds the entire output of all but 15 other countries. Every
year, we create the economic equivalent of a Sweden—or two Irelands or three Argentinas. In dollar terms, a growth rate of 3.5
percent in the U.S. is equivalent to surges of 16 percent in Germany, 20 percent in the U.K., 26 percent in China and 70
percent in India. Of course, our growth is driven by consumption, a significant portion of which is fed by imports, which totaled
$2 trillion last year. Again, do the math: Our annual import volume—what we buy in a single year from abroad—exceeds the
GDP of all but four other countries—Japan, Germany, Britain and France. So, yes, the United States is the growth engine for
the world economy. And it is important that it remain so because no other country appears poised to pick up the torch if
the U.S. economy stumbles or tires
The US is key to the global economy.
New Zealand Herald 07
The New Zealand Herald, 3-20-2007, “Can world weather slow down in US?” p. Lexis
The ability of other countries to emerge from the US economy's long shadow may reflect more wishful thinking than logic. No
doubt, it will eventually happen, especially as some of the bigger emerging countries mature. Right now, the world still needs the
US consumer. The global economy is too dependent on exports to the US, whose trade deficit was $765.3 billion in 2006, while
Asia and Europe lack sufficient domestic demand to offset reduced US spending on overseas goods, says Stephen Roach, chief
economist at Morgan Stanley in New York. China's Reverberations The US accounts for 24% of Japan's total exports, 84% of
Canada's, 86% of Mexico's and about 40% of China's, Mr Roach says. Just as China is dependent on the US, other countries rely
on Asia's second-largest economy. So a US slowdown that hurts China will reverberate in Japan, Taiwan, South Korea and
commodity producers such as Russia, Australia, New Zealand, Canada and Brazil. From 2001 through 2006, the US and China
combined contributed an average of 43% to global growth, measured on the basis of purchasing-power parity, according to Mr
Roach. And there may be more fallout from a US decline. ''Allowing for trade linkages, the total effects could be larger than
60%,'' he says. ''Globalisation makes decoupling from such a concentrated growth dynamic especially difficult.'' As the US
economy faltered in early 2001, many Wall Street gurus predicted that Europe would outpace the US. European Vulnerability
''It didn't happen _ a lesson investors should bear in mind today,'' says Joseph Quinlan, chief market strategist at Bank of America
Capital Management in New York. Even though only about 8% of European exports go to the US, Europe is vulnerable to a US
slowdown through its businesses abroad. The earnings of European companies' US units plunged 64% in 2001, according to Mr
Quinlan. Those declines in the biggest and most-profitable market for many German, UK, French and Dutch enterprises resulted in
reduced orders, lower profit, slower job growth and weak business confidence. After expanding 3.9% in 2000, euro-area growth
Premature pullout always fails
DDI 2009
Econ Generic
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
shrank to 1.9% in 2001, 0.9% in 2002 and 0.8% in 2003. ''As the US economy decelerates and as the dollar continues its slide,
Europe will sink or swim with the US in 2007,'' Mr Quinlan says
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – U.S. Key to Global Economy
US depression causes Global collapse
Niall Ferguson, Professor of Economic History at Harvard, How a local squall might become a global
tempest, 2008, http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=184
The question is whether or not this American hurricane is about to run into two other macroeconomic weather systems. Up until
now the global impact of the crisis has been limited. Indeed, strong global growth has been the main reason the US recession did
not start sooner. With the dollar weakened as an indirect consequence of the Fed’s open-handed lending policy, US exports have
surged. According to Morgan Stanley, net exports accounted for all but 30 basis points of the 1.8 per cent growth in US output
over
the
past
year.
The downside of this, however, was a rise in commodity prices as strong Asian demand coincided with a depreciating dollar. For a
time, this coincidence of a US slowdown and soaring oil prices revived unhappy memories of 1970s stagflation. But now a new
and colder front is crossing the macroeconomic weather map: the prospect of a global slowdown.
Admittedly the forecasts do not sound too alarming. A reduction in global growth from 4.1 per cent this year to 3.6 per cent next
year could positively help damp inflationary pressures. Optimists such as Jim O’Neill at Goldman Sachs celebrate the
“decoupling” of China from the US, pointing out that nearly all China’s growth is accounted for by domestic demand, not exports.
Yet there are four reasons to be less cheerful. First, Europe has clearly not decoupled from America. Indeed, partly because of the
strength of the euro, the eurozone is now growing more slowly than the US. And remember: the European Union’s economy is still
more than five times larger than China’s. It also matters a great deal more to US exporters.
Second, the commodity price rise has generated inflationary pressures in many emerging markets that will not recede overnight.
According to Joachim Fels of Morgan Stanley, 50 of the 190 countries in the world currently have double-digit inflation. The
World Bank has identified 33 countries where high food prices have already generated civil unrest.
Third, decoupling is not a cause for celebration if, on closer inspection, it is a synonym for deglobalisation. The growth of the
world economy since 1980 has owed much to lower trade barriers. Unfortunately, the recent breakdown of the Doha round of
global trade talks sent a worrying signal that commitment to free trade is weakening. It was troubling, too, how many governments
responded
to
the
jump
in
rice
prices
by
imposing
export
restrictions.
One year on, what began as a US crisis is fast becoming a world crisis. Small wonder only a handful of global equity markets are
in positive territory relative to August 2007, while more than half have declined by between 10 and 40 per cent. The US slowdown
will also affect many emerging markets less reliant on exports than China. At the same time, the global slowdown is about to kick
away the last prop keeping the US recession at bay. No, this is not the Great Depression 2.0; the Fed and the Treasury are seeing to
that. But, as in the 1930s, the critical phase is not the US phase. It is when the crisis goes global that the term “credit crunch” will
no longer suffice.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – U.S. Key to Global Economy
US key to global economy – no other country comes close
Arora & Vamvakidis ’05 (Vivek & Athanasios, IMF Senior Resident Representatives, “Economic
Spillovers” Finance and Development; Sept, Vol 42, No 3;
http://www.imf.org/external/pubs/ft/fandd/2005/09/arora.htm)
Economists usually see the United States as an engine of the world economy: U.S. and world output are
closely correlated, and movements in U.S. economic growth appear to influence growth in other countries to
a significant degree. Certainly, given its size and close links with the rest of the world, the United States
could be expected to have a significant influence on growth in other countries. In 2004, U.S. GDP accounted
for over one-fifth of world GDP on a purchasing power parity (PPP) basis and for nearly 30 percent of world
nominal GDP at market exchange rates. The United States accounted for nearly a quarter of the expansion in
world real GDP during the 1990s. World and U.S. growth have moved closely together in recent decades,
with a correlation coefficient of over 80 percent. Trade with the United States accounts for a substantial
share of total trade in a large number of countries. Estimates of the overall impact of U.S. growth on growth
in other countries during the past two decades, in the context of a standard growth model, suggest that U.S.
growth is a significant determinant of growth in a large panel of industrial and developing countries, with an
effect as large as one-for-one in some cases (Arora and Vamvakidis, 2004). The impact of U.S. growth turns
out to be higher than the impact of growth in the rest of the world. This could be explained by the role of the
United States as a major global trading partner. The results are robust to changes in the sample, the period
considered, and the inclusion of other growth determinants, including common drivers of growth in both the
United States and other countries. We also found the impact of U.S. growth on growth in other countries
to be larger than that of other major trading partners. For example, the impact of EU growth on the rest
of the world is significant but smaller than the impact of U.S. growth.
US key to global econ
International Herald Tribune 01-09-2003
The global economy piggybacks on the United States, benefiting when America breaks into a run and
suffering when the U.S. pace wanes
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Business Confidence
Confidence is key to prevent economic collapse
Braithwaite ’04 (John, Australian Research Council Federation fellow, Australian National University, and
is the chair of the Regulatory Institutions Network; “Emancipation and Hope” March, 592 Annals 79 ln)
The challenge of designing institutions that simultaneously engender emancipation and hope is addressed
within the assumption of economic institutions that are fundamentally capitalist. This contemporary global
context gives more force to the hope nexus because we know capitalism thrives on hope. When business
confidence collapses, capitalist economies head for recession. This dependence on hope is of quite general
import; business leaders must have hope for the future before they will build new factories; consumers need
confidence before they will buy what the factories make; investors need confidence before they will buy
shares in the company that builds the factory; bankers need confidence to lend money to build the factory;
scientists need confidence to innovate with new technologies in the hope that a capitalist will come along and
market their invention. Keynes's ([1936]1981) General Theory of Employment, Interest and Money lamented
the theoretical neglect of "animal spirits" of hope ("spontaneous optimism rather than . . . mathematical
expectation" (p. 161) in the discipline of economics, a neglect that continues to this day (see also Barbalet
1993).
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Investor Confidence
Loss of investor confidence would crush the US economy and send the world into a global depression
Schiller 97 [Bradley. “The Deficit Problem Is Far From Over.” LA Times. May 6 http://articles.latimes.com/1997-0506/local/me-55873_1_federal-budget-deficit. Accessed 7/21.]
The ever-cautious budget office hints at the kind of disaster that might ensue: "Foreign investors might suddenly stop investing in
U.S. securities, causing the exchange value of the dollar to plunge, interest rates to shoot up and the economy to stumble into a
severe recession . . . Higher levels of debt might also ignite fears of inflation in the nation's financial markets, which would push
up interest rates even further. Amid the anticipation of declining profits and rising rates, the stock market might collapse, and
consumers, fearing economic catastrophe, might suddenly reduce their spending. Moreover, severe economic problems in this
country could spill over to the rest of the world and might seriously affect the economics of U.S. trading partners, undermining
international trade." In other words, the projected U.S. deficit might trigger another Great Depression.
Loss of investor confidence would crush the road to recovery
FINANCIAL TIMES 5 - 22 - 09
[Krishna Guha. Spending cuts or tax increases remain on table. http://cachef.ft.com/cms/s/0/bdd23cb0-4639-11de-803f-00144feabdc0.html Accessed
7/21]
Congressional Budget Office estimates suggest that under administration policies the US will have a medium-term structural
deficit (the deficit when the economy is operating at full potential) of roughly 5 per cent of gross domestic product. “If we are
winding up with deficits that are in the 5 per cent of GDP range we will change policies,” a senior administration official told the
FT. “We have said that 5 per cent is unsustainable.” Another administration official said the biggest threat to recovery
was the risk that the bond market might lose confidence in US public finances, pushing up bond yields and
throttling growth. That would present the Federal Reserve with the choice of standing by or creating more
money to buy bonds to push private borrowing rates back down – a move that could spook foreign creditors
and fuel a sell-off in the dollar. The yield on 10-year Treasuries has risen 74 basis points to 3.15 per cent since the start of
the year, in spite of Fed buying. Meanwhile, the dollar is close to its lows for 2009. Analysts said recovery hopes naturally led to
higher Treasury yields and a weaker dollar, but movements likely reflected concern about US finances as well. “It is to be
expected that as we come out of the downturn bond yields will go up,” Mr Orszag said. But he added “we have said for a long time
under current policies the nation is on an unsustainable fiscal path and therefore something has to change”.
Investor confidence is vital to the global economy
CANSIZLAR 02 Chair Capital Markets Board of Turkey & Chair of IOSCO Emerging Markets Committee
(“Dogan Cansizlar’s Speech to the Securities Commision” http://www.sc.com.my/eng/html/resources/speech/sp_20021028_1.html)
Investor confidence provides the foundation on which the securities market has been built. If investors don’t
feel confident, they will shift their investments from abstract and intangible goods like corporate securities to tangible
assets like gold or real estate, or even under their mattresses. The importance of investor confidence to the success of
securities markets has been recognized by many experienced policymakers and businesspeople. Recent
developments, especially in the US, have highlighted the significance of investor confidence once again. The
announcements of accounting frauds and other irregularities at some large corporations forced regulators and
business leaders to rethink the importance of maintaining investor confidence in the market. Without fairness
and level playing field for investors it is impossible to run a fast-growth, high investment economy. A market
based-economic system without excessive regulation and strong financial markets with broad based investor participation are the
basis for economic growth. Investor confidence is built in a long time but is lost very rapidly. We shouldn’t forget that investor
confidence is at the heart of such a market based economic system. It is evident that to restore investor confidence and trust in the
markets and corporations institutional reforms are needed. Moreover, effective enforcement and regulation by securities regulators
is also essential. From an emerging market standpoint, the most effective policy to restore investor confidence and overcome the
fragility of local financial markets is to undertake reforms that will restructure the financial sectors, operate under rules of genuine
transparency, and reinforce an institutional framework that supports the market based economies. These local reforms would be
most successful when implemented in tandem with global reforms. At this point I would like to remind you that, in an increasingly
Premature pullout always fails
DDI 2009
Econ Generic
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
integrated world, the resilience of the global economy is only as strong as the weakest of its components. In other words, the
weaknesses of some countries could have adverse effects on the health of the global economy due to spillover effects.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Small Businesses Key to the Economy
Small businesses produce nearly 60% of jobs – they are key to the economy
Lambro 2/27
Donald Lambro is the chief political correspondent of The Washington Times, the author of five books on the government and the
economy, and a nationally syndicated columnist He won the 1995 Warren Brookes Award for Excellence in Journalism
“LAMBRO:
Obama's
budget
to
raise
small-business
taxes”
February
27,
2009
(http://www.washingtontimes.com/news/2009/feb/27/obamas-budget-to-raise-small-business-taxes/)[LO//AS]
Business advocates charged that multiple tax increases on Americans earning more than $250,000 a year would whack small
businesses who pay the individual income tax, too, and produce as much as 60 percent of all jobs. "You don't build a house by
blowing up its foundations. Small businesses and the entrepreneurs who lead them have been the primary drivers of job growth
over the past decade. This plan would punish them with higher taxes, resulting in less government revenue, less economic growth,
and fewer jobs - not more," said Bruce Josten, chief lobbyist at the U.S.
Small business growth is key to the economy
Snow 9/22/04 (John, US Treasury Secretary, Regulatory Intelligence Data, ln)
An important, ongoing truth of the American economy is this: the government won't choose what jobs are
created; entrepreneurs and innovators will. Government's responsibility is to make sure they have the
freedom to do so.
That's why entrepreneurs and small-business owners are at the heart of President George W. Bush's
economic policies. The President understands that creating an environment in which you can flourish is the
essential ingredient in any recipe for economic growth.
Small businesses create two-thirds of new private sector jobs in America. They employ more than half of all
workers, and account for more than half of the output of our economy. As the President often says, what's
good for small business is good for America. Because when small business is growing, the American
economy is growing.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending
Deficit spending leads to economic collapse.
Brownfeld 09 Author/Congress Writer [Allan C. Brownfeld July 21, 2009 "Confronting the Myth of Borrowing Our Way to
Solvency" http://newsblaze.com/story/20090721175514zzzz.nb/topstory.html]
The notion that we can use huge deficits to borrow our way to prosperity is a dangerous illusion. More likely, as Frank
Donatelli, chairman of GOPAC, pointed out in Politico, "If you want to see what President Barack Obama's America
will look like, look no further than California right now. Out-of-control spending, deficits as far as the eye can see, and
unsustainable promises to key interest groups have all combined to bring the Golden State to the brink of economic
collapse. The governor and the state legislature are struggling to close a budget deficit that has reached $42 billion. The
similarities between what Obama wants to do nationally and what California has already done should give Congress
pause before it gives the president a blank check to remake our economy." The policies of both Republicans and
Democrats have brought us to this current moment. It will take more than politics-as-usual to move us in a better,
healthier direction. The first step needed is to tell the truth about our real economic problems - something that few
leaders in Washington seem prepared to do.
Deficit spending collapses economy—unemployment, hyperinflation, and dollar dump
Shoup 7-20
Staff Writer (09, Bob, “Preparing for the coming economic tsunami”, Canada Free Press,
http://canadafreepress.com/index.php/article/13048)
The unfortunate fact is that the U.S. government seems unwilling, or unable to develop a comprehensive Energy Policy
that could help prevent this economic collapse. Indeed, many members of the Senate and Congress, as well as the
Obama Administration, seem bound and determined to attack our industry and make it all the more likely to create a
significant gap between supply and demand.
If they are successful, the increased price of energy, coupled with an economy already at risk of collapsing, and the U.S.
could see a major economic crisis that includes double digit unemployment, double digit inflation, a collapse of the
stock market, and a significant devaluation of the dollar, so much so, that it may no longer be the global currency. What
follows is a brief summary of the many conditions that are coming together in such a way as to potentially create an
economic tsunami.
Deficit spending exacerbates economic crisis
Ferguson 9
professor of Economic History at Harvard (“Beyond the Age of Leverage: Alternative Cures for the Global
Financial Crisis”, Niall Ferguson, February 12,
http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=203)
There is something desperate about the way people on both sides of the Atlantic are clinging to their dog-eared copies
of John Maynard Keynes’s General Theory. Uneasily aware that their discipline almost entirely failed to anticipate the
current crisis, economists seemed to be regressing to macroeconomic childhood, clutching the multiplier like an old
teddy bear. The harsh reality that is being repressed is this: the Western world is suffering a crisis of excessive
indebtedness. Many governments are too highly leveraged, as are many corporations. More importantly, households are
groaning under unprecedented debt burdens. Average household sector debt has reached 141 per cent of disposable
income in the United States and 177 per cent in the United Kingdom. Worst of all are the banks. Some of the bestknown names in American and European finance have balance sheets forty, sixty or even a hundred times the size of
their capital. Average U.S. investment bank leverage was above 25 to 1 at the end of 2008. Eurozone bank leverage was
more than 30 to 1. British bank balance sheets are equal to a staggering 440 per cent of gross domestic product The
delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression.
Yet that is precisely what most governments currently propose to do. The United States could end up running a deficit
of more than 10 per cent of GDP this year (adding the cost of the stimulus package to the Congressional Budget’s
optimistic 8.3 per cent forecast). Nor is that all. Even before Barack Obama entered the White House, his predecessor’s
administration had already committed $7.8 trillion in the form of loans, investments and guarantees. Now the talk is of a
new “Bad Bank” to buy the toxic assets from the banks which, despite the $700 billion Troubled Asset Relief
Programme, are still in deep trouble. No one seems to have noticed that there is already a Bad Bank. It is called the
Federal Reserve System, and its balance sheet has grown by 150 per cent—from just over $900 billion to more than $2
trillion—since this crisis began, partly as a result of purchases of undisclosed assets from banks.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending
Turns case: Deficit spending kills economic stability—forces massive social service cuts.
Shoup 7-20
Staff Writer (09, Bob, “Preparing for the coming economic tsunami”, Canada Free Press,
http://canadafreepress.com/index.php/article/13048)
When the Debtors say No More
Any family that has abused credit cards can tell you that the first thing credit card companies do is raise your interest
rates. The second thing that they do is cut off your credit. Given the size of the National debt, we are very close to
having the holders of that credit say “No More!” It recently happened in California where voters rejected a number of
tax initiatives. It is very likely to happen to the U.S. as a whole.
When it does, the government will be forced to undertake a number of measures, all of which will be painful and
detrimental to economic stability. The first response will be to increase taxes. This may temporarily help offset the debt
but history shows us that the long-term result will be a net loss of revenues. So the next step will be to cut services. This
is what California is doing now.
Increased taxes and decreased services will not be sufficient to manage the budget without increasing the debt. So the
government will have to either print money or restructure the debt. The first of these moves will cause the rate of
inflation to increase and the value of the currency to decreases. The second of these moves will almost certainly result in
the U.S. Dollar being replaced as the standard world currency as it would strongly impact China who is already seeking
to replace the dollar with the Yuan. Of course, the first debt likely to see restructuring is the $2.2 Trillion of Social
Security. That restructuring means that individuals counting on Social Security can expect to receive pennies on the
dollar, and many will see nothing.
Deficit spending forces hyperinflation, dollar dump, and economic collapse.
Shoup 7-20
Staff Writer (09, Bob, “Preparing for the coming economic tsunami”, Canada Free Press,
http://canadafreepress.com/index.php/article/13048)
When the Debtors say No More
Any family that has abused credit cards can tell you that the first thing credit card companies do is raise your interest
rates. The second thing that they do is cut off your credit. Given the size of the National debt, we are very close to
having the holders of that credit say “No More!” It recently happened in California where voters rejected a number of
tax initiatives. It is very likely to happen to the U.S. as a whole.
When it does, the government will be forced to undertake a number of measures, all of which will be painful and
detrimental to economic stability. The first response will be to increase taxes. This may temporarily help offset the debt
but history shows us that the long-term result will be a net loss of revenues. So the next step will be to cut services. This
is what California is doing now.
Increased taxes and decreased services will not be sufficient to manage the budget without increasing the debt. So the
government will have to either print money or restructure the debt. The first of these moves will cause the rate of
inflation to increase and the value of the currency to decreases. The second of these moves will almost certainly result in
the U.S. Dollar being replaced as the standard world currency as it would strongly impact China who is already seeking
to replace the dollar with the Yuan. Of course, the first debt likely to see restructuring is the $2.2 Trillion of Social
Security. That restructuring means that individuals counting on Social Security can expect to receive pennies on the
dollar, and many will see nothing.
Where Energy Comes In
The ongoing efforts by Congress and the Obama Administration to increase energy costs will have two affects on the
U.S. economy. The most immediate affect will be on consumers. We have already seen the impact that $4.00 /gallon
gas has on consumer spending. With increased electricity costs as well as increased gas prices, a significant drop in
consumer spending can be expected. This in turn will have a ripple affect on a number of businesses and industries.
This hit on the economy will come at a time when our government is trying to increase consumer spending to stimulate
the economy. Since the government is likely to be the only remaining consumer, it is likely that they will seek
additional stimulus spending – adding to the debt, and bringing us that much closer to a major collapse of the
economy.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending
Deficit spending uniquely devastating in this economy—weak manufacturing and consumer growth
Shoup 7-20
Staff Writer (09, Bob, “Preparing for the coming economic tsunami”, Canada Free Press,
http://canadafreepress.com/index.php/article/13048)
For many of you, your first reaction will be to dismiss this column outright. After all, the U.S. has seen debt levels
over 90% of GDP once before, right after WWII. We reduced our debt then and we can do so again.
Unfortunately, there is a significant difference between then and now.
Following WWII, there was a tremendous increase in manufacturing as the U.S. helped rebuild a war-torn Europe and
Asia. There is no massive building program that can be expected in the near future. Even if there was, over the last 40
years, the U.S. has lost most of its manufacturing base. The second major difference is that this time around,
there is no baby boom driven consumerism to fuel economic growth. I am afraid that these two
differences mean that the economic situation in the U.S. is likely to become very severe.
Deficit spending causes hyperinflation and second Great Depression
Summers 7-16
Senior Market Strategist at OmniSans Research (09, Graham, “The Coming Economic Collapse”, iStock
Analyst, http://www.istockanalyst.com/article/viewarticle/articleid/3355289)
Moreover, most of the job growth in the last 10 years has come from Bubbles: two out of five jobs created
between 2002 and 2007 came from the housing industry. The irony here, of course, is that the Stimulus Plan is
merely following this trend, creating jobs from our latest (relatively unreported) Bubble: the bubble
in government spending and employment.
Bottomline: the US needs to create sustained job growth involving skilled professionals with high wage earning
potential, NOT more guys laying concrete. We need fundamental structural changes to the US economy, NOT
temporary positions resulting from one-time government projects.
And with a $9 trillion deficit in the works, $787 billion doesn’t really mean much in terms of increased tax receipts.
Also, and this is bit of a personal aside, it’s hard to believe that throwing $787 billion towards creating jobs really shifts
our economy away from financial services when we’ve thrown $2 trillion+ towards Wall Street and the banks (via
direct loans and lending windows).
The US has a MAJOR debt problem. Including future social security and Medicare expenses we owe $65 TRILLION.
Because we live in a world in which the words, “billion” get thrown around with too much ease, I’d like to put that
number into perspective.
Let’s say you have a stack of $1,000 bills. $1 million would be a stack eight inches high. $1 billion would be a stack
800 feet high (think the Washington Monument). And $1 trillion would be a stack 142 miles high. Total US debt, if laid
on its side, would be a stack of $1,000 stretching more than 1/3 of the way around the earth.
Ok, so where is the US economy REALLY at right now?
Year over year real employment, real industrial orders, real housing starts, and real retail sales are all posting their
largest drops since the production shutdown following WWII. Put another way, the last time the US economy fell
this hard this fast, we were intentionally shutting down the monster than was the US war machine in
WWII.
This is no recession. We are already on our way to a Depression (a GDP contraction of 10%) possibly even
another Great Depression. One in nine Americans are currently receiving food stamps. Real
unemployment (without birth/death seasonal nonsense and all the other Federal gimmicks) stands at 20%.
So I don’t buy the “green shoots” theory at all. Having things get horrendous at a slightly slower rate is NOT a sign of a
recovery. Green shoots can pop up anywhere including the asphalt in the parking lot outside my office. That doesn’t
mean the parking lot is about to become a lush meadow.
No, the US is heading for a really, really rough time. The US monetary base has doubled in the last year. We owe $65 trillion
in liabilities. The US government could tax every company and every American 100% of their annual
incomes AND NOT PAY THIS OFF. The Feds will have to inflate this mess away. And they’ve got a master
money printer Ben Bernanke overseeing this situation.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Premature pullout always fails
Econ Generic
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending
Deficit spending drives up interest rates and destroys the dollar’s value
Ferguson 9
professor of Economic History at Harvard (“Beyond the Age of Leverage: Alternative Cures for the Global
Financial Crisis”, Niall Ferguson, February 12,
http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=203)
Just how much more toxic waste is out there? Nouriel Roubini puts U.S. banks’ projected losses at $1.8 trillion. Even if
that estimate is 40 per cent too high, the banks’ capital will still be wiped out. A Bad Bank could therefore represent
another hole in U.S. public finances more than twice the size of the TARP. And all this is before any account is taken of
the unfunded liabilities of the Medicare and Social Security systems, the net present value of which is estimated at
around $60-70 trillion. With the economy contracting at a rate (excluding inventory accumulation) of minus 5 per cent,
we are on the eve of a public debt explosion which the CBO’s forecast—$4 trillion over the next ten years, but peaking
at just 54 per cent of GDP—surely understates. The fact that so many other countries are adopting comparable measures
means that a flood of new issuance is about to hit national and international bond markets.
The born-again Keynesians seem to have forgotten that their prescription stood the best chance of working in a more or
less closed economy. But this is a globalized world, where uncoordinated profligacy by national governments is more
likely to generate bond market and currency market volatility than a return to growth. After all, a rising proportion of
U.S. public and private borrowing since 2000 has been financed from foreign sources, as a result of negligible domestic
saving. The dramatic contraction of world trade means the end of the process of Asian and Middle Eastern reserve
accumulation that previously funded American deficits. Already foreign investors are net sellers of long-term U.S.
securities. Soon it is going to become painfully clear that new debt is not the solution, but could in fact make matters
worse by driving up long-term rates, or pushing down the dollar to the point that Europe and Japan can justly accuse
the Americans of “currency manipulation”.
Deficit spending creates hyperinflation and tanks the economy
USA Today 9
(“Rising national debt raises prospects of eventual inflation”, June 30, http://www.usatoday.com/money/economy/inflation/200906-28-national-debt-inflation_N.htm)
In a word: debt. The government owes the world $11.4 trillion — $37,000 for every person in the U.S. In the next fiscal
year, the government will add $1.8 trillion to the deficit.
The government could simply print more dollars to pay off our debts with cheap currency — a tempting but inflationary
solution. Politicians wouldn't have to ask citizens to pay for the government's services, and citizens wouldn't have to
think about the actual cost of what they demand — until, of course, the currency collapses, interest rates soar and the
economy craters. Some on Wall Street are betting on just that scenario. Universa Investments — linked to Nassim
Nicholas Taleb, author of Wall Street's biggest book, The Black Swan: The Impact of the Highly Improbable— is
adding strategies that will soar if inflation takes off. Respected hedge fund adviser 36 South Investment Managers is
raising $100 million for a fund that will bet on soaring price increases. And Marc Faber, editor of the Gloom Boom &
Doom Report, a newsletter, predicts that U.S. inflation will someday match Zimbabwe's — that would be 236 million
percent a year.
If inflation does hit, it won't be this year, barring a major jump in oil prices or a drastic change in government
philosophy. You don't get inflation in an economy that's as slack as this one. And, many economists say, the Federal
Reserve has many tools to contain inflation once the economy turns around. But one thing the Fed doesn't have is the
ability to control federal spending. And that, ultimately, could be the thing that pushes the inflation rate higher.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending Kills the Dollar
Deficit spending destroys America’s diplomatic and economic legitimacy.
Shoup 7-20
Staff Writer (09, Bob, “Preparing for the coming economic tsunami”, Canada Free Press,
http://canadafreepress.com/index.php/article/13048)
The U.S. Debt
Following many years of deficit spending and massive social entitlement programs, the U.S. is now saddled with a
tremendous debt. Like a family addicted to credit cards, we, as a country, continue to live above our means. According
to the debt clock the current U.S. National Debt is $11.5 Trillion dollars and increasing at a rate of $3.9 Billion A DAY.
To give you a feel for the size of that number, there are just over 3 Billion seconds in 100 years. It takes 45,000 years to
have a Trillion seconds.
The simple fact is that we, as a Nation, can not sustain this rate of debt increase. To pay the current debt off, every man,
woman, and child in the U.S. will need to contribute, by way of taxes, just under $40,000. Unfortunately, most
Americans could not “contribute” anywhere near that amount.
The nature of that debt
Of our $11.5 Trillion Dollar debt, $4.4 Trillion is in Intergovernmental Holdings. These include various Federal
obligations such as the Federal Old Age and Survivors Insurance Trust Fund, aka Social Security (2.2 Trillion), the
Federal Employees Retirement funds ($740 Billion) and a number of other government funds. The remaining $7.1
Trillion dollars of U.S. debt is held by the public, which includes notes, bills, bonds, and other debt instruments.
Of our public debt, almost half is held by foreign countries and foreign-based companies. Of the foreign held debt, the
Peoples Republic of China holds 24% and Japan holds almost 21%. As a result,
“Foreign interests have more control over the US economy than Americans, leaving the country in a state that is
financially imprudent. More and more of our debt is held by foreign countries – some of which are our allies and some
are not. The huge holdings of American government debt by countries such as China and Saudi Arabia could leave a
powerful financial weapon in the hands of countries that may be hostile to US corporate and diplomatic
interests.” David Walker, the US comptroller general. 23 July 2007.
Deficit spending destroys value of the dollar
Ing 7-16
President and Executive Chief Officer of Maison Placements Canada (09, “Gold: The Audacity of
Hyperinflation”, John Ing, http://www.safehaven.com/article-13928.htm)
To support his rhetoric and good intentions, President Obama needs to put more effort and political weight on putting
America's fiscal house in order brought on by too much leverage. Unfortunately Obama's plans have done little to
reverse the deteriorating health of the US consumer or even the banking system. Lately his moves are making things
worse. Familiar problem are coming back into view.
First among these is the dollar's fall under the weight of an increasing debt load. President Obama's budgetary projections show a
debt load that is the biggest since the Second World War and expenditures will soon account for almost half of the United States
economy, a level last seen since that war. The non-partisan watchdog Congressional Budget Office (CBO) calculates that President
Obama's deficit spending will double the nation's debt within five years and take America's debt to 108 percent of GDP by yearend
and that excludes the debt of the states and municipal governments or unfunded social security and medicare obligations.
American household debt at $13.8 trillion is more than 130 percent of disposable income.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending Kills the Dollar
Deficit Spending will eventually crush confidence in the dollar
NYT, 12 – 27 – 08
(Peter Goodman, “Debt Sweat Printing Money – and Its Price”,
http://www.nytimes.com/2008/12/28/weekinreview/28goodman.html?_r=1&n=Top/Reference/Times%20Topics/People/G/Goodman,%20Peter%20S)
Armed with credit cards and belief in a bountiful future, Americans brought home ceaseless volumes of iPods and cashmere
sweaters, and never mind their declining incomes and winnowing savings. Banks lent staggering sums of money to homeowners
with dubious credit, convinced that real estate prices could only go up. Government spent as it saw fit, secure that
foreigners could always be counted on to finance American debt. So it may seem perverse that in this new
era of reckoning — with consumers finally tapped out, government coffers lean and banks paralyzed by fear
— many economists have concluded that the appropriate medicine is a fresh dose of the very course that
delivered the disarray: Spend without limit. Print money today, fret about the consequences tomorrow.
Otherwise, invite a loss of jobs and business failures that could cripple the nation for years/ Such thinking carries the moment as
President-elect Barack Obama puts together plans to spend more than $700 billion on projects like building roads and classrooms
to put people back to work. It is the philosophy behind the Federal Reserve’s decision to drop interest rates near zero — meaning
that banks can essentially borrow money for free — while lending directly to financial institutions. This is the mentality that has
propelled the Treasury to promise up to $950 billion to aid Wall Street, Detroit and perhaps other recipients. But where does all
this money come from? And how can a country that got itself in peril by borrowing and spending without limit now borrow and
spend its way back to safety? In the case of the Fed, the money comes from its authority to print dollars from thin air. Since late
August, the Fed has expanded its balance sheet from about $900 billion to more than $2.2 trillion, creating $1.3 trillion that did not
exist to replace some of the trillions wiped out by falling house prices and vengeful stock markets. The Fed has taken troublesome
assets off the hands of banks and simply credited them with having reserves they previously lacked. In the case of the Treasury, the
money comes from the same wellspring that has been financing American debt for decades: Investors in the United States and
around the world — not least, the central banks of China, Japan and Saudi Arabia, which have parked national savings in the
safety of American government bonds. Americans have gotten accustomed to treating this well as bottomless, even as anxiety
grows that it could one day run dry with potentially devastating consequences. The value of outstanding American
Treasury bills now reaches $10.6 trillion, a number sure to increase as dollars are spent building bridges,
saving auto jobs and preventing the collapse of government-backed mortgage giants. Worry centers on the
possibility that foreigners could come to doubt the American wherewithal to pay back such an extraordinary
sum, prompting them to stop — or at least slow — their deposits of savings into the United States. That
could send the dollar plummeting, making imported goods more expensive for American consumers and
businesses. It would force the Treasury to pay higher returns to find takers for its debt, increasing interest
rates for home- and auto-buyers, for businesses and credit-card holders. “We got into this mess to a considerable extent by
overborrowing,” said Martin N. Baily, a chairman of the Council of Economic Advisers under President Clinton and now a fellow
at the Brookings Institution. “Now, we’re saying, ‘Well, O.K., let’s just borrow a bunch more, and that will help us get out of this
mess.’ It’s like a drunk who says, ‘Give me a bottle of Scotch, and then I’ll be O.K. and I won’t have to drink anymore.’
Eventually, we have to get off this binge of borrowing.” Some argue that the moment for sobriety is long overdue, and postponing
it further only increases the ultimate costs. “Our government doesn’t have enough spare cash to bail out a lemonade stand,”
declared Peter Schiff president of Euro Pacific Capital, a Connecticut-based trading house. “Our standard of living must decline to
reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now
will our sick economy ever recover.”
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Inflation
More Deficit Spending is bad – stops economic recovery by boosting long term inflation
Foster June 11 PhD Economics [JD Foster PHD 6/11/2009 http://blog.heritage.org/2009/06/11/deficit-spendingand-higher-interest-rates-imperil-the-recovery/]
Long-term interest rates are rising rapidly, with the 10-year Treasury pushing against 4 percent for the first time since
the summer of 2008 – before the financial markets collapse. The many influences on U.S. interest rates at the moment
are all moving in the same direction – up. One influence is the growing concern that inflation could become a major
problem in the near future, and this is building into the inflation expectation components of interest rates. Another is
simply the unwinding of the flight to safety following the initial debacle in financial markets. Interest rates across the
maturity spectrum were driven artificially low as investors large and small sought to preserve the value of their
principle. As concerns ease, interest rates will naturally rise to more normal levels. Yet another influence traces to
the very recent rise in the price of oil. This increase has given fast money investors the first opportunity in many months
to make serious profits, but first they have to sell some of their Treasury holdings, thus pushing interest rates higher.
The most dangerous driver of interest rates, however, is the U.S. budget deficit and the tremendous flows of debt
coming out of the Treasury. This is simple economics – flooding the credit markets with U.S. debt means driving
prices down and driving interest rates up. Bond market “vigilantes” – those major institutional buyers of government
debt impervious to soaring rhetoric and political promises – have reawakened and want to see concrete steps toward
getting the $2 trillion deficit under control. Rising interest rates, for whatever reason, are a very real threat to the hopedfor economic recovery. The housing sector appears to be near stabilizing, but this progress can evaporate quickly
if mortgage rates shoot up. There are only a couple actions government can take at this point to ease interest rate
pressures. First, the President should make clear his intentions with respect to re-nominating Ben Bernanke as Chairman
of the Federal Reserve Board. This issue is an unwelcome source of uncertainty hanging over financial markets.
Second, the President and the Congress must realize that bond vigilantes will not be swayed by new budget rules
or other posturing. They want to see the economy strengthen while the deficit comes down now, and fast. The
solution is to set aside all the new spending proposals and start cutting spending fast. Otherwise the economy’s few
“green shoots”’ are likely to be killed off with a higher interest rate hard freeze.
Deflation and collapse of the global economy – Trade and Currency crash.
Vronsky and Westerman July 13 [July
eagle.com/editorials_08/arbitraryvote071309.html
13
2009
"Possible
US
Economic
Collapse"
http://www.gold-
As the Fed continues to put trash onto its balance sheet (which it has continually done during this crisis) and prices rise
from inflation, there can come a point where the collapsing asset prices of the Fed's purchases will cause a panic for
lenders (people and countries) to sell those assets at the highest possible price - getting their dollars back before the
asset prices fall. As the economy prior to this scenario will be in pain from higher prices, there will be no production to
replace the perceived value of the Fed balance sheet. The Fed will not be able to meet this elevated demand. Dollars
would be quickly sucked out of the market causing them to spike in value (the opposite of inflation). Global currencies
in turn collapse with the increase of the dollar and exports are halted. Locally, as the dollar rises dramatically, prices
collapse and borrowing is stopped making the economy motionless. [Arbitrary Vote came aware of this particular
deflationary scenario through an article by Karl Denninger of the Market Ticker blog]
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending  Inflation
Deficit spending creates a disastrous inflationary spiral
Hoenig 9
Managing member at Capitalist Pig hedge fund (Jonathan, “Uncle Sam’s Heist: Deficit Spending and Inflation,
June 1, http://www.smartmoney.com/investing/economy/uncle-sams-secret-heist-deficit-spending-and-inflation/)
Sometimes you can see an accident waiting to happen and there’s nothing you can do but stand there, shield your eyes
and cringe. That’s the maddening position American citizens are now in as they prepare for the inevitable inflation that
will result from deficit spending, socialist political patronage and the centrally planned economy now taking hold in
America.
One need not be an economist to understand inflation. If you started writing checks with no money in your account,
they’d throw you in jail. Yet when the government does it, at least for the time being, it’s called “stimulus" and
rewarded with high approval ratings, that is, until the bills come due. And they always do.
As we pointed out years back there’s no fundamental difference between a $1 and $50 bill. Both are simply pieces of
paper, backed by the future production of Americans. Printing money doesn’t create wealth; it only debases the
currency that already exists. Shortly put, there is no free lunch.
When Bernie Madoff stole $50 billion, he harmed thousands of private citizens. But the government’s thievery through
inflation is even more brazen and destructive. Middle and lower income individuals are hurt most of all.
The law of supply and demand cannot be conned. And as the supply of money increases, prices rise, and the dollars you
and other productive members of society have worked so hard to save decrease in value. This is why $100 billion
Zimbabwe dollars, which used to be the equivalent of $100 billion U.S. dollars, now buys only three eggs.
Private citizens and corporations don’t cause inflation; only government has the power to destroy the purchasing power
of millions of its citizens without as much as laying a finger on their checking accounts. Make no mistake: The billions
lost on bailouts for GM (GM), Chrysler and AIG (AIG: 13.12, -0.20, -1.50%) will be paid for by you…whether you
want to or not.
Meanwhile, as Washington systematically slits our throats, they add insult to injury by stabbing the productive class in
the back, busily “clamping down” on hedge funds, speculators, any profit-seeking investor on whom they can lay the
blame for their own fiscal misdeeds.
And while the government is quick to highlight how our money is being spent on feel-good social programs though web
sites like Recovery.gov, what we don’t see is the production, productivity and progress not achieved because of the
disastrous effects of government theft.
Since we first started writing about gold in 2001, it has risen from $290 an ounce to nearly $1000. The bar of gold itself
is unchanged; of course, it’s the purchasing power of the dollar bill that’s declined. Our government outright ownership
of General Motors doesn’t give me much hope that trend is poised to reverse anytime soon.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending  Inflation
Deficit spending creates massive inflation
USA Today 9
(“Rising national debt raises prospects of eventual inflation”, June 30, http://www.usatoday.com/money/economy/inflation/200906-28-national-debt-inflation_N.htm)
The government's plan is to fight the sour economy now by spending money, and worry about the debt problem later.
"If that's the price to keep from having the second Great Depression, it's a bargain," say Ken Goldstein, economist at
The Conference Board.
Even ardent supporters of the government's plan, however, worry that massive U.S. debt could be inflationary. Every
day, for example, the U.S. needs to borrow $15 billion to fund the deficit, says Axel Merk, portfolio manager of the
Merk Hard Currency fund. "Someone has to buy all that," he says. More important, the U.S. has to repay it.
Deficit spending creates hyperinflation
Shiyin and Lo 9
Staff Writers (“US Inflation Approaches Zimbabwe Level”, Chen Shiyin
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIeLg1djbBps&refer=home)
and
Bernard
Lo,
May
27,
May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the
Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.
Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in
Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the
statistics office.
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much
is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will
start to accelerate.”
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending  Inflation
Deficit spending creates disastrous hyperinflationary spiral
Ing 7-16
President and Executive Chief Officer of Maison Placements Canada (09, “Gold: The Audacity of
Hyperinflation”, John Ing, http://www.safehaven.com/article-13928.htm)
Rhetoric Over Substance What happens to a country that has not only spent freely but now finds itself far poorer and
close to insolvency as its corporations. Public spending as a share of GDP in the United States has topped 45 percent.
The size of government in 1933 was just 10 percent. It is clear that a reduced standard of living for both governments
and public workers are in the offing. Obama's increase in government borrowing and bigger government role from
automobiles to banking masks the true extent of the crisis. We believe his push to expand social programmes as a cure
to stabilize the financial system will jeopardise the very system he is trying to save. While the massive injection of
taxpayer funds saved Wall Street from immediate collapse, long standing structural problems remain and ironically the
system is more vulnerable and more dangerous than ever before. The growing US deficit exceeds domestic savings and
is larger than the combined surplus savings of the rest of the world. Perversely, Obama's regulatory reforms add yet
another layer of regulation and enhances the powers of an omnipotent Fed, but does little to alleviate America's debt
problems or the overleveraged shadow banking system. Whatever happened to the single regulatory oversight of the
tangle of hedge and insurance groups, or the promised fix for the systems' indebted capital structure? Whatever
happened to a tougher SEC or reigning in Wall Street's buccaneers? Rhetoric over substance? Even if the so-called
reforms were in place four years ago, there still would have been a financial meltdown. Rather than spend money on
wars like his predecessor, Obama instead redistributed revenues to rescue the financial system but at the same time
enlarged social programs, introduced universal healthcare and a makeover of the economy (not wanting to waste a
crisis). Unfortunately, Obama is still using the same spending and borrowing policies of his predecessors of too much
credit and easy money that fostered the biggest bubble in history. His fiscal policies are unsustainable. America has got
even deeper into debt just after racking up record amounts of debt to maintain their lifestyle. In rescuing the banking
system with more credit and easy money, Mr. Obama ignores the history of Argentina, Germany and recently
Zimbabwe which lived beyond their means and inflated their way to pay for huge debts, ultimately leading to
hyperinflation and defaults. Mr. Obama has simply mortgaged his country's future.
Deficit spending creates massive inflation
Ing 7-16
President and Executive Chief Officer of Maison Placements Canada (09, “Gold: The Audacity of
Hyperinflation”, John Ing, http://www.safehaven.com/article-13928.htm)
Are Central Banks Part of the Problem? Central banks are supposed to be stewards of money but are now manipulating their
currencies in a round of competitive devaluations. Even Switzerland has intervened twice and its central bank has tripled the
monetary base in the last year. Central banks around the world have gone from being lenders of last resort to buyers of first resort.
Once independent from their government masters, central banks have become intricately intertwined with the government bailouts.
With interest rates at near zero and more debt than buyers, central banks are selling billions of government debt with one hand and
with the other, they are "quantitative easing" by purchasing those same securities in a blatant money printing exercise. A new
bubble is in the making. Even fewer are considering the inflationary consequences of monetizing the trillions of debt or talking
about an exit strategy and the need to drain reserves, the feedstock of inflation. Either way, central banks have a much bigger role
in markets today. But, could they be part of the solution or are they part of the problem? Debt got us into this problem , more debt
would appear to get us out. Wrong. Governments need to get their fiscal house in order and increase new sources of revenue to
plug a deepening fiscal hole brought by increased spending and plunging revenues. While raising taxes to pay for the spending is a
realistic option, California voters showed, this too has limitations since taxpayers are not going to accept an increase of their tax
burden. Another alternative is for a big jump in interest rates but that too has limitations. Retroactive taxes, a consumption tax
(GST?) and more bullying are to come. The massive bailouts may have prevented a collapse but who will bailout the government?
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending  Inflation
Deficit spending risks hyperinflationary spiral
Ing 7-16
President and Executive Chief Officer of Maison Placements Canada (09, “Gold: The Audacity of
Hyperinflation”, John Ing, http://www.safehaven.com/article-13928.htm)
Hyperinflation, A Consequence of Government's Recklessness History is full of examples of countries that have failed
to pay their debts opting for hyperinflation to pay down debt. Inflation reduces the value of debt and makes the
inevitable adjustment easier. Recent defaults include Iceland and Zimbabwe and in the Thirties, the United Kingdom
and America too defaulted. Rather than focus on the Thirties, investors would be wise to study the Weimar
hyperinflation in the Twenties or France's fiat money inflation in the 18th Century. The main cause of hyperinflation is
a massive growth in the amount of money without an attendant increase in goods and services. An economic business
expansion is not even needed. Hyperinflation is rooted in the imbalance of too much money chasing too few goods,
causing a loss of confidence in money itself. And with hyperinflation comes not only hourly price likes but hoarding,
tax evasion, speculation, illegal transactions and corruption. Old virtues such as thrift, hard work, trust and honesty are
lost in the quest for survival. When governments balk at paying their bills and are reluctant to tax their people, they print
money. History show that prices inevitably rise in response to the increased supply of money. Andrew White's book,
"Fiat Money Inflation" tells us that in 1890 fiat money plunged France into a decade long hyperinflation. After going
off the gold standard, the French government issued paper "livres" and in less than six years, there was over $45 billion
of notes. Money had become worthless and prices skyrocketed when the value of the assignat collapsed. Today, the
German government is ringing the bell about the rampant printing of money and the need to look at its consequence.
Germany remembers too well the Weimar Republic hyperinflation which was caused by the printing of too much
money to pay for reparations after the First World War. After the war, the US became the world's largest creditor. The
US had claims on their allies Britain and France with Germany owing over 100 percent of its gross domestic product.
To pay their bills, they shipped gold to the United States but it was not enough. The collapse of revenues also forced the
government to increase taxes on everything including beer but it was not enough, so Weimar Germany relied on foreign
creditors to finance its budget. Weimar Germany had to print money and experienced the greatest inflation in modern
history eventually wiping out the savings of Germany's domestic creditors. In "The Economics of Inflation", BrescianiTurroni described Germany's hyperinflation. He wrote, "It is easy to understand why the record of the sad years 19191923 always weighs like a nightmare on the German people". Weimar Germany's highest value banknote then had a
face value of 100 trillion marks. Of course, the German government had to default. Today Germany has restrictions on
the ability of the government to run deficits or a debt brake at 0.35 percent of GDP in 2016. Never again? And of
course, the downfall of Russian Communism was due to a modern day hyperinflation caused by deficit spending and the
printing of money. The ruble was devalued from about 40 rubles to the dollar in 1991 to over 30,000 rubles in 1999.
Communism simply ran out of money as they spent money that they did not have. And today, just look at California,
which represents some 15 percent of the American economy, are printing IOU's or warrants in lieu of cash to pay
taxpayers, local governments and business because of an ever-widening budgetary deficit. An eerie parallel seems to be
at work. This time the US position is worse because like Weimar Germany it has a higher dependence on foreign
capital to finance its deficits. The cost of this indebtedness is huge and increases the probability of a debt trap and a
hyperinflation, US-style. Oh yes, in hyperinflation, debtors become winners, since their debts become worthless maybe Washington is on to something after all.
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Deficit Spending  Inflation
Deficit spending causes inflation and dollar dump
Ing 7-16
President and Executive Chief Officer of Maison Placements Canada (09, “Gold: The Audacity of
Hyperinflation”, John Ing, http://www.safehaven.com/article-13928.htm)
Chinese Checkmate
Since 1917, the Americans enjoyed a Triple A credit rating, but the effects of the recession, bailouts, Obama's new
spending and the Bush legacy of two wars, jeopardizes this rating. A downgrade is inevitable. After all Standard and
Poors recently warned that Britain's sovereign Triple A rating is in danger of a downgrade because government debt
equals 55 percent of GDP. America's government debt today is about 50 percent, not far from Britain's.
Today, China is sitting on a huge stockpile of US dollar denominated debt, and are worried. There is growing concern that
America will monetize their debt. China is openly warning about the risks of inflation and depreciation which poses a threat to
their massive portfolio of US dollars. China's mandarins are rightly searching for alternatives to the greenback by upping
purchases of commodities as a hedge against the dollar and set up strategic stockpiles. Already, the Chinese and the Russians are
today settling trades in their currencies and are also bulking up their gold reserves. And China's banking system has issued the
yuan-based bond offerings. China has also concluded swap agreements with a dozen countries like Russia and Brazil
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – T-Bill Selloff
Sell-off crashes the economy
Crutsinger, staff writer for the AP that has covered economics for 25 years, 7-19-09 [Martin Crutsinger, Staff writer for the AP
that has covered economics for 25 years, July, 19 th, 2009, “Analysis: Geithner's tough task: marketing US debt”,
http://www.realclearmarkets.com/news/ap/finance_business/2009/Jul/19/analysis__geithner_s_tough_task__marketing_us_debt.ht
ml]
The recession, financial crisis and two wars have pushed the federal deficit above $1 trillion, a record level that makes the
Treasury secretary's role as chief marketer of U.S. debt tougher than any of his recent predecessors'. Geithner, who traveled last
week to the Middle East and Europe, has to convince foreign investors to keep buying Treasury bills, notes and bonds; they hold
nearly half of the government's roughly $7 trillion in publicly traded debt. "He's a smart guy but it's a very, very big task," said
Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning Washington think tank. If foreign demand
for U.S. debt sags, that could drive up interest rates and spell big trouble for an economy hobbled by 9.5 percent unemployment.
Higher rates would make it more expensive for consumers to buy homes and cars, and for businesses to finance their operations. In
the worst case scenario, a rush by foreigners to sell their U.S. debt could send the dollar crashing and inflation soaring
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts – Inflation
Inflation leads to extinction
Sennholz, Head of the Department of Economics at Grove City College and noted writer and lecturer on monetary and economic
principles and practices, No Date Given
It is not money, as is sometimes said, but the depreciation of money — the cruel and crafty destruction of money — that
is the root of many evils. For it destroys individual thrift and self-reliance as it gradually erodes personal savings. It
benefits debtors at the expense of creditors as it silently transfers wealth and income from the latter to the former. It
generates the business cycles, the stop-and-go boom-and-bust movements of business that inflict incalculable harm on
millions of people. For money is not only the medium for all economic exchanges, but as such also the lifeblood of the
economy. When money suffers depreciations and devaluations it invites government price and wage controls,
compulsory distribution through official allocation and rationing, restrictive quotas on imports, rising tariffs and
surcharges, prohibition of foreign travel and investment, and many other government restrictions on individual
activities. Monetary destruction breeds not only poverty and chaos, but also government tyranny. Few policies are more
calculated to destroy the existing basis of a free society than the debauching of its currency. And few tools, if any, are
more important to the champion of freedom than a sound monetary system.
Inflation kills the economy
Niall Ferguson, Professor of Economic History at Harvard, How Economists can misunderstand the Crisis,
6/14/2009, http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=205
They understand that US fiscal policy implies big purchases of government bonds by the Fed this year, since neither foreign nor
private domestic purchases will suffice to fund the deficit. This policy is known as printing money and it is what many
governments tried in the 1970s, with inflationary consequences you do not need to be a historian to recall. No doubt there are
powerful deflationary headwinds blowing in the other direction today. There is surplus capacity in world manufacturing. But the
price of key commodities has surged since February. Monetary expansion in the US, where M2 is growing at an annual rate of 9
per cent, well above its post-1960 average, seems likely to lead to inflation if not this year, then next. In the words of the Chinese
central bank’s latest quarterly report: “A policy mistake . . . may bring inflation risks to the whole world.”
Inflation turns poverty
William Easterly, NYU Stern School of Business, Development Research group, World Bank, and Stanley
Fischer, International Monetary Fund, 2000, Inflation and the Poor
The claim that “inflation is the cruelest tax of all” is often interpreted as meaning that inflation hurts the poor relatively more than
the rich. It could also mean that the inflation tax is particularly unfair because, the taxing mechanism being little understood, the
inflation tax can be imposed by stealth. The essential a priori argument is that the rich are better able to protect themselves
against, or benefit from, the effects of inflation than are the poor. In particular, the rich and more sophisticated are likely to have
better access to financial instruments that hedge in some way against inflation, while the (small) portfolios of the poor are likely
to have a larger share of cash. The poor may also depend more than the rich on state-determined income that is not fully indexed
to inflation. Among the elderly poor, pensions are often not fully indexed and so inflation will directly reduce their real incomes.
For the remainder of the poor, state subsidies or direct transfers may also not be fully indexed
Premature pullout always fails
DDI 2009
Culpepper
The Zack Elias Experience (Zack, Scott, Christina, Wesley, DHerms, Stokes, Tony, DK, Jan, Sibo, Ashish)
Econ Generic
Impacts - Inflation
Inflation destroys global economy—interest rates and dollar dump
USA Today 9
(“Rising national debt raises prospects of eventual inflation”, June 30, http://www.usatoday.com/money/economy/inflation/200906-28-national-debt-inflation_N.htm)
But any sustained burst of inflation would have some ugly long-term effects: •Higher interest rates.The Federal Reserve typically
raises short-term interest rates to cool off the economy and tamp down inflation. Even if inflation remains tame, the Fed will
eventually have to return short-term rates to normal — about 3% to 5%. Other interest rates would rise, too. Bond traders, for
example, loathe inflation, which eats away at the spending power of bonds' fixed interest payments. When inflation looks likely,
bond traders demand higher bond yields — and higher long-term rates can also act as a brake on the economy, raising payments on
everything from corporate borrowing to home loans. •A lower dollar. The value of the dollar on the international currency
exchanges is another measure of inflation. If foreign investors think the U.S. is inflating its currency, they will demand more
dollars in exchange for other currency — say, the euro or the yen. A declining dollar makes imported goods more expensive,
although it makes U.S. exports more attractive. "There's likely to be long-term decline in the dollar; that's generally inflationary,"
says Mihir Worah, head of inflation-linked bond trading at Pimco, the West Coast bond powerhouse. The nightmare scenario is
that the dollar loses its pre-eminence as a world currency. Oil, for example, is traded only in dollars, and in times of panic,
investors always rush to the safety of the sawbuck. If investors — especially foreign investors — dump dollar-denominated
investments, the U.S. will have to offer much higher interest rates to sell its debts. And that could have the economy grinding to a
halt.
Premature pullout always fails
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Impacts – Inflation
Inflation kills the dollar – investors and countries move away from it
Pritchard, Professor of Finance, 6-2
Dr. Robert E. Pritchard, Professor of Finance, 6-2-09, News Blaze, “Inflation and Dollar Depreciation”
Both the dollar depreciation and the increase in longer-term interest rates are attributable to fears of significant long-term inflation
resulting from massive government borrowing and anticipated ongoing deficit spending. Expecting inflation, investors worldwide tend
to move their money from dollars to what they believe will be more stable currencies. This results in depreciation of the dollar. The
decreasing value of the dollar has resulted in China calling for another currency to replace the dollar as the major reserve currency. (A
reserve currency is a stable currency that is used for a significant portion of international trade.) Although this is unlikely to take place,
countries could well decide to replace the dollar with a basket of currencies. Such a move would reduce the demand for the dollar,
resulting in its further depreciation. spend
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Impacts – China
Chinese T-bill purchases key to the economy
Taspinar, professor at the National War College and an adjunct professor at Johns Hopkins University’s School of
Advanced International Studies, 7-22-09
(Omar Taspinar, professor at the National War College and an adjunct professor at Johns Hopkins University’s School of
Advanced International Studies, 7-22-09, Will China continue to buy dollars?, http://www.todayszaman.com/tz-web/columnists168371-will-china-continue-to-buy-dollars.html)
The country thus began shipping the incoming fund from its trade surplus and foreign investments right back to the United
States. China did so by buying huge quantities of dollar assets and US Treasury bonds. Here is the paradox: China, a poor
country where capital is still scarce by Western standards, began buying vast amounts of US Treasury bonds and
assets. But this was the price to pay to keep the yuan low and the dollar strong. And the US has become dependent on
this. Dollar purchases by China have temporarily insulated the US economy from the effects of huge budget deficits.
This money flowing in from abroad has kept US interest rates very low despite the enormous government borrowing
required to cover budget deficits. These low interest rates were also crucial to America's housing boom. Soaring real
estate prices not only created construction jobs, they also supported consumer spending because many homeowners
converted rising house values into cash by refinancing their mortgages. Today China has nearly $2 trillion in reserves,
the world's largest, as a result of years of accumulating US Treasury bonds and assets. This is a huge resource pool that will
plunge in value if the dollar collapses. As China's economy slows sharply because of the US recession, the Chinese
debate on how to manage these reserves is intensifying. Some propose spending the money at home; others want
more diversification of investments. The consensus behind buying American government securities is coming under
attack.
Chinese Pullout from treasury bonds because of spending destroys the international economy
David Leonhardt, Economics Columnist for the New York Times, 2009, The China Puzzle,
http://www.nytimes.com/2009/05/17/magazine/17chinat.html?_r=1&sq=leonhardt%20china%20geithner%20kissinger&st=cse&scp=2&pagewanted=all
The most obviously worrisome part of the situation today is that the Chinese could decide that they no longer want to buy
Treasury bonds. The U.S. government’s recent spending for bank bailouts and stimulus may be necessary to get the economy
moving again, but it also raises the specter of eventual inflation, which would damage the value of Treasuries. If the Chinese
are unnerved by this, they could instead use their cash to buy the bonds of other countries, which would cause interest rates
here to jump, prolonging the recession. Wen Jiabao, China’s premier, seemed to raise this possibility in March, in remarks to
reporters at the end of the annual session of China’s Parliament. “We have lent a huge amount of money to the U.S.,” Wen
said. “Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” In all
likelihood, this was mostly posturing. Were China to cut back sharply on its purchase of Treasury bonds, it would send the
value of the bonds plummeting, hurting the Chinese, who already own hundreds of billions of dollars’ worth.
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Impacts – China
Chinese divestment of U.S. assets would devastate monetary policy and economy
Morrison, Specialist In International Trade and Finance Foreign Affairs, Defense, and Trade Division, and Labonte, Specialist in
Macroeconomic Policy Government and Finance Division, 08 (Wayne M. and Marc, “China’s Holdings of U.S. Securities:
Implications for the U.S. Economy”, Congressional Research Service, 11/20/2008, http://www.fas.org/sgp/crs/row/RL34314.pdf)
China has accumulated large holdings of U.S. assets in recent years. These
accumulations are the result of U.S. borrowing to finance its large trade deficit with China (the gap between
U.S. exports and Chinese imports). All else equal, Chinese government purchases of U.S. assets increases the
demand for U.S. assets, which reduces U.S. interest rates. If China attempted to reduce its holdings of U.S.
securities, they would be sold to other investors (foreign and domestic), who would presumably require higher
interest rates than those prevailing today to be enticed to buy them. One analyst estimates that a Chinese move away
from long-term U.S. securities could raise interest rates by as much as 50 basis points.27 Higher interest rates
would cause a decline in investment spending and other interest-sensitive spending. All else equal, the reduction
in Chinese Treasury holdings would cause the overall foreign demand for U.S. assets to fall, and this would
cause the dollar to depreciate. If the value of the dollar depreciated, the trade deficit would decline, as the price
of U.S. exports fell abroad and the price of imports rose in the United States.28 The magnitude of these effects would
As the previous data illustrate,
depend on how many U.S. securities China sold; modest reductions would have negligible effects on the economy given the vastness
of U.S. financial markets. Since China held $922 billion of U.S. government assets as of June 2007 (and possibly $1.3
trillion as of September 2008), any reduction in its U.S. holdings could potentially be large. If there were a large
reduction in its holdings, the effect on the U.S. economy would still depend on whether the reduction were
gradual or sudden. It should be emphasized that economic theory suggests that a slow decline in the trade deficit and dollar would
not be troublesome for the overall economy. In fact, a slow decline could even have an expansionary effect on the economy, if the
decrease in the trade deficit had a more stimulative effect on aggregate demand in the short run than the decrease in investment and
other interest-sensitive spending resulting from higher interest rates. Historical experience seems to bear this out — the dollar declined
by about 40% in real terms and the trade deficit declined continually in the late 1980s, from 2.8% of GDP in 1986 to nearly zero
during the early 1990s. Yet economic growth was strong throughout the late 1980s. A potentially serious short-term problem
would emerge if China decided to suddenly reduce their liquid U.S. financial assets significantly. The effect
could be compounded if this action triggered a more general financial reaction (or panic), in which all
foreigners responded by reducing their holdings of U.S. assets. The initial effect could be a sudden and large
depreciation in the value of the dollar, as the supply of dollars on the foreign exchange market increased, and a
sudden and large increase in U.S. interest rates, as an important funding source for investment and the budget
deficit was withdrawn from the financial markets. The dollar depreciation would not cause a recession since it
would ultimately lead to a trade surplus (or smaller deficit), which expands aggregate demand.29 (Empirical
evidence suggests that the full effects of a change in the exchange rate on traded goods takes time, so the dollar may have to
“overshoot” its eventual depreciation level in order to achieve a significant adjustment in trade flows in the short run.)30 However, a
sudden increase in interest rates could swamp the trade effects and cause (or worsen) a recession. Large
increases in interest rates could cause problems for the U.S. economy, as these increases reduce the market
value of debt securities, cause prices on the stock market to fall, undermine efficient financial intermediation,
and jeopardize the solvency of various debtors and creditors. Resources may not be able to shift quickly enough
from interest-sensitive sectors to export sectors to make this transition fluid. The Federal Reserve could mitigate
the interest rate spike by reducing short-term interest rates, although this reduction would influence long-term
rates only indirectly, and could worsen the dollar depreciation and increase inflation.
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Impacts – China
The perception that China will dump the dollar crashes the economy
Faiola, Montgomery, and Cha, Washington Post Staff Writers (Cha is based in Shanghai), 3-14-09
(Anthony Faiola, Lori Montgomery, and Ariana Eunjung Cha, Washington Post Staff Writers, (Cha is based in Shanghai), 3-1409,
“China
Worried
About
U.S.
Debt,”
The
Washington
Post,
http://www.washingtonpost.com/wpdyn/content/article/2009/03/13/AR2009031300703.html) [David Herman]
China surpassed Japan last year as the largest foreign holder of Treasury bonds. Any indication that it intends to cease
those purchases -- or, worse, stage a sell-off -- could drive up the cost of borrowing for the U.S. government, as well as
send mortgage rates higher for millions of Americans. That reality, experts say, has given China more leverage in its
dealings with Washington, with some seeing Wen's comments yesterday as amounting to economic saber-rattling. The
words came only days after a confrontation in international waters between a U.S. military ship and five Chinese vessels
that sparked recriminations on both sides of the Pacific. Chinese officials have also signaled alarm over a growing
"protectionist" sentiment in the U.S. Congress that could further endanger its exports, now in sharp decline as world
demand spirals during the global economic crisis. Those circumstances illustrate the pitfalls the Obama administration is
facing as it charts its relationship with China. In January, for instance, the administration signaled that it would confront
Beijing on the manipulation of its currency, the yuan, which has been kept artificially low against the U.S. dollar, making
Chinese products cheaper around the world. Critics call that one of the major factors behind the U.S. trade deficit. "The
power that China now has is that its actions are seen as a leading indicator of the confidence that foreign investors will have
in the ability of the U.S. government to pay the debt," said Eswar Prasad, senior fellow at the Brookings Institution. "These
comments are saber-rattling in the sense that they are using that leverage to tell the U.S. to back off on currency policy and
trade policy." A number of Chinese officials have expressed concern about the future of Beijing's holdings of U.S. debt.
American officials have sought to ease those concerns, effectively acknowledging the importance of China's role as
Washington's banker. Last month, Secretary of State Hillary Rodham Clinton urged the Chinese to keep buying U.S. bonds.
Asked about the increasingly jittery reaction in China to the rising U.S. debt, White House economic adviser Lawrence H.
Summers yesterday defended the expensive policies that are forcing the nation to borrow a record $2.5 trillion this year, by
White House estimates. "In the short run, the need is to get the economy going again," Summers told a packed auditorium
at the Brookings Institution, a Washington think tank. Summers acknowledged that fiscal stimulus and various financialsector bailouts are forcing the nation to borrow massive sums, but the alternative, he said, would be much worse. "If
deflation sets in, if the GDP collapses further . . . if that happens, the magnitude of the federal borrowing, as large as it is
today, will be dwarfed. It will be far, far larger." But concern is rising about the value of U.S. bonds. Though they remain
the choice for investors seeking a safe haven in hard economic times, analysts are already murmuring about a possible
downgrade on the rating of U.S. Treasurys in the future. The talk comes as Washington is issuing more debt and printing
more dollars to stimulate the economy -- something that could bring down the value of the dollar in the months to come.
That, in turn, would dilute the value of the U.S. dollar-denominated bonds held by the Chinese and other investors. Wen
called on the United States to "maintain its good credit, to honor its promises and to guarantee the safety of China's assets."
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Impacts – China
Chinese dollar dump crashes the economy
Scaliger, teacher and freelance writer, ‘09
(Charles Scaliger, teacher and freelance writer, 3-13-09, “Will China Dump U.S. Debt?,” The New American,
http://www.thenewamerican.com/index.php/world-mainmenu-26/asia-mainmenu-33/876) [David Herman]
But the United States should be more worried still. China — still a military rival — is now the United States’ largest creditor, and the
only major country with enough money to purchase the huge amounts of additional debt the Obama administration is manufacturing to
pay for trillions of dollars of bailouts and economic stimulus. This has come about in part because of the reversion of Hong Kong,
which held large amounts of U.S. government debt, to Chinese control in the mid-1990s. But it is also a result of huge foreign
investment in China and the comparative thrift of the Chinese government and citizenry. As a result, China has large budget surpluses
where the U.S. teeters on the brink of national bankruptcy thanks to looming trillion-dollar annual deficits. As the recent naval
confrontation in the South China Sea served to underscore, the United States and China are neither friends nor allies, but rival
superpowers. While the United States still has a substantial military advantage over China, the Chinese, with their suddenly prominent
space program, their development of ICBMs, advanced submarines, anti-ship missiles, and now, apparently, aircraft carriers, may not
be laggards for much longer. As for the rival economies, China, being debt-free and holding the strings to huge American obligations,
has a decisive advantage. So dependent have we become on Chinese largesse that Secretary of State Hillary Clinton, in a recent visit to
Beijing, essentially begged the Chinese to continue purchasing Treasury bonds. But according to Frank Gong, China economist for JP
Morgan, “Inside China there has been a lot of debate about whether they should continue to buy Treasuries.” Some investment experts
like Peter Schiff are already warning that, sooner or later, the Chinese will no longer be willing to buy American dollars, leading to a
crisis that will overshadow everything we have so far experienced as the U.S. dollar’s value plummets. What we are witnessing is
nothing less than the raising up of China to be the world’s newest superpower, with the financial and economic clout to match its
growing military prowess. Should the People’s Republic of China decide to ratchet down its purchasing of U.S. debt, the United States
may end up prostrate before the Chinese dragon without a shot being fired
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Impacts – Unemployment
Deficit spending increases unemployment – Hurts the economy.
The Heritage Foundation July 6 [July 6th 2009 "The economy hits home: What makes the economy grow"
http://www.heritage.org/Research/Economy/Economy-Hits-Home-001.cfm
MYTH #4: Public works projects stimulate the economy by creating new jobs. Fact: In the short run, public works projects
have no real effect on overall unemployment. They simply displace resources that could be used to create jobs in the private
sector and move those resources to the government payroll. Nowhere is the MYTH of public works spending more
widespread than in highway spending. As we saw in our previous examples, before the government can spend money hiring
road builders and purchasing asphalt, it must first tax or borrow that money from other sectors of the economy. Deprived of
that money, other sectors must contract, leading to a loss of jobs. Again, this should be common sense. Suppose a family is
saving money to build a swimming pool. This would, of course, provide work for the contractors and workers who would
build the pool. Now suppose the family learns that they are expecting a new baby. They decide that a swimming pool
would be too dangerous with a little one around, and what they really need is an addition to their house. So, instead of
hiring people to build the pool, they hire people to build the addition. This provides work for laborers on the addition, but it
is instead of, not in addition to, the work that would have been done by the pool builders. Public works schemes are like
this, except that they often do more harm than good. That's because, like state bailouts, public works projects tend to direct
resources to less productive, inefficient projects like "bridges to nowhere" (a boondoggle recently proposed by Congress).
This hinders economic growth, which ultimately is about increasing productivity.
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Impacts – Credit Downgrade
Deficit spending risks credit downgrade.
Oxford Analytica June 25[June 25 2009 "Swelling Deficit Could Slow Recovery" http://www.forbes.com/2009/06/24/deficiteconomy-obama-business-oxford-analytica.html
In the midst of the worst U.S. economic recession in the post-war period, President Barack Obama in February presented
Congress with a budget blueprint that packaged an exceptionally expansionary policy with the rhetoric of fiscal
responsibility. However, the prospect of the budget deficit remaining in excess of $1 trillion per year over the next decade
raises a number of concerns about longer-term interest rates and the value of the dollar. Inflation danger. The prospective
rise in the federal debt-to-GDP ratio to 82% by 2019 raises the likelihood of high long-term interest rates that would be
harmful for longer-term economic growth. Large public borrowing requirements would require the Federal Reserve to
follow a more restrictive monetary policy approach to contain inflation, while a large rise in the public debt-to-GDP ratio
could put the U.S. government's AAA debt rating in jeopardy.
Kills the economy – Interest rates and global trade.
Winthrop Capitol Management 09 [Winthrop Capitol Management investment firm May 2009
http://winthropcm.com/ImplicationsfortheCreditRatingoftheUSGovernment.pdf
What Are the Ramifications of a Downgrade in U.S. Treasury securities? The credit worthiness of the United States
government has been rock solid since World War II. We’ve lived in a world where the US dollar is the world’s reserve
currency and the US Treasury has always been rated AAA. While we don’t expect to see a downgrade in the near future,
the market is quick to discount the deterioration in any credit, and that includes the U.S. government. Any conjecture on the
potential impact of a downgrade assumes, in a large part, there is rational investor behavior in the market. Yet, in this
market, that too may be a stretch. 1. Yields on U.S. Treasury securities will likely increase. Foreign investors hold roughly
$3.1 trillion of U.S. government securities. As a result of any threat of a downgrade, rational investors will demand a higher
yield for the increase in credit risk. While we don’t expect foreign central banks to start selling U.S. Treasury securities, we
do expect that they will demand higher yields in order to maintain their existing pace of Treasury investment. 2. U.S.
Treasury yields represent the “risk free” rate in many valuation models. The risk free rate is the rate at which a borrower
would earn for lending money in a riskless transaction. Sadly, with the balance sheet and economy of the US government in
a shambles, the Treasury is no longer the riskless investment it once was. As a result, prices of securities that utilize a risk
free rate as an input in the pricing model, will adjust lower as the rate on U.S Treasury securities increases. 3. As a result of
a downgrade, higher collateral will be required to support transactions. Certain transactions, such as repurchase agreements,
margin, and derivative transactions, require that securities ‐ including U.S. Treasury securities ‐ are posted as collateral.
Assuming a downgrade in the credit worthiness of the collateral, it is likely that higher amounts of collateral will be
required to support the same notional amount of the transaction. This will have a further effect of deleveraging in the capital
markets since more collateral ultimately means less leverage to support the transaction. 4. The yields on government
guaranteed and GSE debt will likely increase. Assuming that the interest rate on Treasury debt increases, it is rational to
assume that the yields on government guaranteed debt and Government Sponsored Enterprises, including Fannie Mae and
Freddie Mac, will also increase. Yields on the debt of Ginnie Mae (GNMA) the largest guarantor of mortgage loans will
increase. As a result of increased borrowing costs, the cost of mortgage loans will also increase. Rising interest rates will
impede progress on an economic recovery. We believe the U.S. economy will not show sustainable growth until there is
stability in the financial system. Higher interest rates will have a muting effect on an economic recovery as borrowers pay a
higher rate for capital. As a result, business formation and capital development at the margin will be impeded.
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Deficit spending kills dollar hegemony – Dollar decline and economy.
Caploe 08 [David Caploe writer for the Straits times 2008 lexis]
Countries accept dollars, even in their currently weakened state, to buy and sell from each other - above all oil, which has
been priced in US dollars since even before World War II. The result of dollar hegemony has been a 'win-win' situation for
both the US and the rest of the world: The US can import goods and services far beyond its immediate ability to pay, and
the rest of the world has been willing to take dollars, which they can use themselves. In this way, America serves as not just
the global consumer of last resort - the place where countries know they are usually able to off-load their inventories - but
also the global financier of last resort. That is, the supply of dollars moving around the world has, for the last half century,
helped maintain the flow of not just trade, but international investment as well. Now, the key pre-condition for the
successful operation of this system is the health of the US domestic economy. This is why the massive fiscal deficits are
so worrisome - especially when combined with the indulgence and encouragement of all the high-tech financial
manipulation and chicanery the inventive genius of Wall Street has devised over the past several years. The symbol of this,
of course, is the collapse of the entire - not just 'sub-prime' - housing market in the US. These problems are compounded by
the conventional response of private banks to a situation where a growing percentage of their loans are not being re-paid tightening credit requirements and increasing interest rates. So no matter how much the Federal Reserve may cut
interest rates at the top, interest rates for consumers on the ground are likely to continue to rise - which, in turn, will
further slow an already weakened economy.
Dollar Heg Key to Trade
Caploe 08 [David Caploe writer for the Straits times 2008 lexis]
The origins of this system lie in the shattered condition of the world economy after World War II. At that time, the only
currency universally accepted for international trade was the US dollar. This 'dollar hegemony' has enabled the US to
survive and prosper for decades despite the fact it has run consistent balance of payments deficits since 1959 - a condition
that would have devastated any other country whose currency wasn't the world's 'reserve currency'. Put simply, countries
accept dollars, even in their currently weakened state, to buy and sell from each other - above all oil, which has been priced
in US dollars since even before World War II. The result of dollar hegemony has been a 'win-win' situation for both
the US and the rest of the world: The US can import goods and services far beyond its immediate ability to pay, and
the rest of the world has been willing to take dollars, which they can use themselves. In this way, America serves as not
just the global consumer of last resort - the place where countries know they are usually able to off-load their inventories but also the global financier of last resort. That is, the supply of dollars moving around the world has, for the last half
century, helped maintain the flow of not just trade, but international investment as well.
And nuclear war.
Spicer, 1996 economist; member of the British Parliament, [Michael, The Challenge from the East and the Rebirth
of the West, p. 121]
The choice facing the West today is much the same as that which faced the Soviet bloc after World War II: between
meeting head-on the challenge of world trade with the adjustments and the benefits that it will bring, or of attempting to
shut out markets that are growing and where a dynamic new pace is being set for innovative production. The problem about
the second approach is not simply that it won't hold: satellite technology alone will ensure that the consumers will begin to
demand those goods that the East is able to provide most cheaply. More fundamentally, it will guarantee the emergence of a
fragmented world in which natural fears will be fanned and inflamed. A world divided into rigid trade blocs will be a
deeply troubled and unstable place in which suspicion and ultimately envy will possibly erupt into a major war. I do not say
that the converse will necessarily be true, that in a free trading world there will be an absence of all strife. Such a
proposition would manifestly be absurd. But to trade is to become interdependent, and that is a good step in the direction of
world stability. With nuclear weapons at two a penny, stability will be at a premium in the years ahead.
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Impacts – Dollar Heg – Heg Impact (1/2)
Dollar primacy is key to hegemony
Looney, Prof of National Security at Naval Postgraduate School, 03
Robert Looney, Professor of National Security Affairs at the Naval Postgraduate School, November 2003, Strategic Insights, “From Petrodollars to Petroeuros: Are the
Dollar's Days as an International Reserve Currency Drawing to an End?”
Political power and prestige. The benefits of "power and prestige" are nebulous. Nevertheless, the loss of key currency
status and the loss of international creditor status have sometimes been associated, along with such non-economic factors as
the loss of colonies and military power, in discussions of the historical decline of great powers. Causality may well flow
from key currency status to power and prestige and in the opposite direction as well.[8] On a broader scale, Niall
Ferguson[9] notes that one pillar of American dominance can be found in the way successive U.S. government sought to
take advantage of the dollar's role as a key currency. Quoting several noted authorities, he notes that [the role of the dollar]
enabled the United States to be "far less restrained…than all other states by normal fiscal and foreign exchange constraints
when it came to funding whatever foreign or strategic policies it decided to implement." As Robert Gilpin notes, quoting
Charles de Gaulle, such policies led to a 'hegemony of the dollar" that gave the U.S. "extravagant privileges." In David
Calleo's words, the U.S. government had access to a "gold mine of paper" and could therefore collect a subsidy form
foreigners in the form of seignorage (the profits that flow to those who mint or print a depreciating currency). The web
contains many more radical interactions of the dollar's role. Usually something along the following lines: World trade is
now a game in which the U.S. produces dollars and the rest of the world produces things that dollars can buy. The world's
interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed
dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their
domestic currencies…. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed
peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars
can buy oil. The recycling of petro-dollars is the price the U.S. has extracted from oil-producing countries for U.S.
tolerance of the oil-exporting cartel since 1973.[10] America's coercive power in the world is based as much on the
dollar's status as the global reserve currency as on U.S. military muscle. Everyone needs oil, and to pay for it, they must
have dollars. To secure dollars, they must sell their goods to the U.S., under terms acceptable to the people who rule
America. The dollar is way overpriced, but it's the only world currency. Under the current dollars-only arrangement, U.S.
money is in effect backed by the oil reserves of every other nation.[11] While it is tempting to dismiss passages of this sort
as uninformed rants, they do contain some elements of truth. There are tangible benefits that accrue to the country whose
currency is a reserve currency. The real question is: if this situation is so intolerable and unfair, why hasn't the world
ganged up on the United States and changed the system? Why haven't countries like Libya and Iran required something like
euros or gold dinars in payment for oil? After all, with the collapse of the Bretton Woods system in 1971 the International
Monitary Fund's Standard Drawing Rights (unit of account) was certainly an available alternative to the dollar.[12]
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Impacts – Dollar Heg – Heg Impact (2/2)
Heg solves multiple scenarios for nuclear war and economic downturn.
Khalilzad Poli Sci @ Columbia‘95
Spring, The Washington Quarterly, Vol. 18, No. 2; Pg. 84
Realistically and over the longer term, however, a neo-isolationist approach might well increase the danger of major conflict, require a
greater U.S. defense effort, threaten world peace, and eventually undermine U.S. prosperity. By withdrawing from Europe and Asia,
the United States would deliberately risk weakening the institutions and solidarity of the world's community of democratic powers and
so establishing favorable conditions for the spread of disorder and a possible return to conditions similar to those of the first half of the
twentieth century. In the 1920s and 1930s, U.S. isolationism had disastrous consequences for world peace. At that time, the United
States was but one of several major powers. Now that the United States is the world's preponderant power, the shock of a U.S.
withdrawal could be even greater. What might happen to the world if the United States turned inward? Without the United States and
the North Atlantic Treaty Organization (NATO), rather than cooperating with each other, the West European nations might compete
with each other for domination of East-Central Europe and the Middle East. In Western and Central Europe, Germany -- especially
since unification -- would be the natural leading power. Either in cooperation or competition with Russia, Germany might seek
influence over the territories located between them. German efforts are likely to be aimed at filling the vacuum, stabilizing the region,
and precluding its domination by rival powers. Britain and France fear such a development. Given the strength of democracy in
Germany and its preoccupation with absorbing the former East Germany, European concerns about Germany appear exaggerated. But
it would be a mistake to assume that U.S. withdrawal could not, in the long run, result in the renationalization of Germany's security
policy. The same is also true of Japan. Given a U.S. withdrawal from the world, Japan would have to look after its own security and
build up its military capabilities. China, Korea, and the nations of Southeast Asia already fear Japanese hegemony. Without U.S.
protection, Japan is likely to increase its military capability dramatically -- to balance the growing Chinese forces and still-significant
Russian forces. This could result in arms races, including the possible acquisition by Japan of nuclear weapons. Given Japanese
technological prowess, to say nothing of the plutonium stockpile Japan has acquired in the development of its nuclear power industry,
it could obviously become a nuclear weapon state relatively quickly, if it should so decide. It could also build long-range missiles and
carrier task forces. With the shifting balance of power among Japan, China, Russia, and potential new regional powers such as India,
Indonesia, and a united Korea could come significant risks of preventive or proeruptive war. Similarly, European competition for
regional dominance could lead to major wars in Europe or East Asia. If the United States stayed out of such a war -- an unlikely
prospect -- Europe or East Asia could become dominated by a hostile power. Such a development would threaten U.S. interests. A
power that achieved such dominance would seek to exclude the United States from the area and threaten its interests-economic and
political -- in the region. Besides, with the domination of Europe or East Asia, such a power might seek global hegemony and the
United States would face another global Cold War and the risk of a world war even more catastrophic than the last. In the Persian
Gulf, U.S. withdrawal is likely to lead to an intensified struggle for regional domination. Iran and Iraq have, in the past, both sought
regional hegemony. Without U.S. protection, the weak oil-rich states of the Gulf Cooperation Council (GCC) would be unlikely to
retain their independence. To preclude this development, the Saudis might seek to acquire, perhaps by purchase, their own nuclear
weapons. If either Iraq or Iran controlled the region that dominates the world supply of oil, it could gain a significant capability to
damage the U.S. and world economies. Any country that gained hegemony would have vast economic resources at its disposal that could be used
to build military capability as well as gain leverage over the United States and other oilimporting nations. Hegemony over the Persian Gulf by either
Iran or Iraq would bring the rest of the Arab Middle East under its influence and domination because of the shift in the balance of power. Israeli
security problems would multiply and the peace process would be fundamentally undermined, increasing the risk of war between the
Arabs and the Israelis. The extension of instability, conflict, and hostile hegemony in East Asia, Europe, and the Persian Gulf would
harm the economy of the United States even in the unlikely event that it was able to avoid involvement in major wars and conflicts.
Higher oil prices would reduce the U.S. standard of living. Turmoil in Asia and Europe would force major economic readjustment in the United
States, perhaps reducing U.S. exports and imports and jeopardizing U.S. investments in these regions. Given that total imports and exports are equal
to a quarter of U.S. gross domestic product, the cost of necessary adjustments might be high. The higher level of turmoil in the world would
also increase the likelihood of the proliferation of weapons of mass destruction (WMD) and means for their delivery. Already several
rogue states such as North Korea and Iran are seeking nuclear weapons and long-range missiles. That danger would only increase if
the United States withdrew from the world. The result would be a much more dangerous world in which many states possessed WMD
capabilities; the likelihood of their actual use would increase accordingly. If this happened, the security of every nation in the world,
including the United States, would be harmed.
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Impacts – Inflation Kills Dollar Heg
Combating inflation is the only way to maintain the dollar as reserve currency
McCallum, professor of economics at Carnegie Mellon University, 09 (Bennett T., “China, the U.S. Dollar, and
SDRs”, 4/21/2009, http://www.cmc.edu/somc/benjamin_mccallum_042009.pdf)
Next, how does the IMF “line of credit” work? Each IMF member country with a SDR allocation can convert its SDR credits into
desired currencies of other IMF member countries at prevailing exchange rates. When a country, say Venezuela, converts its SDR
claims into (e.g.) dollars or Euros, it pays interest to the IMF, while the country whose currency is “borrowed” earns interest from the
organization. Membership both permits and requires countries to participate in this arrangement. So a country whose currency is in
demand by others will typically have a cumulative surplus of SDR credits, with borrowing countries having a deficit. The latter will be
paying interest to the former, but at below market rates. Thus the SDR-surplus countries will be, to an extent, subsidizing the SDR
deficit countries (year after year) as long as the accounts of the latter remain in deficit. Armed with this understanding, we see that the
SDR is actually not a currency at all; it is not a tangible medium of exchange or a claim to one. Let us then consider how one should
interpret Governor Zhou’s proposal. Given the danger of U.S. inflation described above, what he wants, I would think, is for China’s
accumulation of dollars—i.e., China’s accumulated dollar-denominated claims—to be gradually replaced with SDR credits with the
IMF. It is not, as mentioned above, foolish for China to have such a desire. But it would be foolish for the U.S. to support a
reorganization of the international monetary system that turns control over to the IMF, especially as the political structure of that
organization will likely be changing over time in ways that will reduce the influence of the U.S. on its decisions and actions. Such
support would also, arguably, be foolish from the standpoint of the world as a whole. In this regard, one needs to imagine how the
world’s international monetary system would function if it were managed by an agency of the United Nations. For its own good, and
for the good of the world, the U.S. can resist the SDRization of the international system. It can do so politically, but only to an extent.
What can be done economically? The answer is to avoid the inflation that the Chinese fear, and which we should fear. How might that
goal be promoted? By the adoption, by the Federal Reserve System, of a viable monetary standard designed to prevent inflation (either
positive or negative.) A major step in that direction would be the adoption of a target inflation rate, e.g., 1.5% per year for the CPI, to
be maintained as the Fed’s primary monetary responsibility. The SOMC has argued before in behalf of such a commitment. It appears
now that the nee is greater than at any time in the past 25 years.
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Impacts – Spending Kills Dollar Heg
Federal spending destroys dollar hegemony
The Economist 09 (“Handle with care”, 3/26/2009,
http://www.economist.com/businessfinance/displayStory.cfm?story_id=13382167)
In future, changes to the international financial system are likely to be shaped by Beijing as well as Washington. That is the message
of an article by Zhou Xiaochuan, the governor of the People’s Bank of China. Mr Zhou calls for a radical reform of the international
monetary system in which the dollar would be replaced as the main reserve currency by a global currency. It is a delicate issue,
however. When Tim Geithner, America’s treasury secretary, discussed the proposal in New York on March 25th, his remarks sent the
dollar tumbling before he made clear that, naturally, he thought the greenback should remain the dominant reserve currency. Mr
Zhou’s proposal is China’s way of making clear that it is worried that the Fed’s response to the crisis—printing loads of money—will
hurt the dollar and hence the value of China’s huge foreign reserves, of which around two-thirds are in dollars. He suggests that the
international financial system, which is based on a single currency (he does not actually cite the dollar), has two main flaws. First, the
reserve-currency status of the dollar helped to create global imbalances. Surplus countries have little choice but to place most of their
spare funds in the reserve currency since it is used to settle trade and has the most liquid bond market. But this allowed America’s
borrowing binge and housing bubble to persist for longer than it otherwise would have. Second, the country that issues the reserve
currency faces a trade-off between domestic and international stability. Massive money-printing by the Fed to support the economy
makes sense from a national perspective, but it may harm the dollar’s value.
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Impacts – Deficit Spending Kills Dollar Heg
Deficit spending threatens dollar as a reserve currency
Dorn, China specialist at the Cato Institute, 09 (James A., “The Dangers of a New Global Reserve Currency”, Cato
Insitute, 4/2/2009, http://www.cato.org/pub_display.php?pub_id=10093)
A key topic at the G20 meeting is sure to be the future of the dollar as an international reserve currency. The global financial crisis,
which started with the US subprime crisis, has eroded confidence in the dollar as an anchor for international payments. Moreover,
large US fiscal deficits could add more than US$10 trillion to US government debt over the next decade – on top of trillions of dollars
of implicit debt in social security and Medicare. The US debt bomb poses a growing risk to China and other countries that hold large
amounts of their foreign- exchange reserves in dollar denominated assets, primarily US government securities. If foreign central banks
are less willing to hold US debt, the Federal Reserve may be the buyer of first resort. Running the printing press to absorb new debt
would ignite inflationary expectations. If political pressure prevents the Fed from quickly withdrawing excess liquidity, the purchasing
power of the dollar would fall sharply – and all those who hold dollar debt would suffer a loss of wealth. China, with nearly US$2
trillion in foreign exchange reserves, would be the biggest loser if the US were to use inflation to reduce the real burden of its debt.
That is why, for the first time, Chinese leaders are openly worrying about the future of the dollar as a reserve currency. In a now
widely cited speech released by the People's Bank of China on March 23, governor Zhou Xiaochuan raised a fundamental question:
"What kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth?" Dr
Zhou pointed to the "institutional flaws" in the current global financial system and argued that reform must create "an international
reserve currency with a stable value, rule-based issuance, and manageable supply". His specific recommendation is to expand the use
of Special Drawing Rights, or SDRs, a synthetic currency created by the International Monetary Fund in 1969. Currently, the value of
an SDR is defined by a basket of key currencies (the dollar, euro, yen and pound). SDRs are not accepted for transactions, and are a
tiny fraction of total reserves. Creating a global reserve currency under the direction of the IMF would not solve the underlying
problem of the lack of an anchor in a pure fiat money world. The fundamental problem with today's so-called global monetary system
is that the dollar is a discretionary government fiat money. The Fed neither follows a convertibility principle nor a monetary rule that
would commit it to a single objective – long-term price stability. No government official has been held responsible for the upward
drift in the US price level since president Richard Nixon closed the gold window in August, 1971. What the current debate is missing
is the idea that, if exchange rates were free to move with market forces, there would be no need to accumulate a reserve currency to
peg exchange rates. A rule-bound Fed would control the supply of dollars to ensure a stable-valued monetary unit in terms of goods,
while the foreign exchange value of the dollar would be left to market forces. China, meanwhile, would not have to worry about the
purchasing power of the dollar because its central bank would not be holding official reserves to peg the value of the yuan. The danger
in the present course is that if the world moves to a "super sovereign" reserve currency engineered by experts, such as the "UN
Commission of Experts" led by Nobel laureate economist Joseph Stiglitz, we would give up the possibility of a spontaneous money
order and financial harmony for a centrally planned order and the politicization of money. Such a regime change would endanger not
only the future value of money but, more importantly, our freedom and prosperity.
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Impacts – Dollar Decline
Deficit spending floats the dollar.
Brewton
09
[Thomas
E.
Brewton
January
10,
2009
http://conservablogs.com/publiusforum/2009/01/10/keyness-wrong-turn-hypothesis/
"Keynes's
Wrong-Turn
Hypothesis"
The exception is a period like our recent one, in which government deficit spending leads to excessive fiat money creation
by the Fed. That impels an unsupportable increase in borrowing, as the value of the dollar declines. Consumer borrowing in
this circumstance, as we have witnessed over the last 15 to 20 years, leads to negative savings. Consumer spending was
increasingly floated on credit-card and home-equity-loan borrowing. Spending more than we produce does not make a
healthy economy. It just booms imports. Government stimulus programs may be welcomed by businesses and consumers in
the vain hope that they will provide relief from a recession. But we know from unvarying experience, beginning here with
the Roosevelt New Deal, that government stimulus spending never ends a recession. In fact such spending tends to prolong
and to worsen a recession.
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Impacts – Dollar Decline  Inflation
The increase in import prices caused by a declining dollar results in inflation
Niall Ferguson, Professor of Economic History at Harvard, 2006, Reasons to Worry,
http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=141
Could the dollar follow a similar downward path? It has happened before. Between March 1985 and April 1988, the dollar depreciated
by more than 40 percent against the currencies of America's trading partners. As a fiscal strategy, dollar depreciation has much to
recommend it. At a stroke, American exports would regain their competitiveness overseas and Asian imports would become more
expensive, leading to at least some contraction — though not an elimination — of the trade deficit. Foreign creditors would take the
hit, finding their dollar assets suddenly worth much less in terms of their own currencies.
So what's the catch? A sudden increase in the dollar price of American imports could stoke inflation in the United States. There is
already some patchy evidence of an upturn in inflation. Whichever measure you use, prices are certainly rising at a faster rate now
than they were two years ago, as are hourly earnings. As measured by the spread between conventional bonds and inflation-proof
bonds, inflation expectations are also up slightly.
But is that really a catch? Not necessarily. Because higher inflation means that the real value of your debt ends up being reduced (in
terms of the purchasing power of the amount that you owe) — provided, that is, that your debt is not adjustable-rate or index-linked.
Alas, those are two really serious caveats.
It's a pretty safe bet that if a dollar decline shows signs of boosting inflation, the Federal Reserve will raise interest rates. The
credibility of the new Fed chairman would be on the line. Even a federal-funds rate above 5 percent might seem too low. Bear in mind
that the federal-funds rate (the overnight rate at which the Fed lends to the banking system) has been going up for two years, from its
nadir of below 1 percent in June 2004. Now ask yourself, Who has been most affected by this monetary tightening?
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Impacts – Dollar Decline – Oil Prices
Declining dollar skyrockets oil prices – lack of supply and increase in demand
Alhaji, Energy Economist and Associate Professor at the College of Business Administration at Ohio Northern University, 04
Dr. AF Alhaji, Energy Economist and Associate Professor at the College of Business Administration at Ohio Northern University, 816-04, Middle East Economic Survey, Vol. XLVII, No. 33
III. The Impact Of Dollar Devaluation On The Supply Of Oil. Drilling activities are highly correlated with oil prices. As
oil prices rise, the rig count increases and vice versa. Although drilling activities lag behind oil prices, the lag differs from
period to period and from one region to another. However, looking at world total hides the impact of currency exchange
rates and other regional economic and political factors. The trend in total world rig count follows that of the US rig count,
which represents about half the world’s total. Regional rig counts show a different picture from the world total. While
recent trends indicate a positive correlation between rig count and oil prices in US dollars in North America, Latin America,
and the Middle East (where most currencies are pegged to the US dollar), the rig count in Europe and Africa does not
follow the same trend. In fact, rig counts in Europe have been decreasing over the past 12 months, despite the increase in
oil prices. Rig counts in Africa have been declining since mid-2002 with few monthly spikes. Rig counts in Europe is
negatively related to oil prices denominated in US dollars and positively correlated with oil prices denominated in euros. In
Africa, the correlation between rig counts and oil prices denominated in euros is positive and three times the correlation
between rig counts and oil prices denominated in US dollars. As oil prices in euros decrease (lower dollar), so do rig
counts. In other words, as the dollar goes down, so do rig counts. Statistical analysis shows a significant -0.6 correlation, up
to a lag of three-quarters, between rig counts in Europe and the dollar/euro exchange rate, that is, the number of dollars per
€1. It also confirms that as the dollar value declines, rig counts decrease. The same applies to Africa with minor differences.
These are the only two regions in the world that exhibit such behavior. For example, the correlation between dollar/euro
exchange rates and rig counts, lagged one quarter, is positive and around 0.4 in each of the Middle East and the Far East.
Causality tests confirm that oil prices in euros, not US dollars, affect decisions to drill in Europe. They also confirm that oil
prices in US dollars, not in euros, affect the decision to drill in North America and the Middle East. Statistical analysis
indicates that the relationship between drilling activities and the price of oil denominated in US dollars has changed
drastically since 1999. It is not clear whether this change is the result of the oil price collapse in 1998 and early 1999, or the
introduction of the euro as a competing currency at the beginning of 1999. It could be both. Statistical evidence suggests a
large role for the euro in this change. For example, oil prices denominated in US dollars affected drilling activates in
Europe and Africa until 1999. Since then, oil prices in dollars have not affected the rig count in Europe, but oil prices in
euro have. Canada’s drilling activities were not affected by oil prices denominated in European currencies until the
introduction of the euro. Higher oil prices in US dollars have historically caused rig counts to increase in the Middle East,
but not after 1999. The introduction of the euro may not be the sole reason. OPEC started cutting production in 1999 and
introduced the price band in 2000.
Dollar devaluation increases inflation in the oil producing countries. Statistical
analysis indicates that, among 18 oil producing countries, inflation was associated with dollar depreciation in 14. The four
countries that did not fit this pattern were those with diversified economies, other major sources of income beside oil, and
currencies not pegged to the US dollar. Statistical analysis also shows that dollar depreciation reduces the purchasing
power of the oil producing countries – reports put recent losses at $50bn. Dollar devaluation affects OPEC members
differently. OPEC states have different trading partners. Countries that import more from the US stand to lose less than
countries that receive most of their imports from Europe and Japan. The geographic location of some OPEC members plays
an important role in determining their purchasing power. Venezuela stands to lose the least from dollar devaluation. A large
percentage of its imports comes from the US. By contrast, Indonesia is far away from the US and close to Japan. A large
percentage of Indonesia’s imports comes from Japan. Dollar depreciation hurts Indonesia more than Venezuela. The UN
and US economic sanctions on Libya limited its trading partners. As a result, Libya benefited the most among OPEC
members when the dollar appreciated, and lost the most when the dollar depreciated. While the settlement of the Lockerbie
affair has resulted in the lifting of UN and US sanctions, allowing it to trade with the US and benefit from lower dollar, we
must view the results with caution. Industrial countries’ export prices, along with exchange rates, play an important role in
determining the purchasing power of the oil producing countries. From OPEC’s point of view, any increase in US export
prices reduces the benefits of importing from the US during periods when the dollar is weak. Both an increase in inflation
and a decrease in purchasing power reduce real income, and, in turn, reduce the amount of investment available to drill for
more oil, all other things being equal. If we relax the last assumption, a substantial increase in oil prices, like the current
one, and other geopolitical factors may increase drilling activities despite the depreciation of the dollar. However, one can
be certain that drilling activities would be even higher if the dollar had not declined by 40% against the euro over the past
three years. For example, despite the continued increase in oil prices since 2002, the growth in the rig count in the Middle
East has declined by half since 2002. In the last two years, or since that year it is difficult to know whether this was the
result of the invasion of Iraq, the depreciation of the dollar, or both. In the first five months of 2000, nominal oil prices
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increased by about $4/B. The number of rigs in Latin America increased by 29. In the first four months of 2004, oil prices
increased by almost $6/B and the number of rigs in Latin America increased by only 20. Was this weak response of
drilling activities to increasing oil prices in the Middle East and Latin America caused by a weak dollar? Is the association
between the beginning of slow growth in drilling activities and the start of the decline of the dollar a mere coincidence? As
mentioned above, drilling activities would be higher if current oil prices were associated with a stronger dollar. Therefore,
dollar depreciation reduces supply.
IV. The Impact On Demand. Dollar devaluation makes oil relatively cheap in
countries with non-dollar appreciating currencies such as the euro and yen (see Figures 1, 2 and 3). As real income
increases, demand for oil in these countries continues to grow. Although recent demand forecasts by the IEA, EIA, and
OPEC confirm this point, it is difficult to prove the immediate impact of dollar devaluation on some European countries.
Heavy taxation of petroleum products insulates consumers from the effect of crude oil price fluctuations and higher prices.
However, evidence from the UK indicates that the appreciation of the US dollar increases local oil prices and diminishes
demand. It also indicates that dollar depreciation reduces local prices and increases demand. For example, demand for oil
usually declines in December in the UK. It declined by 10% in December 2000, 6% in December 2001, and 3% in
December 2002, but increased by 2.8% in December 2003. Demand usually stays low in January but it continued to
increase in January 2004. One of the main variables that may explain the increase in demand in recent years is the
dollar/euro and dollar/sterling exchange rate. However, causality tests do not confirm this observation. Historical data
indicates that dollar depreciation reduces the number of US tourists abroad. Although some experts may attribute the drop
to security concerns, historical evidence suggests a positive correlation between the dollar exchange rates and the number
of US tourists abroad. Spending the vacation in the US translates into higher demand for gasoline in the US, therefore
increasing the demand for oil.
V.
Conclusions. Dollar depreciation reduces activities in upstream through different
channels including increased cost, higher inflation rates, lower purchasing power, and lower return on investment. Dollar
devaluation increases oil demand in countries with appreciated currencies because of an increase in purchasing power. It
also increases the demand for gasoline in the US as Americans spend their summer vacations driving in the US. Large
dollar devaluation reduces the supply of oil and increases the demand for oil. Therefore, oil prices will stay high for a
longer period than analysts expect.
High oil prices destroy the US and China’s economies
Richard Weixing Hu, March 2008. Visiting Fellow at the Center for Northeast Asian Policy Studies. “Advancing Sino-U.S. Energy Cooperation
Amid Oil Price Hikes,” http://www.brookings.edu/opinions/2008/03_energy_hu.aspx.
A weakening dollar and recent increases in the price of oil, surpassing $100 per barrel for the first time, sent global
financial markets tumbling and it appears likely that the price will continue to reach new highs in future months. Even
worse, the oil price increases come at a time when the sub-prime mortgage crisis is dragging the economy into a possible
recession, spreading the pain to American consumers beyond the gasoline pump – and all this in an election year Although
the Bush administration still denies it, a situation of "stagflation," similar to that in the 1970s when OPEC tripled the price
of oil, may well be around the corner. The high price of oil is hurting the American economy and is also doing harm to the
Chinese economy. Last year China’s inflation rate, measured by the consumer price index (CPI), climbed to 4.8% after
almost a decade of low financial risk. An “over-heated” economy, high investment, and a huge liquidity surge amid energy
price spikes have dramatically raised the Chinese government’s concerns about inflation. Entering 2008, the CPI continued
to soar to an alarming 7.1% in January (partially due to the major snowstorms in southern China), and made it more
difficult to implement measures to ensure a future “soft landing” for the economy. Although Chinese consumers do not
have to pay for oil price hikes as much as the American consumers do, due to huge government subsidies, the price spikes
have certainly increased the Chinese government’s subsidy burden, drained its financial resources, and further worsened the
price distortion in the Chinese economic system, a big potential danger that should not be underestimated. Looking down
the road, if oil prices continue to climb and/or are manipulated by certain forces in the international market, further damage
would certainly be done to the Chinese and American economies alike. Although people may have different views about
what factors have driven the price up, including whether China's oil purchases are responsible, the recent price hikes, once
again, have highlighted the fact that China and the United States are equally affected by high oil prices and they share
common interests in the pursuit of secure and affordable energy supplies.
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Impacts – Dollar Decline Raises Oil Prices
Declining dollar raises oil prices
Pritchard, Professor of Finance, 6-2
Dr. Robert E. Pritchard, Professor of Finance, 6-2-09, News Blaze, “Inflation and Dollar Depreciation”
The depreciating value of the dollar is already having significant negative effects on the economy. For example, worldwide
contracts for many commodities and all contracts for oil are denominated in dollars. Thus, when the value of the dollar
depreciates relative to other currencies, the price of oil increases. Mid-summer 2008, crude oil futures spiked at about $150
per barrel. When the worldwide financial meltdown threw most of the world into recession, oil dropped to a low of about
$33 a barrel (end of 2008 – February 2009). Since then, oil has increased to about $67 a barrel.
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Impacts – Oil Prices  Food Prices
High oil prices are driving high food prices.
Dr. Uri Gordon and Lucy Michaels, 5/4/2008. Teaches at the Arava Institute for Environmental Studies and Doctoral Environmental
Policy Research at Ben-Gurion University. “Food troubles are here to stay.” Haaretz, http://www.haaretz.com/hasen/spages/980076.html.
The government sends calming signals and says no dramatic shortages are expected. The Economist says do nothing,
market forces will sort it all out. But as the global food-price crisis hit Israel this week, something told us we are not being
told the whole story. Around the world food prices are soaring. Since January 2006, the price of rice has risen by 217
percent. Wheat, corn and soybean prices have more than doubled, and in several countries, milk and meat prices have also
doubled. Food prices and falling wages have sparked riots in more than 30 countries from Bangladesh to Egypt to Haiti where the prices of rice, beans, fruit and condensed milk have gone up 50 percent over a few months, while the price of fuel
has tripled. The poor are being hit the hardest. The steep price rises make a huge difference in countries like Indonesia,
where food purchases alone eat up over half of a family's disposable income (compared to 7.3 percent in the United States,
and close to 20 percent in Israel). With Israel's high dependence on food imports, it is no surprise that prices are rising. The
country imports over 90 percent of its cereals, 70-80 percent of its fish and beef, and half of its pulses, oilseeds and nuts.
We may soon be relying far more on Israeli potatoes, fruit and vegetables, since the present crisis appears to be part of a
worrying long-term trend. The striking fact is that from 1974 to 2005, real food prices dropped by 75 percent globally. So
what can explain this sudden and aggressive upturn? Though it has been played down in official reactions, the obvious
explanation is staring us in the face: the dramatic rise in oil prices. In January 1999, crude oil cost $8 a barrel. Today it
costs $119. Oil is vital for every stage of industrialized agriculture: from synthetic-pesticide and fertilizer production, to
fuel for farm machinery and international freight. All of these have seen steep price hikes, and not surprisingly, food prices
have risen with them. The reality is that we are effectively "eating oil." The shift to industrial agriculture over the last 60
years has left our food systems dependent on a nonrenewable resource. Now we are paying the price.
Even small food price increases kill half the planet.
Lester Brown, President of Earth Policy Institute, MPA at Harvard, Former Advisor to the Secretary of Agriculture, 2005. “Outgrowing The
Earth,” http://www.earth-policy.org/Books/Out/.
“Many Americans see terrorism as the principal threat to security,” said Brown, “but for much of humanity, the effect of
water shortages and rising temperatures on food security are far more important issues. For the 3 billion people who live on
2 dollars a day or less and who spend up to 70 percent of their income on food, even a modest rise in food prices can
quickly become life-threatening. For them, it is the next meal that is the overriding concern.”
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Impacts – Econ Turns Heg
Econ Collapse ends US Heg
Friedberg + Schoenfeld, Friedberg is an IR prof at Princeton and Schoenfeld is a scholar at the Witherspoon
Institute, 2008
http://online.wsj.com/article/SB122455074012352571.html
One immediate implication of the crisis that began on Wall Street and spread across the world is that the primary instruments of
U.S. foreign policy will be crimped. The next president will face an entirely new and adverse fiscal position. Estimates of this year's
federal budget deficit already show that it has jumped $237 billion from last year, to $407 billion. With families and businesses
hurting, there will be calls for various and expensive domestic relief programs. In the face of this onrushing river of red ink, both
Barack Obama and John McCain have been reluctant to lay out what portions of their programmatic wish list they might defer or
delete. Only Joe Biden has suggested a possible reduction -- foreign aid. This would be one of the few popular cuts, but in budgetary
terms it is a mere grain of sand. Still, Sen. Biden's comment hints at where we may be headed: toward a major reduction in
America's world role, and perhaps even a new era of financially-induced isolationism. Pressures to cut defense spending, and
to dodge the cost of waging two wars, already intense before this crisis, are likely to mount. Despite the success of the surge, the
war in Iraq remains deeply unpopular. Precipitous withdrawal -- attractive to a sizable swath of the electorate before the financial
implosion -- might well become even more popular with annual war bills running in the hundreds of billions. Protectionist
sentiments are sure to grow stronger as jobs disappear in the coming slowdown. Even before our current woes, calls to save jobs
by restricting imports had begun to gather support among many Democrats and some Republicans. In a prolonged recession, galeforce winds of protectionism will blow. Then there are the dolorous consequences of a potential collapse of the world's
financial architecture. For decades now, Americans have enjoyed the advantages of being at the center of that system. The
worldwide use of the dollar, and the stability of our economy, among other things, made it easier for us to run huge budget deficits, as
we counted on foreigners to pick up the tab by buying dollar-denominated assets as a safe haven. Will this be possible in the future?
Meanwhile, traditional foreign-policy challenges are multiplying. The threat from al Qaeda and Islamic terrorist affiliates has
not been extinguished. Iran and North Korea are continuing on their bellicose paths, while Pakistan and Afghanistan are
progressing smartly down the road to chaos. Russia's new militancy and China's seemingly relentless rise also give cause for
concern. If America now tries to pull back from the world stage, it will leave a dangerous power vacuum. The stabilizing effects
of our presence in Asia, our continuing commitment to Europe, and our position as defender of last resort for Middle East energy
sources and supply lines could all be placed at risk. In such a scenario there are shades of the 1930s, when global trade and
finance ground nearly to a halt, the peaceful democracies failed to cooperate, and aggressive powers led by the remorseless
fanatics who rose up on the crest of economic disaster exploited their divisions. Today we run the risk that rogue states may
choose to become ever more reckless with their nuclear toys, just at our moment of maximum vulnerability. The aftershocks of
the financial crisis will almost certainly rock our principal strategic competitors even harder than they will rock us. The dramatic free
fall of the Russian stock market has demonstrated the fragility of a state whose economic performance hinges on high oil
prices, now driven down by the global slowdown. China is perhaps even more fragile, its economic growth depending heavily on
foreign investment and access to foreign markets. Both will now be constricted, inflicting economic pain and perhaps even sparking
unrest in a country where political legitimacy rests on progress in the long march to prosperity. None of this is good news if the
authoritarian leaders of these countries seek to divert attention from internal travails with external adventures. As for our democratic
friends, the present crisis comes when many European nations are struggling to deal with decades of anemic growth, sclerotic
governance and an impending demographic crisis. Despite its past dynamism, Japan faces similar challenges. India is still in the early
stages of its emergence as a world economic and geopolitical power. What does this all mean? There is no substitute for America on
the world stage. The choice we have before us is between the potentially disastrous effects of disengagement and the stiff price
tag of continued American leadership.
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Impacts – Econ Turns Heg
Economic growth key to US leadership
Eiras ’04 (Isabel, Senior Policy Analyst for International Economics @ the Heritage Foundation, July 23, ln)
"Money talks," both for individuals and countries. As a country becomes wealthier, it has more resources to
invest in national defense and health care. More goods and services are purchased and sold to every corner of
the world. The wealth of a country makes it a world player, a leader that can shape world affairs. Preserving
economic freedom is the key to being wealthy, prosperous, and powerful.
Economy key to leadership
Eiras ’04 (Isabel, Senior Policy Analyst for International Economics @ the Heritage Foundation, July 23, ln)
Losing economic freedom has important implications for the pockets of U.S. families, the coffers of the U.S.
economy, and America's ability to remain a strong world leader. If America continues to fall behind, the value
of the U.S. dollar could continue to decline. Americans will then have fewer opportunities to improve their lives
and foreigners will find investing in the United States less and less attractive. As the U.S. economy weakens
and other countries' economies strengthen, the United States' leadership and power in the world decline as
well.
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Impacts – Econ Turns Prolif
Economic growth is the surest way to stop prolif
Burrows & Windram ’94 (William & Robert, Critical Mass, p. 491-2)
Economics is in many respects proliferation’s catalyst. As we have noted, economic desperation drives Russia
and some of the former Warsaw Pact nations to peddle weapons and technology. The possibility of considerable
profits or at least balanced international payments also prompts Third World countries like China, Brazil, and
Israel to do the same. Economics, as well as such related issues as overpopulation, drive proliferation just as
surely as do purely political motives. Unfortunately, that subject is beyond the scope of this book. Suffice it to
say that, all things being equal, well-of, relatively secure societies like today’s Japan are less likely to buy or
sell superweapon technology than those that are insecure, needy, or desperate. Ultimately, solving economic
problems, especially as they are driven by population pressure, is the surest way to defuse proliferation and
enhance true national security.
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Impacts – Econ Turns Disease
Economic downturns divert funds from disease treatment
Skirble, 9
(Rosanne- reporter for the Voice of America, VOA “Economic Downturn Threatens Global Fund for AIDS, TB, Malaria” 04 February
2009,
http://www.voanews.com/english/archive/2009-02/2009-02-04-voa23.cfm?CFID=256884522&CFTOKEN=31
541345&jsessionid=de307b49f1da35d5dbcd4a1e52696331c2f6)
As world leaders grapple with the global financial crisis, the world's largest source of funds to combat killer diseases is facing a
crisis of its own. The Global Fund to Fight AIDS, Tuberculosis and Malaria supplies one-quarter of all AIDS funding, twothirds of tuberculosis funding and three-fourths of malaria funding. A $5 billion funding gap now threatens this institution's
worldwide programs. Every year since 2001, leaders from the world's wealthier nations have renewed their commitments to
fund all approved disease treatment, prevention and research programs in poor countries. According to Jeffrey Sachs, a special
United Nations advisor and director of the Earth Institute at Columbia University, the Global Fund was designed to keep the
promises made to the world's poor to help them fight AIDS, TB and malaria. Sachs says that despite the urgency of its
mission, the Global Fund has been forced by the recession-pinched budgets of its donor countries to cut back or delay funding.
"It already cut by 10 percent the budgets for the approved plans. And it's warned that it would have to cut by 25 percent the
second half of those plans," he says. The current funding cycle has been postponed for several months, which he says, "puts at
risk the malaria control effort." The cutbacks are all the more distressing to Global Fund supporters because in its relatively
short life, the organization has reported remarkable progress against killer diseases. For example, malaria deaths are down 66
percent in Rwanda and 80 percent in Eritrea over the past five years. Peter Chernin is one of a number of business leaders
who've supported a $100 million campaign to fight the malaria pandemic in Africa. He says the disease has cost industry on the
continent about $12 billion in lost worker productivity. "And [with] just a fraction of that investment, we can end malaria
deaths and remove a major obstacle to economic development." Keeping up the fight against killer diseases like malaria, TB
and AIDS is essential to the economic development of poor nations, says Sachs. And it's just bad economic policy, he
believes, to cut long-term investments in development for near-term savings. "For Africa to be a full trading partner, one that
could be picking up the slack by buying our goods and being a full productive part of the world economy, [it] requires that
these diseases be brought under control. "That was at least one of the many aspects, including the humanitarian and security
aspects, that led to the creation of the Global Fund in the first place." Sachs argues that the United States, which currently
contributes about one third of the Global Fund's resources, could make a significant dent in the fund's $5 billon shortfall if it so
chose. "There is no shortage of funds at the moment when in three months the rich world has found about $3 trillion of
funding for bank bailouts and in which there have been $18 billion of Christmas bonuses for Wall Street supported by bailout
legislation." Those monies could not "for one moment balance the lives that are at stake." Global Fund Board Chairman Rajat
Gupta agrees that the United States could do more to help the fund out of its financial crisis. He believes that if the U.S., which
has fallen behind on its pledged commitments, were to take on more of a leadership role, other nations would follow. "One of
the good things that has happened before is that each country or different countries have kind of egged each other on to do
more, and now it is the United States' turn to step up and get that going." Gupta says the Global Fund's progress in the fight
against AIDS, TB and malaria must be sustained. He says he and other health and business leaders who attended the recent
World Economic Forum in Davos, Switzerland were not asking for a bailout. They were simply calling on donor nations to
make good on their pledges, Gupta says, to improve the world's prosperity and its health. That continued support, Gupta says,
could save nearly two million additional lives in the coming years.
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Impacts – Econ Turns Warming/Environment
Economic growth key to solve warming
(Terry L. Anderson, leading resource economist, professor of economics at Montana State University, Ph.D. in
economics, visiting scholar at Oxford, university of Basel, and Cornell University law School, 04, “Why
Economic Growth is Good for the Environment,” http://www.perc.org/articles/article446.php)
Hansen's essay concludes on an optimistic note, saying "the main elements [new technologies] required to halt climate change
have come into being with remarkable rapidity." This statement would not have surprised economist Julian Simon. He saw the
"ultimate resource" to be the human mind and believed it to be best motivated by market forces. Because of a combination of market
forces and technological innovations, we are not running out of natural resources. As a resource becomes more scarce, prices
increase, thus encouraging development of cheaper alternatives and technological innovations. Just as fossil fuel replaced
scarce whale oil, its use will be reduced by new technology and alternative fuel sources. Market forces also cause economic
growth, which in turn leads to environmental improvements. Put simply, poor people are willing to sacrifice clean water and
air, healthy forests, and wildlife habitat for economic growth. But as their incomes rise above subsistence, "economic growth
helps to undo the damage done in earlier years," says economist Bruce Yandle. "If economic growth is good for the
environment, policies that stimulate growth ought to be good for the environment."
Strong economy is the best way to preserve a healthy environment, avoiding command-and-control policies
Shiller ’99 (Erin, Policy Fellow of Environmental Studies @ Pacific Research Institute, Ventura County Star,
April 20, ln)
As income levels rise, people begin to demand higher environmental standards. As a society, this effect is cumulative -- thus, we
expect even better environmental quality as our economy grows. Until now, environmental policy has relied almost entirely on
command-and-control regulation. While such regulation has had its successes, it also hinders the very economic growth that has
allowed for environmental improvements.
Further, the marginal cost of pollution reduction is continually rising. Stated another way, a smaller aggregate amount of pollution
means that each further reduction is more costly than the last, and the health benefits produced are less significant and felt by fewer
people.
For this reason, environmentalists should not regard economic concerns as a hindrance to effective policy, but should embrace
economic growth as the key to further environmental improvements. Moreover, if Americans want the improvement that has occurred
over the past generation to continue, they will look to innovative new policies that incorporate and even promote economic growth.
Such policies not only best address today's environmental situation, but provide the most promising future for tomorrow's
environment as well.
Economic decline  no protection of the environment
Sanders ’90 (Jerry, Univ of Cal Berkley, Academic Coordinator in Peace and Conflict; “Global Ecology and
World Economy: Collision Course or Sustainable Future? Pg. 397)
In a period of economic stagnation and trade competition, a declining hegemonic power will think less about maintaining world order
than about shoring up its position relative to new challengers and upstarts. Multilateral cooperation will run up against simlar
constraints, due to suspicions that others may gain at one’s expense by ‘free riding’ on the ‘public goods’ provided by environmental
protection, trade regulation, or collective security regimes. The tendency will be for states to withhold the resources and the legitimacy
required for supranational structures to work. And left to fend for themselves in a climate of economic stagnation, individual
nations will be little able and even less inclined to end their destabilizing environmental practices. Thus the groundwork will be
laid for a chain reaction of conflicts across a spectrum of relations, with one nation after another forced into escalating confrontation
along several fronts.
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Impacts – Econ Turns Famine
Economic collapse exacerbates global food crisis
Cha, Graduate of Columbia and John Hopkin’s School of Advanced International Studies, and McCrummen,
Washington Post Writer, 08
Ariana Eunjung Cha and Stephanie McCrummen, 10-26-08, “Washington Post, Financial Meltdown Worsens Food Crisis;
As Global Prices Soar, More People Go Hungry,” Lexis
As shock waves from the credit crisis began to spread around the world last month, China scrambled to protect itself.
Among the most extreme measures it took was to impose new export taxes to keep critical supplies such as grains and
fertilizer from leaving the country. About 5,700 miles away, in Nairobi, farmer Stephen Muchiri is suffering the
consequences. It's planting season now, but he can afford to sow amaranthus and haricot beans on only half of the 10 acres
he owns because the cost of the fertilizer he needs has shot up nearly $50 a bag in a matter of weeks. Muchiri said nearly
everyone he knows is cutting back on planting, which means even less food for a continent where the supply has already
been weakened by drought, political unrest and rising prices. While the world's attention has been focused on rescuing
investment banks and stock markets from collapse, the global food crisis has worsened, a casualty of the growing financial
tumult. Oxfam, the Britain-based aid group, estimates that economic chaos this year has pulled the incomes of an additional
119 million people below the poverty line. Richer countries from the United States to the Persian Gulf are busy helping
themselves and have been slow to lend a hand. The contrast between the rapid-fire reaction by Western authorities to the
financial crisis and their comparatively modest response to soaring food prices earlier this year has triggered anger among
aid and farming groups. "The amount of money used for the bailouts in the U.S. and Europe -- people here are saying that
money is enough to feed the poor in Africa for the next three years," said Muchiri, head of the Eastern Africa Farmers
Federation. The U.N. Food and Agriculture Organization estimates that 923 million people were seriously undernourished
in 2007. Its director-general, Jacques Diouf, said in a recent speech that he worries about cuts in aid to agriculture in
developing countries. He said he is also concerned by protectionist trade measures intended to counteract the financial
turmoil. Although the price of commodities has come down in the past few months, Diouf said, 36 countries still need
emergency assistance for food, and he warned of a looming disaster next year if countries do not make food security a top
priority. "The global financial crisis should not make us forget the food crisis," Diouf said. Commodity prices have
plummeted in recent weeks as investors have shown increasing concern about a global recession and a drop in the demand
for goods. Wheat futures for December delivery closed at $5.1625 on Friday -- down 62 percent from a record set in
February. Corn futures are down 53 percent from their all-time high, and soybean futures are 47 percent lower. Such
declines, while initially welcomed by consumers, could eventually increase deflationary pressures -- lower prices could
mean less incentive for farmers to cultivate crops. That, in turn, could exacerbate the global food shortage. In June,
governments, donors and agencies gathered in Rome to pledge $12.3 billion to address the world's worst food crisis in a
generation. But only $1 billion has been disbursed. An additional $1.3 billion, which had been earmarked by the European
Commission for helping African farmers, is tied up in bureaucracy, with some governments now arguing that they can no
longer afford to give up that money. "The financial crisis is providing an excuse for people across the spectrum -governments, multilateral organizations, companies -- to not do the right thing," said Oxfam spokeswoman Amy Barry. The
precarious aid situation is compounded by export taxes and bans imposed this year by a number of grain- and fertilizerproducing nations, including China, India, Pakistan, Ukraine and Argentina. E.U. Trade Commissioner Peter Mandelson
has criticized export restrictions because they "drive up world prices and cut off supplies of raw materials." Such
restrictions, he said, "invite a cycle of retaliation that is as economically counterproductive as it is politically hard to resist,"
Mandelson said last month. China -- the world's biggest grain and rice producer and the biggest exporter of certain types of
fertilizer -- could see its moves having ripple effects on vulnerable countries. "
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Impacts – Econ Turns Racism
Growth solves racism
Business Week 11-06-1995 ln
Everyone agrees that it would be a calamity if African Americans’ economic progress of the past half-century
ground to a halt. These days, economists are focusing on ways to improve public schools, revitalize
neighborhoods, and open up employment for poor and working-class Americans, black and white. What
Washington policymakers have to consider is that no reform can work without strong economic growth.
Robust growth raises income of both whites and blacks. More important, it attacks the pinched economic
conditions that allow racism to flourish.
Poor economic conditions  racism
Progressive ’92 (January, p. 7)
That racist and anti-Semitic appeals are more popular during times of economic decline is nothing new; Such
demagoguery is an old and dishonorable tradition in Europe as well as in America. When people are desperate,
they will seek out any politician offering a scapegoat.
Economic decline  hate crimes
Kim ’93 (Marlene, Prof of Labor Studies @ Rutgers University, 1993 p. viii)
In addition, anti-immigration sentiment, like hate crimes, ignites when economic times are tough . During the
Great Depression of 1930s, lynchings of African Americans increased and 300,000 Mexican Americans were forcibly
bussed back across the border. Over a hundred years ago, the US prohibited Chinese and later all Asians from
immigrating, sanctions that were not lifted until the 1940s
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Impacts – Econ Turns Russia War
Economic collapse causes Russian war – that leads to nuclear extinction
Steven David, Jan/Feb 1999. Prof. of political science at Johns Hopkins. Foreign Affairs, lexis.
If internal war does strike Russia, economic deterioration will be a prime cause. From 1989 to the present, the GDP
has fallen by 50 percent. In a society where, ten years ago, unemployment scarcely existed, it reached 9.5 percent in 1997 with many
economists declaring the true figure to be much higher. Twenty-two percent of Russians live below the official poverty line (earning
less than $ 70 a month). Modern Russia can neither collect taxes (it gathers only half the revenue it is due) nor significantly cut
spending. Reformers tout privatization as the country's cure-all, but in a land without well-defined property rights or contract law and
where subsidies remain a way of life, the prospects for transition to an American-style capitalist economy look remote at best. As the
massive devaluation of the ruble and the current political crisis show, Russia's condition is even worse than most analysts feared. If
conditions get worse, even the stoic Russian people will soon run out of patience. A future conflict would quickly draw in Russia's
military. In the Soviet days civilian rule kept the powerful armed forces in check. But with the Communist Party out of office, what
little civilian control remains relies on an exceedingly fragile foundation -- personal friendships between government leaders and
military commanders. Meanwhile, the morale of Russian soldiers has fallen to a dangerous low. Drastic cuts in spending mean
inadequate pay, housing, and medical care. A new emphasis on domestic missions has created an ideological split between the old and
new guard in the military leadership, increasing the risk that disgruntled generals may enter the political fray and feeding the
resentment of soldiers who dislike being used as a national police force. Newly enhanced ties between military units and local
authorities pose another danger. Soldiers grow ever more dependent on local governments for housing, food, and wages. Draftees
serve closer to home, and new laws have increased local control over the armed forces. Were a conflict to emerge between a regional
power and Moscow, it is not at all clear which side the military would support. Divining the military's allegiance is crucial, however,
since the structure of the Russian Federation makes it virtually certain that regional conflicts will continue to erupt. Russia's 89
republics, krais, and oblasts grow ever more independent in a system that does little to keep them together. As the central government
finds itself unable to force its will beyond Moscow (if even that far), power devolves to the periphery. With the economy
collapsing, republics feel less and less incentive to pay taxes to Moscow when they receive so little in return.
Three-quarters of them already have their own constitutions, nearly all of which make some claim to sovereignty. Strong ethnic bonds
promoted by shortsighted Soviet policies may motivate non-Russians to secede from the Federation. Chechnya's successful revolt
against Russian control inspired similar movements for autonomy and independence throughout the country. If these rebellions spread
and Moscow responds with force, civil war is likely. Should Russia succumb to internal war, the consequences for the
United States and Europe will be severe. A major power like Russia -- even though in decline -- does not suffer civil war
quietly or alone. An embattled Russian Federation might provoke opportunistic attacks from enemies such as China.
Massive flows of refugees would pour into central and western Europe. Armed struggles in Russia could easily spill
into its neighbors. Damage from the fighting, particularly attacks on nuclear plants, would poison the environment of
much of Europe and Asia. Within Russia, the consequences would be even worse. Just as the sheer brutality of the last Russian civil
war laid the basis for the privations of Soviet communism, a second civil war might produce another horrific regime. Most alarming is
the real possibility that the violent disintegration of Russia could lead to loss of control over its nuclear arsenal. No
nuclear state has ever fallen victim to civil war, but even without a clear precedent the grim consequences can be foreseen. Russia
retains some 20,000 nuclear weapons and the raw material for tens of thousands more, in scores of sites scattered
throughout the country. So far, the government has managed to prevent the loss of any weapons or much material. If war erupts,
however, Moscow's already weak grip on nuclear sites will slacken, making weapons and supplies available to a
wide range of anti-American groups and states. Such dispersal of nuclear weapons represents the greatest physical
threat America now faces. And it is hard to think of anything that would increase this threat more than the chaos
that would follow a Russian civil war
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Impacts – Econ Solves War
Economic interdependence prevents war
Griswold, 7 (Daniel, director of the Center for Trade Policy Studies, 4/20/2007, Trade, Democracy and Peace,
http://www.freetrade.org/node/681)
A little-noticed headline on an Associated Press story a while back reported, "War declining worldwide, studies say." In 2006,
a survey by the Stockholm International Peace Research Institute found that the number of armed conflicts around the world
has been in decline for the past half-century. Since the early 1990s, ongoing conflicts have dropped from 33 to 17, with all of
them now civil conflicts within countries. The Institute's latest report found that 2005 marked the second year in a row that no
two nations were at war with one another. What a remarkable and wonderful fact.
The death toll from war has also been falling. According to the Associated Press report, "The number killed in battle has fallen
to its lowest point in the post-World War II period, dipping below 20,000 a year by one measure. Peacemaking missions,
meanwhile, are growing in number." Current estimates of people killed by war are down sharply from annual tolls ranging
from 40,000 to 100,000 in the 1990s, and from a peak of 700,000 in 1951 during the Korean War.
Many causes lie behind the good news--the end of the Cold War and the spread of democracy, among them--but expanding
trade and globalization appear to be playing a major role in promoting world peace. Far from stoking a "World on Fire," as one
misguided American author argued in a forgettable book, growing commercial ties between nations have had a dampening
effect on armed conflict and war. I would argue that free trade and globalization have promoted peace in three main ways.
First, as I argued a moment ago, trade and globalization have reinforced the trend toward democracy, and democracies tend not
to pick fights with each other. Thanks in part to globalization, almost two thirds of the world's countries today are democracies-a record high. Some studies have cast doubt on the idea that democracies are less likely to fight wars. While it's true that
democracies rarely if ever war with each other, it is not such a rare occurrence for democracies to engage in wars with nondemocracies. We can still hope that as more countries turn to democracy, there will be fewer provocations for war by nondemocracies.
A second and even more potent way that trade has promoted peace is by promoting more economic integration. As national
economies become more intertwined with each other, those nations have more to lose should war break out. War in a
globalized world not only means human casualties and bigger government, but also ruptured trade and investment ties that
impose lasting damage on the economy. In short, globalization has dramatically raised the economic cost of war.
The 2005 Economic Freedom of the World Report contains an insightful chapter on "Economic Freedom and Peace" by Dr.
Erik Gartzke, a professor of political science at Columbia University. Dr. Gartzke compares the propensity of countries to
engage in wars and their level of economic freedom and concludes that economic freedom, including the freedom to trade,
significantly decreases the probability that a country will experience a military dispute with another country. Through
econometric analysis, he found that, "Making economies freer translates into making countries more peaceful. At the extremes,
the least free states are about 14 times as conflict prone as the most free."
By the way, Dr. Gartzke's analysis found that economic freedom was a far more important variable in determining a countries
propensity to go to war than democracy.
A third reason why free trade promotes peace is because it allows nations to acquire wealth through production and exchange rather
than conquest of territory and resources. As economies develop, wealth is increasingly measured in terms of intellectual property,
financial assets, and human capital. Such assets cannot be easily seized by armies. In contrast, hard assets such as minerals and
farmland are becoming relatively less important in a high-tech, service economy. If people need resources outside their national
borders, say oil or timber or farm products, they can acquire them peacefully by trading away what they can produce best at home. In
short, globalization and the development it has spurred have rendered the spoils of war less valuable.
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Impacts – Econ Solves Poverty
Economic growth solves worldwide poverty.
Richard H. Adams, Jr. World Bank Policy Researcher. “February 2003. Economic Growth, Inequality,
and Poverty”
Why is economic growth so important in reducing poverty? The answer to this question has been broached at several points
in this analysis. Economic growth reduces poverty because first and foremost growth has little impact on. income
inequality. Income distributions do not generally change much over time. Analysis of the 50 countries and the 101
intervals included in the data set shows that income inequality rises on average less than 1.0 percent per year. Moreover,
econometric analysis shows that economic growth has no statistical effect on income distribution: inequality may
rise, fall or remain steady with growth. Since income distributions are relatively stable over time, economic growth - in the
sense of rising incomes - has the general effect of raising incomes for all members of society, including the poor. As
noted above, in many developing countries poverty, as measured by the $1 per person per day standard, tends to be
"shallow" in the sense that many people are clustered right below (and above) the poverty line. Thus, even a modest rate
of economic growth has the effect of "lifting" people out of poverty. Poor people are capable of using economic
growth - especially labor-intensive economic growth which provides more jobs -- to "work" themselves out of
poverty. Table 8 underscores these relationships by summarizing the results of recent empirical studies regarding the
growth elasticity of poverty. When growth is measured by survey mean income (consumption), the point estimates of the
elasticity of poverty with respect to growth are remarkably uniform: from a low of -2.12 in Bruno, Ravallion 21 and Squire
(1998), to a mid-range of -2.59 in this study (excluding Eastern Europe and Central Asia), to a high of -3.12 in Ravallion
and Chen (1997). In other words, on average, a 10 -percentage point increase in economic growth (measured by the
survey mean) can be expected to produce between a 21.2 and 31.2 percent decrease in the proportion of people living
in poverty ($1 per person per day). Economic growth reduces poverty in the developing countries of the world
because average incomes of the poor tend to rise proportionately with those of the rest of the population. The fact
that economic growth is so critical in reducing poverty highlights the need to accelerate economic growth
throughout the developing world. Present rates of economic growth in the developing world are simply too low to make a
meaningful dent in poverty. As measured by per capita GDP, the average rate of growth for the 50 low income and lower
middle income countries in this paper was 2.66 percent per year. As measured by mean survey income (consumption), the
average rate of growth in these 50 countries was even lower: a slightly negative -0.90 percent per year (Table 3). In the
future, these rates of economic growth need to be significantly increased. In particular, more work needs to be done on
identifying the elements used for achieving successful high rates of economic growth and poverty reduction in certain
regions of the developing world (e.g., East Asia and South Asia), and applying the lessons of this work to the continuing
growth and poverty needs in other areas, such as Eastern Europe and Central Asia, and Sub-Saharan Africa.
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Impacts – War Turns Gender Violence
War  more violence against women
Richards ’04 (Cindy, “A new vision for V movement” Chicago Sun-Times, June 9, ln)
"I think the war, the jobs and the economy are all very connected to violence against women, " Ensler said.
"Let's begin with war. I have been outspoken about the war from the very beginning. I see not only consequences of war
toward human beings, but toward women. Let's begin with rape. The rate of violence toward women escalates
in war," said the playwright and activist who has traveled to war-torn regions in Bosnia, Pakistan, Afghanistan, Kosovo and the
Middle
East.
"War is really about taking what you want when you want it without consent. It really perpetuates a rape
mentality. Take Iraq as an example. Saddam Hussein was as evil as they come. Under his regime, 1 million died, women were
raped, people were tortured. That existed for 30 years and we never intervened on behalf of the people being tortured and raped. If this
were a war about stopping human rights violations, that was a war that should have been called 20 years ago."
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Impacts – Econ Turns Terrorism
Economic growth solves terrorism
Wanandi ’02 (Jusuf, member of the board of trustees @ Center for Strategic and International Studies, “A
Global Coalition against International Terrorism” p. 184-9)
A robust global economy is a condition sine qua non in the battle against terrorism. By destroying a root cause
of frustration – namely, grinding poverty – a healthy economy denies terrorists a fresh source of recruits.
Economic decline  terrorism
Johnson ’97 (Bryan T, fellow @ heritage foundation, “Defining the US Role in the Global Economy”
Mandate for Leadership IV. Feb)
Stagnant economics and declining living standards in many Muslim countries breed a popular discontent that
fuels the growth of radical Islamic fundamentalism. Widespread unemployment in Muslim countries such as
Algeria, Egypt, and Iran has created a mass of disillusioned young men who form a reservoir of potential
recruits for the radical Islamic groups. These restless poor, called the “dispossessed” by Ayatollah Ruhollah
Khomeini, often join militant groups in search of hope and a sense of personal empowerment. This is causing an
increase in radical Islamic fundamentalism, which often results in increased international terrorism.
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AT: Keynesian Economics
Deficit spending doesn’t stimulate the economy
Foster and Hederman July 9 PhD Economics [J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the
Economics of Fiscal Policy in the Thomas A. Roe Institute for Economic Policy Studies and Rea S. Hederman, Jr.,
is Assistant Director of and a Senior Policy Analyst in the Center for Data Analysis at The Heritage Foundation.
July 9, 2009 “A Third Stimulus? Don’t repeat the same failures”
http://www.heritage.org/Research/Economy/wm2533.cfm]
The economic theory behind the Obama bill--and the 2008 Bush bill--is that deficit spending can increase demand in the
economy and that growth and employment will follow. With all the focus on the Obama bill, it is easy to forget that absent
any new policy the budget deficit increased dramatically from 2008 to 2009 due to the recession, from 3.2 percent of gross
domestic product (GDP) to a whopping 11.9 percent of GDP, according to the Congressional Budget Office. If deficit
spending were truly stimulative, an 8.7 percentage point jump would be more than enough to cause the economy to begin to
overheat. This is no longer an academic, theoretical discussion. We have had a very clear experiment in deficit spending as
fiscal stimulus, and the experiment failed with or without the additional Obama deficit spending. It is time for the
proponents of this theory to either explain what special circumstances can possibly exculpate their pet theory or admit their
failure. Why did the economy not respond? How does the theory fail? The simple explanation is that deficit spending must
be financed. The additional deficit spending before and after the Obama bill is financed by borrowing. That borrowing
reduces the amount of domestic savings available for investment and so reduces investment, or it increases the amount of
foreign savings that must be imported and so results in an increase in the trade deficit. The composition of total demand
changes, but the level does not, and so the level of economic activity is unaffected.
Spending isn’t necessary for recovery
Wesbury and Stein, 12 – 16 – 08 Chief Economist & Senior Economist, First Trust Advisors, Forbes
(Brian, , and Robert, , “How We All Will End The Recession”, http://www.forbes.com/home/2008/12/15/recession-catalyst-recovery-opedcx_bw_rs_1216wesburystein.html)
Many observers are pessimistic about the economy because they believe a vicious downward cycle has taken hold, where less
spending leads to fewer jobs, which reduces purchasing power, leading to even more job losses. Many just can't see how this vicious
cycle will stop. We are frequently asked, what is the "catalyst" for a recovery? What force (external or internal) will break the
downward cycle of job losses? How does it ever end? Taking this thought process to its conclusion clearly shows that something is
missing. If job losses beget less spending and more job losses, then recessions would never end. On the other hand, if job gains beget
more spending and more job gains, then expansions would never end. A cursory look at history shows that this can't be true. Since
1854, the U.S. economy has gone through 32 business cycles (recessions and recoveries). In other words, the direction of economic
activity eventually changed. Many times in these past cycles, the economy started to recover well before employment turned up. Take
the last time consumption fell during a recession, in the early 1990s. In the four quarters after the end of the official recession, "real"
(inflation-adjusted) consumption increased 2.9% even as payrolls continued to decline. There are a number of reasons why this is
true. The first reason is that the combined decisions we make as independent members of a free society tend to generate economic
growth. When people lose their jobs, it does not mean they lose their ability to be productive. It may take time for them to find a new
position that matches their skill set, but as long as they have worthwhile abilities, they will eventually get another chance to produce.
In the meantime, companies can use layoffs to increase efficiency, laying the groundwork for future increases in profits and wages for
their remaining workers. What that means is that a 1% loss in jobs results in a smaller than 1% loss of production. And using assets
more productively frees up resources to do "new" things. We have lost millions of farming jobs over the decades and centuries, but the
nation as a whole is more prosperous as a result, not less. In addition, if a recession is partly caused by over-investment in a particular sector,
two forces drive down jobs in that sector, but one is temporary. For example, home building exceeded demand, and those extra jobs were
unnecessary. Reducing inventories of homes will cause employment to fall even further. But once excess inventories are worked off, the industry will
add jobs, even if it does not ramp up to the previous peak in production. Nonetheless, some still look for a catalyst to end the panic that started this
fall. Consumers and businesses have pulled back, basically hoarding cash, to the point of driving down the T-bill interest rate to zero. Part of this was
because many people lost faith in the banking system, but the end result was a sharp decline in the velocity of money. Only once in history has
something like this spread in a long-term downward spiral, and that was the Great Depression. But, in the Depression, the real problem was
that the Fed let the money supply collapse, which in turn shut down aggregate demand. This is not happening now. The Federal
Reserve is making sure a persistent deflation will not take hold and is adding liquidity to the system as rapidly as it can. As a result,
we expect both money growth and a turnaround in velocity to start healing in the months ahead. In fact, given the unexpected increase
of 0.5% in "core" retail sales in November, this may already be happening. In other words, the catalyst for recovery is attached to the
very eyes that are looking for it. As long as human beings attempt to better themselves and improve standards of living, and as long as
policymakers don't compound problems, the natural course of growth will return in its magical and mysterious way
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Aff – Confidence Low
Investor confidence low – comprehensive study proves
Jeff Benjamin, Investment News, 7/21/2009
(http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090721/REG/907219990)
Hedge fund managers and corporate boards received low marks with regard to ethical behavior in a recent survey of financial-industry
professionals. The CFA Institute yesterday released the Financial Market Integrity Index illustrating “soured sentiment and shaken
faith” among financial professionals regarding the ability of current U.S. investor protections to ensure an orderly functioning of the
equity markets. In the ethical-behavior category, the perception of hedge fund managers was lowest overall, with pension fund
managers earning the top-rated spot. More than 2,000 investment professionals participated in the research by taking the survey either
online or via telephone interview in February and March. According to the report that accompanied the survey findings, respondents
generally consider corporate boards and corporate executives to be most responsible for the current financial crisis. The Financial
Market Integrity Index is designed to gauge chartered financial analysts’ perceptions of the state of ethics and integrity in different
markets around the world. Based on their perception of market ethics and integrity alone, only 49% (versus 68% a year ago) of U.S.based respondents were likely to recommend investing in U.S. markets. Those outside the United States also appear to have lost faith
in the U.S. market systems, according to the finding. In last year’s survey, those outside the United States rated regulatory and
investor protections higher than did those inside the country, but this perspective was reversed in the 2009 survey findings. “It is clear
that CFA charter holders have lost confidence in some financial professionals and market protections in the United States over the last
year,” Matthew Orsagh, project manager for the FMI, said in a statement. “These findings mirror the results we see in other markets
surveyed, although there are unique concerns shown in each market,” he added.
No actual recovery in confidence
E.S. Browning, Wall Street Journal, 7/18/2009 (http://online.wsj.com/article/SB124787583487460881.html)
A report just out from Goldman Sachs warns that it could take years for economic demand to get back to normal. "We find that under
reasonable parameters of supply and demand growth, it will take at least two years, and probably more like three to five years, to
eliminate spare capacity in the manufacturing sector," said the report from Goldman economist Andrew Tilton. "In the labor market,
the unemployment rate is likely to remain above the current concept of 'normal' for an even longer period." That would be bad news
in an economy more than two-thirds dependent on consumer demand. While Intel said it saw signs of better days ahead, executives at
both Intel and Dell warned this week that businesses were delaying tech purchases and wringing more use out of older desktops and
laptops. Intel said it isn't counting on significant new demand this year. Such worries could limit stock gains in the second half. For
now, investor expectations were so low that any signs of improvement at all were grounds for bidding stocks higher. Even news that
the government was refusing to rescue small-business lender CIT Group Inc. wasn't enough to send stocks down. Investors appeared
to agree with the government that CIT wasn't too big to fail.
Confidence low
Justin Morgan, Investment News, 7/15/2009
(http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090715/REG/907159983
The market rally hasn’t done much to increase investor confidence this month, as investment sentiment fell to its lowest level since
March, according to the Bloomberg Professional Confidence Survey. Investor confidence in the Standard & Poor’s 500 stock index
fell 14% to 39.59 in July, its second decrease in as many months, according to the survey, which polled Bloomberg readers. The
gloomy outlook extended overseas: The survey found that confidence has declined in stocks from Brazil, Japan, Spain, Switzerland
and the United Kingdom.
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Aff – Confidence Low
Confidence low – stock market shifts prove
Mark Vagus, San Diego Economy Examiner,
7/13/2009 (http://www.examiner.com/x-2988-San-Diego-EconomyExaminer~y2009m7d13-Lack-of-recovery-a-crisis-in-investor-confidence)
Our economy is going through a severe confidence crisis. Businesses are not confident in the economy, nor in the promise that the
government will leave them to be profitable in the near future and it is effecting their decisions. During the downturn, many
companies cutback production and services within the US in an effort to reduce capacities and inventories. Now that they have an
opportunity to turn their factories back on, most are looking carefully at costs and regulations. Unfortunately for the US economy, few
appear to be confident in the future of the US markets and what manufacturing they are restarting is largely overseas. This is a
significant issue and can be seen in recent stock market shifts. Year-to-date, Dow Jones stocks are off 8 percent, while China stocks
are up 71 percent. The world index is up 4 percent. Emerging markets are up 25 percent. The masters of finance have their visions of
the future and for the US, they are bleak. Without a promise of solid profitability and limited government regulation, they see little
purpose in providing funds to companies that will struggle to compete in the global marketplace. And the lack of investment funding
is killing the recovery.
The large U.S federal deficit means loss of investor confidence is inevitable
LOCHHEAD 5 - 24 - 09 San Fran Chronicle Washington Bureau
[Carolyn, "Government debt swells as choices get harder," http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/23/MN2B17PDPL.DTL]
The appetite for U.S. debt has remained robust, and Treasurys were viewed as a safe haven amid the financial turmoil last
fall. Budget analysts have been warning about the sorry condition of the county's finances for years, and nothing happened. But the
United Kingdom credit warning has turned many eyes suddenly to the United States. "Nothing happens until it does," said Auerbach.
"People were warning about the housing market and the bubble and nobody seemed to worry about that, and
now a lot of us are sorry. The United States can go on for several more years doing absolutely nothing
responsible to get the debt under control and things may be fine, but at some point, and it's impossible to predict
when, people can lose confidence in the U.S. government's ability to deal with its problem, and things can
unravel. Whether that happens in five years or 10 or even longer, it's impossible to say." The idea that something very bad will
happen is now a consensus view among budget experts.
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Aff – Econ Down
The Economy is in serious trouble- the value of the dollar is plummeting now
JOHNSON 5 – 25 – 09 Economic Analyst for Reuters
[Steven C., http://www.reuters.com/article/reutersEdge/idUSTRE54O48M20090525?sp=true]
It was an awful week for the dollar, which sank to its lowest level of the year last week,
and with markets now focused on a trillion-dollar-plus U.S. deficit, the greenback's sharp slide is not over yet. Unlike in
NEW YORK (Reuters) -
the recent past, when investors terrified of a global financial meltdown sought safety in Treasury bills and other dollar assets, the
greenback is now being driven by its own fundamentals, and all of them look fairly bleak. Massive spending and unorthodox
monetary policies over the last year have the United States looking down the barrel of a $1.75 trillion deficit .
That reality took on a new relevance last week when Standard & Poor's said it may cut Britain's AAA credit rating because of soaring
public debt, prompting fears that the United States could be next. Persistently sluggish U.S. growth and rising
unemployment also suggest interest rates may be at zero for some time yet. That has started to frighten foreign
investors away from U.S. assets altogether: U.S. Treasury yields spiked to six-month highs this week and the dollar has lost some
10 percent against a basket of currencies since March .DXY. "The charts suggest the dollar is oversold, but people are starting to ask
existential questions about the United States," said T.J. Marta, founder and chief strategist at Marta on the Markets in Scotch Plains,
New Jersey.
The U.S federal debt is enormous and continues to grow
LOCHHEAD 5 - 24 - 09 San Fran Chronicle Washington Bureau
[Carolyn, "Government debt swells as choices get harder," http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/23/MN2B17PDPL.DTL]
This year, the government is borrowing 50 cents of every dollar it spends. If that were just a blip caused by a historic
financial crisis that necessitated a $787 billion fiscal stimulus and a $700 billion bank rescue in the space of about three months, there
would be little cause for concern. Images But it is not a blip. It is a relentless curve of red ink that will, within the decade,
take U.S. debt levels to the record reached at the end of World War II, from 40 percent of the nation's output now to 80
percent, and then rapidly thereafter into the realm of banana republics. "We are accumulating a massive debt. We owe about
half of that debt to foreigners, including the Chinese and others whose foreign policy is not always well aligned
with ours," said Isabel Sawhill, a former Clinton administration budget official who now co-directs the Center on Children and
Families at the Brookings Institution. " So we are really losing control of our economic destiny and possibly losing control
of our foreign policy as well."
Economy will decline due to high debt-to-GDP rates
LOCHHEAD 5 - 24 - 09 San Fran Chronicle Washington Bureau
[Carolyn, "Government debt swells as choices get harder," http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/23/MN2B17PDPL.DTL]
Ambitious plans
The market reactions highlight a growing disconnect between the Obama administration's ambitious spending plans, including a $1.5
trillion overhaul of the nation's health care system, and the money available to do it. As if to underline the point, the Social Security
and Medicare trustees, who include three Obama Cabinet officials, issued their report saying the finances of the two bedrock social
programs are dire. "We are heading toward very high debt-to-GDP ratios very soon," said UC Berkeley economist Alan
Auerbach. He said the rise in perceived risk of the federal government going bankrupt is sobering. As it is, the
United States does not even meet the standards for admission to the European Union, because its deficit and
debt levels are too high, said Sen. Judd Gregg, the top Republican on the Senate Budget Committee. The federal government
faces either enormous tax increases or inflation (regressive taxation in another form), to remedy the problem, he said. "That means
people, instead of having money to buy a home, have to send it to the government to pay the interest on the debt," Gregg, R-N.H., said
in an interview. "There are no ways around this. This is not academic. It's not theoretical. It's real. The numbers
are there."
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Aff – Deficit Spending High
Deficits growing now – no fix coming
THE DAILY INDEPENDENT 5 – 25 - 09
[President’s policies don’t match his words, The Daily Independent, Ashland, http://bgdailynews.com/articles/2009/05/25/opinion/our_opinion/opinion2.txt]
When it comes to reducing the federal deficit, President Barack Obama’s actions fall far, far short of matching
his words. The new president recently told his Cabinet: “We can no longer afford to spend as if deficits do not matter. ... We can no
longer afford to leave the hard choices for the next budget, the next administration, or the next generation.” Those words come after
eight years of irresponsible spending during the administration of President George W. Bush, which believed deficits really didn’t
matter. For those who us who believe that bringing spending in line with revenue does matter, Obama’s words
were most welcome. However, Obama’s actions tell a different story. New White House forecasts show a deficit of $1.8
trillion this year, almost four times the previous record set by President Bush, and $1.3 trillion next. The federal
government now borrows a whopping 46 cents of every $1 it spends. The White House forecasts show that,
even assuming a fully recovered economy, the deficits will not dip below $500 billion a year for the next
decade. In short, despite all of his assuring words, President Obama plans on passing the problem of the deficit to the next president.
The White House contends big spending - the Wall Street bailout, the stimulus package - is a necessary but temporary evil to jumpstart the country out of recession. Maybe so, but there’s nothing in his budgets or his economic policy speeches to indicate a serious
assault on the deficit once the current crisis passes. What additional revenues there are in his budget are earmarked to offset the cost of
his health-care reforms, not deficit reduction. Nevertheless, expect President Obama to boast in future years about cutting the deficit.
If so, that would be a tactic lifted from his predecessor. ... To be fair, President Obama recently sent to Congress a proposal to either
eliminate or reduce spending for 121 programs for a savings of $17 billion. If that sounds like a lot, it represents 0.5 percent of next
year’s projected $3.4 trillion in federal spending. And his proposal immediately ran into a storm of opposition on Capitol Hill, mostly
from his own Democrats trying to protect their pet projects. Maybe deficits really do matter to Obama, but his proposals sure don’t
indicate that.
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Aff – Alt Cause
Too many alt causes- medicare, social security, and other wasteful federal programs means spending
increases are inevitable
Edwards, director of fiscal policy studies at the Cato Institute, 2004 [Chris Edwards. “Downsizing the Federal Government.” 6/2.
http://www.cato.org/pubs/pas/pa-515es.html]
The federal government is headed toward a financial crisis as a result of chronic overspending, large deficits,
and huge future cost increases in Social Security and Medicare. Social Security and Medicare would be big
fiscal challenges even if the rest of the government were lean and efficient, but the budget is littered with
wasteful and unnecessary programs. In recent years, mismanagement scandals have occurred in many federal agencies,
including the Army Corps of Engineers, the Bureau of Indian Affairs, the Department of Energy, the Federal Bureau of Investigation,
and the National Aeronautics and Space Administration. Even the National Zoo in Washington has recently been shaken by scandal.
The $2.3 trillion federal government has simply become too big for Congress to oversee. The good news is that Americans do not
need such a big government. Most federal programs are unconstitutional, unnecessary, actively damaging, or
properly the responsibility of state governments or the private sector. This study analyzes programs that could be cut to
create annual budget savings of $300 billion. If these cuts were phased in over five years, the budget would be balanced by fiscal year
2009 with all of President Bush's tax cuts in place.
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Aff – China Switching From the Dollar Now
China has already slowed investment in and lending to the US
Bradsher, staff writer, ‘09
(Keith Bradsher, staff writer, 1-7-09, China Losing Taste for Debt From U.S., The New York Times,
http://www.nytimes.com/2009/01/08/business/worldbusiness/08yuan.html?pagewanted=all
Treasury data from Washington also suggests the Chinese government might be allocating a higher proportion of its foreign
currency reserves to the dollar in recent weeks and less to the euro. The Treasury data suggests China is buying more
Treasuries and fewer bonds from Fannie Mae or Freddie Mac, with a sharp increase in Treasuries in October. But
specialists in international money flows caution against relying too heavily on these statistics. The statistics mostly count
bonds that the Chinese government has bought directly, and exclude purchases made through banks in London and Hong
Kong; with the financial crisis weakening many banks, the Chinese government has a strong incentive to buy more of its
bonds directly than in the past. The overall pace of foreign reserve accumulation in China seems to have slowed so much
that even if all the remaining purchases were Treasuries, the Chinese government’s overall purchases of dollar-denominated
assets will have fallen, economists said.
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Aff – Plan Doesn’t Cause Stagflation
Plan won’t result in stagflation
Paul Krugman, Nobel Laureate in Economics and Professor of Economics at Princeton, June 3 2009, The
Stagflation Myth, http://krugman.blogs.nytimes.com/2009/06/03/the-stagflation-myth/
Johnson’s economic policies, inherited from Kennedy, proved disastrous; they led to the 1970s’ “stagflation.” Wow. I didn’t
know that. Neither, as far as I know, did any economist who has actually studied the issue. Seriously, this is a standard bit of
conservative propaganda. Ever since Reagan, conservatives have been using the evils of stagflation to denounce liberal
economic policies. Yet mainstream economics — even at Chicago — has never made that connection. Stagflation was a term
coined by Paul Samuelson to describe the combination of high inflation and high unemployment. The era of stagflation in
America began in 1974 and ended in the early 80s. Why did it happen? Well, the textbooks basically invoke two factors. One
was a series of “adverse supply shocks”, mainly the huge runup in the price of oil. The other was excessively expansionary
monetary policy, especially in 1972-3, which allowed expectations of inflation to become entrenched. (Ken Rogoff — a
Republican, by the way — attributes that expansion to the desire of Arthur Burns to see Richard Nixon reelected.) The
appearance of stagflation was a win for conservative economics, but it was conservative monetary economics that was partly
vindicated: Milton Friedman’s assertion that there is no long-run tradeoff between inflation and unemployment turned out to
be correct, and is now part of the standard canon. But where is the Great Society in all this? Nowhere. The claim that
stagflation proved the badness of liberal ideas is pure propaganda, which not even conservative economists believe. PS: all
this comes in the middle of a column whining about favorable press treatment of Obama. Did Samuelson complain equally
about the loving treatment Bush received for several years after 9/11? Somehow I don’t remember that …
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Aff – U.S. Not Key to Global Economy
US isn’t key to global econ – Obama wants US to step down
Faiola, Washington Post Staff Writer, 4-2
(Anthony Faiola, Washington Post Staff Writer, 4-2-09, Washington Post, “U.S. Signals New Era for Global
Economy,” page A01
LONDON, April 1 -- On the eve of a global economic summit here, President Obama delivered an unusual warning
Wednesday for an American leader: The "voracious" U.S. economy can no longer be the sole engine of global growth. The
statement signaled a recognition of a new economic era with a less dominant U.S. role. Although Obama said the United
States should not miss "an opportunity to lead" the way out of the crisis, he suggested he would not be the globe's financial
decider. "I came here to listen," he said, "not to lecture." His message also amounted to a challenge to world leaders that
highlights the core differences expected at Thursday's summit. As more than 20 heads of state write a plan to combat the
crisis, major European powers are firmly resisting calls to further open their coffers and cut taxes to spur the global
economy. Such resistance may not have mattered as much in the past. In previous downturns -- including the Asian crisis
in the late 1990s -- the United States was by and large the driving force of global recoveries. But in the wake of the current
crisis, Obama said, Washington will have to deal with "our long-term fiscal position" and the notoriously low consumer
savings rates that for years drove Americans further into debt even as U.S. imports soared. This time, he said, the rest of
the world cannot depend on the "United States being a voracious consumer market." "Those are all issues that we have to
deal with internally, which means that if there's going to be renewed growth, it cannot just be the United States as the
engine," he said during a news conference with British Prime Minister Gordon Brown. "Everybody is going to have to pick
up the pace." The sense of a new economic order with the United States sharing the stage is hanging over this Group of 20
summit. In this relatively new forum, leaders of industrialized powers including the United States, Britain and Japan as well
as emerging giants such as China, India and Brazil are grappling together for an answer to the global economic crisis.
Nations will produce a communique Thursday with a list of carefully worded prescriptions, including the regulation of
hedge funds and more rigorous standards for banks, a move to shed light on the secrecy of tax havens, new ways for
regulators in different countries to coordinate their oversight and dramatically increased funding for the International
Monetary Fund, according to a draft of the agreement. Obama noted that faulty financial regulations in Europe and
elsewhere contributed to the crisis. But he did not try to deflect the blame directed at Washington and Wall Street, most
vociferously by French President Nicolas Sarkozy, German Chancellor Angela Merkel and leaders from developing
countries. "Given our prominence in the world financial system, it's natural that questions are asked -- some of them very
legitimate -- about how we have participated in global financial markets," Obama said. It was a candid assessment of the
limits to his influence here as he works with other leaders to clean up a mess that began at home, and where more spending
in the United States cannot be the only answer. "We cannot rely on the U.S. being the global locomotive," said Willem H.
Buiter, former member of the Bank of England monetary policy committee and a London School of Economics professor.
"Those days are gone." In the 1980s global downturn, the U.S. economy accounted for about one-third of the world's
economy, he noted. It now accounts for one-quarter. The U.S. government is also far more indebted than it was in the '80s.
"It's true that the United States is no longer capable of pulling the world along on its own," Buiter said, adding that Obama's
assessment appeared to be "a coded way of asking for more fiscal stimulus from the rest of the world."
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Aff – U.S. Not Key to Global Economy
The US is no longer key – China and Japan are the focus of the economy
Funabashi, B.A. from U of Tokyo, Ph.D. from Keio, Neiman Fellow at Harvard, visiting Fellow at Institute of International
Economics, Donale Keene Fellow at Columbia, professor at U of Tokyo Public Policy Institute, 3-29
Yoichi Funabashi, Editor in Chief of Asahi Shimbun and Editor of Foreign Policy, 3-23-09, Yale Center for Study of Globalization
As the world capitalist system seems headed for a period during which major national economic models diversify, the time
and mood are not right for a “new Bretton Woods.” Instead, recognizing that weight has shifted to the financial poles of
China and Japan, the United States must adjust its global financial strategy. The current crisis demands not a brand new
structure, but rather a new vision, with careful cultivation of US-China-Japan trilateralism a critical vehicle to this end.
New global governance cannot be effectively established without taking into account the change in the world’s political
economy, namely the ongoing power shift from West to East. A central focus point of this gravitational shift is China. As
events unfold, Beijing’s role, as well as the development of the US-China bilateral relationship in the wake of the crisis,
will be critical fronts to watch. From a macroeconomic perspective, China’s position remains strong. The country possesses
nearly $2 trillion in foreign currency in reserves, up to 70 percent of which analysts assume to be in US dollar-denominated
assets including treasury securities. For its part, Japan is poised to play a role in efforts to treat the global malaise. Before
attending the G-20 summit in Washington last November, Prime Minister Taro Aso pledged a bridge loan of up to $100
billion to the International Monetary Fund to aid economies hit by the financial crisis. Japan remains a formidable
manufacturing engine, the world’s second-largest holder of foreign reserves after China, with more than $1 trillion worth.
By nominal GDP measures, Japan is the world’s second-largest economy. China and Japan are the largest net savers in the
world – potential sources of credit for the US and the rest of the world.
Decades ago, Charles Kindleberger, in his analysis of the Great Depression, announced
that the smooth operation of a liberal international economic order requires the existence
of a hegemon or, at the very least, a multilateral institution capable of functioning in such a
capacity. By Kindleberger’s so-called Hegemonic Stability Theory, a sustainable
international economy requires an international leader that can and will enforce the rules of the game. The Great
Depression, therefore, sprung from an ability-motivation gap in which the United States could, but was not willing, to
provide the necessary common goods to maintain economic order, while the United Kingdom was willing, but could not fill
this role. Applied to today’s dynamic, Asia may be able to build new global governance, but is perhaps not fully willing to
assume the mantle of responsibility at this stage. The United States, on the other hand, is willing to gallop to the rescue, but
given the current crisis, is no longer able.
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Aff – Dollar Decline Inevitable
Decline of the dollar inevitable (AFF)
Aiyar, research fellow at the Cato Institute and occasional media consultant to the World Bank, 09 (Swaminathan
S. Anklesaria, “An International Monetary Fund Currency to Rival the Dollar? Why Special Drawing Rights
Can’t Play That Role”, Cato Institute Center for Liberty & Prosperity, 7/7/2009,
http://www.cato.org/pubs/dpa/dpa10.pdf)
But one thing seems clear. The really big change on the horizon as regards international reserves is the arrival of the Chinese yuan as
a fully convertible currency that floats and is not actively managed by the People’s Bank of China. This may take more than a decade
to occur. But when it happens, the Chinese yuan itself will become an important and sought after reserve currency. As a floater, China
itself will no longer require large reserves, and so its interest in the substitution account and other technocratic remedies will
diminish greatly. The problem of the dollar overhang in reserves will largely disappear. As an issuer of reserve currency, China will
finally get the political stature and clout that it has long sought. The dollar and euro are strong currencies today not because of some
political manipulation within international organizations, but because the United States and Europe are economic powerhouses.
Their currencies have earned their strength and credibility through performance—the market believes that they will always be freely
convertible. The dollar is a hard currency because the United States has a huge GDP and the capacity to tax its citizens to satisfy all
currency commitments. The IMF has no GDP and no taxing capacity, and so lacks the fundamental requirements for creating a
currency. U.S. and European politicians may occasionally agree to an expanded role for SDRs, but will never surrender moneycreating power to the IMF. However, China has a large and fast-growing GDP and tax capacity. The size of China’s economy will
grow larger than that of the United States one day. Well before then, the Chinese yuan will probably become an important reserve
asset. The future rival to the dollar is thus the yuan, not the SDR.
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Aff – China Won’t Dump
China will not sell U.S. securities – multiple reasons
Morrison, Specialist In International Trade and Finance Foreign Affairs, Defense, and Trade Division, and Labonte, Specialist in
Macroeconomic Policy Government and Finance Division, 08 (Wayne M. and Marc, “China’s Holdings of U.S. Securities:
Implications for the U.S. Economy”, Congressional Research Service, 11/20/2008, http://www.fas.org/sgp/crs/row/RL34314.pdf)
The likelihood that China would suddenly reduce its holdings of U.S. securities is questionable because it is doubtful that doing so
would be in China’s economic interests. First, a large sell-off of China’s U.S. holdings could diminish the value of these securities in
international markets, which would lead to large losses on the sale, and would, in turn, decrease the value of China’s remaining dollardenominated assets.35 This would also occur if the value of the dollar were greatly diminished in international currency markets due
to China’s sell-off.36 Second, such a move would diminish U.S. demand for Chinese imports, either through a rise in the value of the
yuan against the dollar or a reduction in U.S. economic growth (especially if other foreign investors sold their U.S. asset holdings, and
the United States was forced to raise interest rates in response).37 The United States purchased about 30% of China’s total
merchandise exports in 2007. A sharp reduction of U.S. imports from China could have a significant impact on China’s economy,
which heavily depends on exports for its economic growth (and is viewed by the government as a vital source of political stability).38
Finally, any major action by the Chinese government that destabilized (or further destabilized) the U.S. economy (whether deliberate
or not) could provoke “protectionist” sentiment in the United States against China
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Aff – No China Dollar Impact
Chinese diversification will not affect the dollar
Aiyar, research fellow at the Cato Institute and occasional media consultant to the World Bank, 09 (Swaminathan
S. Anklesaria, “An International Monetary Fund Currency to Rival the Dollar? Why Special Drawing Rights
Can’t Play That Role”, Cato Institute Center for Liberty & Prosperity, 7/7/2009,
http://www.cato.org/pubs/dpa/dpa10.pdf)
Zhou’s proposed solution—an open-ended SDR denominated fund—looks similar to the substitution account first proposed in the
1970s. It has been supported strongly by some economists, notably Fred Bergsten of the Peterson Institute of International Economics.
According to Bergsten, “The risk is that China and perhaps other monetary authorities, together holding more than 5 trillion in dollar
reserves, will lose confidence in the dollar owing to the prospects for huge and sustained budget deficits in the U.S.” If China dumps
dollars to buy euros, this would send the dollar into free fall and send the euro skyrocketing. Far better, argues Bergsten, would be a
substitution account that he claims would be a win win proposition for all concerned. “The dollar holders would obtain instant
diversification. The U.S. would avoid the risk of a free fall of the dollar. Europe would prevent a sharp rise in the euro. The global
system would eliminate a potential source of great instability.”10 However, there are two obvious objections to the scheme. First,
China has accumulated its dollar hoard through mercantilist policies that have been criticized widely. China appears to have gained
tremendously in GDP through such mercantilism, but it has come at a high cost, including the cost of piling up currency risk in its
foreign exchange reserves. If China suffers because of a fall in the dollar, it surely deserves to suffer the consequences of its own
mercantilism. Why rescue a mercantilist? Let China diversify into euros or yen at its own pace. In any case, there is no reason to think
it will dump dollars on such a huge scale as to send the dollar plummeting— that would be shooting itself in the foot. China can
diversify its reserves gradually, without causing huge currency gyrations, and with the same outcome as a substitution account.
Suppose, for instance, that China wants to use the substitution account to exchange $100 billion into SDR securities. If so, the breakup value of those SDR securities will be $44 billion worth of dollars, $34 billion worth of euros, and $11 billion worth each of yen and
sterling. But China could just as well convert $100 billion of its existing reserves into the same mix of four currencies through market
transactions. No IMF help or subsidy is needed.
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Aff – China Dollar Dump Good
Chinese pullout from the Dollar is good allows for more exports and helps the liquidity trap
Paul Krugman, Nobel Prize in Economics and Professor of Economics at Princeton, May 15th, 2009, China and
the Liquidity Trap, http://krugman.blogs.nytimes.com/2009/05/15/china-and-the-liquidity-trap/
Um, no. Right now we’re in a liquidity trap, which, as I explained in an earlier post, means that we have an incipient excess
supply of savings even at a zero interest rate. (By the way, I’ve had a chance to see the transcript of the PEN/ NY Review
event, and I don’t think I was misrepresenting Niall Ferguson’s position.) In this situation, America has too large a supply of
desired savings. If the Chinese spend more and save less, that’s a good thing from our point of view. To put it another way,
we’re facing a global paradox of thrift, and everyone wishes everyone else would save less. Or to put it a third way, the
argument that a reduction in China’s dollar purchases would be contractionary for America because it would drive up interest
rates is equivalent to the argument that fiscal expansion is contractionary for the same reason — and equivalently wrong. But
what if China doesn’t spend more, but just reallocates its reserves from dollars to, say, euros? The answer is, that’s also good
for us: a weaker dollar will help our exports, at Europe’s expense. One of the things I tried to tell the Chinese was precisely
that the old co-dependence no longer exists. For now, at least, their dollar purchases are an unalloyed bad thing from
America’s point of view.
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Aff – Inflation Good
Current inflation is too low, this risks a Japan style depression
Paul Krugman, Nobel Prize in Economics and Professor of Economics at Princeton, 2009 the TIPS spread,
http://krugman.blogs.nytimes.com/2009/01/16/the-tips-spread/
Many of us have spent a lot of time over the past year and a half obsessing about the TED spread, the difference between
LIBOR and the interest rate on T-bills. TED was a good indicator of fear in the banking system; the good news is that it’s
way down. But there are new worries. These days I’m looking at the TIPS spread: the difference between nominal US bond
rates and rates on Treasury Inflation-Protected Securities. This spread is an indicator of expected inflation. And what it shows
isn’t good. Bear in mind that the Fed tries to keep inflation expectations “anchored.” Too low is as bad, or worse, than too
high — because if expected inflation is low or negative, even a zero interest rate isn’t that good a deal, and the Fed may have
a hard time booting us out of a recession. Normally the Fed wants expected inflation to be in the 2-2 1/2 percent range.
Whoops. More and more, this looks like a Japan-type trap.
Deflation is worse – must inflate to avoid
Paul Krugman, Nobel Prize in Economics and Professor of Economics at Princeton, 2009, Risks of Deflation
(wonkish but important), http://krugman.blogs.nytimes.com/2009/01/10/risks-of-deflation-wonkish-butimportant/
There’s been some talk abut risks of deflation, but there’s one alarming comparison I haven’t seen made. The figure above
shows that the CBO is currently projecting an output shortfall from the current slump comparable to the slump of the early
1980s. Actually, it’s very close: if you compare the CBO’s projections of unemployment from 2008 through 2012 with its
estimate of the natural rate, we’re looking at cumulative excess unemployment of 13.9 point-years; that compares with 13.7
point years from 1980 through 1986. (If the natural rate — the unemployment rate that keeps inflation unchanged — is 5
percent, and the actual unemployment rate averages 7 percent over a year, that’s 2 point-years of excess unemployment.)
Now here’s the thing: the slump of the early 1980s produced the Great Disinflation, which brought the core inflation rate
down from about 10 to about 4. This time, however, we entered the slump with a core inflation rate of about 2.5 percent. If
we experienced a disinflation comparable to that of the 1980s, that would mean ending up with deflation at a rate of -3.5
percent. And bear in mind that neither the CBO nor the Obama team really explains where recovery comes from; it’s just
assumed. So tell me why we aren’t looking at a very large risk of getting into a deflationary trap, in which falling prices make
consumers and businesses even less willing to spend. Tell me why this risk wouldn’t remain high, though lower, even with
the Obama plan, which as far as I can tell is expected to reduce cumulative excess unemployment by about a third.
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Aff – Inflation Good
We can inflate ourselves out of the Recession
Paul Krugman, Nobel Prize in Economics and Professor of Economics at Princeton, December 17th, 2008, A
whiff of inflationary grapeshot, http://krugman.blogs.nytimes.com/2008/12/17/a-whiff-of-inflationarygrapeshot/
Greg Mankiw suggests that the Fed respond to the crisis by committing to substantial inflation over the next decade. Great idea, wish
I’d thought of it. Oh, wait … Actually, Greg has arrived at the same conclusion I did more than a decade ago, when I tried to model
the problems then facing Japan, and now facing us. As I pointed out back then, the essence of a liquidity trap is that the real interest
rate is too high, even when the nominal rate is zero. So the theoretically “correct” answer, if you can swing it, is to create expected
inflation, pushing the real rate down. As I put it, perhaps too glibly, the central bank needed to “credibly promise to be irresponsible.”
The thing is, at the time my analysis was widely treated as somehow wild and crazy, even though it came straight out of an extremely
buttoned-down theoretical model. Japan was supposed to suffer for its sins, not inflate its way out of them. I wonder if similar
proposals for the United States will receive the same reception.
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Aff – Impact Defense
Federal reserve checks total collapse
Ben Benanke, Chairman of the Federal Reserve, 7/21/2009
(http://money.cnn.com/news/newsfeeds/articles/djf500/200907211037DOWJONESDJONLINE000426_FORTUNE5.htm)
Many of the improvements in financial conditions can be traced, in part, to policy actions taken by the Federal Reserve to encourage
the flow of credit. For example, the decline in interbank lending rates and spreads was facilitated by the actions of the Federal Reserve
and other central banks to ensure that financial institutions have adequate access to short-term liquidity, which in turn has increased
the stability of the banking system and the ability of banks to lend. Interest rates and spreads on commercial paper dropped
significantly as a result of the backstop liquidity facilities that the Federal Reserve introduced last fall for that market. Our purchases
of agency mortgage-backed securities and other longer-term assets have helped lower conforming fixed mortgage rates. And the Term
Asset-Backed Securities Loan Facility (TALF), which was implemented this year, has helped restart the securitization markets for
various classes of consumer and small business credit. Earlier this year, the Federal Reserve and other federal banking regulatory
agencies undertook the Supervisory Capital Assessment Program (SCAP), popularly known as the stress test, to determine the capital
needs of the largest financial institutions. The results of the SCAP were reported in May, and they appeared to increase investor
confidence in the U.S. banking system. Subsequently, the great majority of institutions that underwent the assessment have raised
equity in public markets. And, on June 17, 10 of the largest U.S. bank holding companies--all but one of which participated in the
SCAP--repaid a total of nearly $70 billion to the Treasury.
Obama would adjust the budget to prevent growing deficits
FINANCIAL TIMES 5 - 22 - 09
http://www.ft.com/cms/s/0/bdd23cb0-4639-11de-803f-00144feabdc0.html
The Obama administration would consider tax increases or spending cuts if needed to ensure that US budget
deficits do not remain at unsustainable levels once the economy recovers, Peter Orszag, the White House budget
director, has told the Financial Times. He said: “We are all committed to a sustainable fiscal policy. There is a lot of
uncertainty about the future, but if the out-year deficits are excessively high even after the economy begins to
recover, we would explore appropriate policy adjustments.”
New Spending will be offset by higher taxes
FINANCIAL TIMES 5 - 22 - 09
http://www.ft.com/cms/s/0/bdd23cb0-4639-11de-803f-00144feabdc0.html
No one knows what effect structural changes – a smaller financial sector, fewer big bonuses and possibly a shift in national income
going to taxable profits as opposed to tax-favoured interest payments – will have on medium-term revenues.
If “appropriate policy adjustments” prove necessary to limit medium-term deficits, budget analysts believe the changes would
probably come in the form of higher taxes rather than lower spending. Non-defence discretionary spending is
too small to facilitate substantial adjustment, defence spending is to some extent autonomous, while Medicare
and Social Security reforms would take decades to deliver their full savings.
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Aff – Deficit Spending Good
Deficit Spending good – stimulates the economy
Buchanan July 16 PhD Economics [Neil H. Buchanan Ph. D. (economics), is a Visiting Scholar at Cornell Law
School, an Associate Professor at The George Washington University Law School, and a former economics
professor. July 16, 2009 "Everyone Seems to Agree that Budget Deficits are Harmful"
http://writ.news.findlaw.com/commentary/20090716_buchanan.html]
Second, the deficit is also higher during a downturn than it would normally be because of the government's attempts to
stimulate the economy. More than a quarter of the projected deficits for this year and next, for example, are due to the
stimulus bill -- a law that is explicitly a two-year commitment of federal borrowing as an attempt to reverse the slide. If the
recession ends, the need for stimulus will end. These explanations for the temporary rise in annual federal deficits also
explain why we should not respond to these deficits by trying to reduce them. Cutting deficits during a downturn not only is
the opposite of being stimulative (thus predictably worsening the crisis), but it is also affirmatively counterproductive. That
is because (as states like California are demonstrating even as I write this) attempts to balance budgets by cutting spending
and raising taxes become a vicious cycle, since budget cuts throw people out of work and discourage businesses from
hiring. To return to the analogy to taking one's medicine, a patient might respond to an illness by saying, "I hate that
medicine. I'm just going to buck up and do what I normally do. I'm going to the gym. That will make me feel better." The
patient might even feel virtuous about how "tough" he is being. As we know, however, refusing medication and putting
added stress on one's body can prevent healing and worsen symptoms. (There is also an analogy here to the spreading of
germs in the gym locker room, but I will leave the interdependence of global economies aside for now.) In other words,
even people who really, truly do not think that borrowing is a good long-term strategy should not object to running deficits
in the current economic situation. Indeed, the sooner we get out of this recession, the sooner deficits will go down as we
move forward.
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Aff – Deficit Spending Good
Short term deficit spending key to save economy.
Goodman 8
Staff Writer (Debt Sweat: Printing Money—And Its Price, December 27, New York Times,
http://www.nytimes.com/2008/12/28/weekinreview/28goodman.html?_r=1&pagewanted=all)
But most economists cast such thinking as recklessly extreme, akin to putting an obese person on a painful diet in the name
of long-term health just as they are fighting off a potentially lethal infection. In the dominant view, now is no time for
austerity — not with paychecks disappearing from the economy and gyrating markets wiping out retirement savings. Not
with the financial system in virtual lockdown, and much of the world in a similar state of retrenchment, shrinking demand
for American goods and services.
Since the Great Depression, the conventional prescription for such times is to have the government step in and create
demand by cycling its dollars through the economy, generating jobs and business opportunities. That such dollars must be
borrowed is hardly ideal, adding to the long-term strains on the nation. But the immediate risks of not spending them
could be grave.
“This is a dangerous situation,” says Mr. Baily, essentially arguing that the drunk must be kept in Scotch a while longer,
lest he burn down the neighborhood in the midst of a crisis. “The risks of things actually getting worse and us going into a
really severe recession are high. We need to get more money out there now.”
Had the government worried more about limiting spending than about the potential collapse of the mortgage giants, Fannie
Mae and Freddie Mac, it might have triggered precisely the dark scenario that consumes those who worry most about
growing American debt, argues Brad Setser, an economist at the Council on Foreign Relations.
China purchased a lot of Fannie and Freddie bonds with the understanding that they were backed by the American
government. No bailout “would have been portrayed in China as defaulting on the Chinese people,” Mr. Setser said. That
would have increased the likelihood that China would start parking its savings somewhere other than the United States.
The most frequently voiced worry about the bailouts is that the Fed, by sending so much money sloshing through the
system, risks generating a bad case of rising prices later on. That puts the onus on the Fed to reverse course and crimp
economic activity by lifting interest rates and selling assets back to banks once growth resumes.
But finding the appropriate point to act tends to be more art than science. The Fed might move too early and send the
economy back into a tailspin. It might wait too long and let too much money generate inflation.
“It’s a tricky business,” says Allan H. Meltzer, an economist at Carnegie Mellon University, and a former economic adviser
to President Reagan. “There’s no math model that tells us when to do it or how.”
But that, as most economists see it, is a worry for another day. Some policy makers are focused on staving off the opposite
problem — deflation, or fallin g prices, as demand weakens to the point that goods pile up without buyers, sending prices
down and reducing the incentive for businesses to invest. That could shrink demand further and perhaps even deliver the
sort of downward spiral that pinned Japan in the weeds of stagnant growth during the 1990s.
“Those who claim that sharp increases in federal borrowing and the national debt would be ill advised at the present time,
when the economy is weakening while deflation threatens, have failed to study Japan’s history,” declared the economist
John H. Makin in a report published by the conservative American Enterprise Institute — ordinarily, a staunch advocate for
lean government.
So back to the well Americans go, putting aside worries about debt, unleashing another wave of synthesized money in an
effort to prevent deeper misery.
“Right now,” Mr. Setser says, “the risk is not doing enough.”
Aff card--deficit spending key to economic recovery
Papantonio 9
Staff Writer (Mike, “Deficit Spending—A Necessary Evil”, January 7, http://www.huffingtonpost.com/mikepapantonio/deficit-spending----a-nec_b_155839.html)
Long-term stimulus will require astronomical levels of spending that will naturally leave us with a queasy feeling when we
see all those zeroes in newsprint. But it is going to require all those zeroes to rebuild our economy, one job, one road, one
bridge, and one new technological advancement at a time. According to three hundred of the world's best economists, every
move Obama needs to make to save this economy will require the weight and scale of a Manhattan project or an Apollo
program if we are to pull through these economic dark years still ahead.
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Aff – Deficit Spending Good
Pro-poor policies will solve the economy
DOHLMAN & SODERBACK 07 OECD office of the Secretary-General & Swedish Development Agency - SIDA
[Ebba & Mikael, “Economic growth versus poverty reduction: A “hollow debate”?” March,
http://www.oecdobserver.org/news/fullstory.php/aid/2173/Economic_growth_versus_poverty_reduction:_A__93hollow_debate_94_.html]
The answer is a hybrid: pro-poor and pro-growth approaches are mutually reinforcing and should go hand in
hand. What this means for policy is spelt out in a new book by the Development Assistance Committee (DAC) of the OECD, whose
member countries handle some 90% of world bilateral ODA (see references). Its forum, the Network on Poverty Reduction
(POVNET), has helped to steer previously divided opinion into a new consensus that rapid and sustained
poverty reduction requires pro-poor growth. This means “a pace and pattern of growth that enhances the ability
of poor women and men to participate in, contribute to and benefit from growth”. To reach this view, POVNET
considered several basic questions. For a start, when is growth pro-poor? Should it necessarily be capable of raising the incomes of the
poor relative to the incomes of the non-poor to boost equity, or should incomes rise in absolute terms, to help the poor purchase more
goods and services? The answer is not always clear. Equity, some argue, makes growth more robust. Others point to Vietnam, which
is often held up as a model of poverty reduction, but where income gaps have started to widen. POVNET agreed that both “absolute”
and “relative” perspectives count. Experts also looked for trade-offs between “pro-growth” and “pro-poor” policies. What types of
growth policies help poor people most? To what extent may public spending on social services crowd out growth-oriented sectors
such as infrastructure or agriculture? POVNET found that policies with a social content can be a cost-effective investment in
promoting pro-poor growth. Take “Oportunidades”, the anti-poverty drive by Mexico’s government since 1997. It provides cash
transfers to rural and urban households, but links them to requirements, such as regular school attendance, health clinic visits and
nutritional programmes for children. That means reduced poverty and improved human capital, too.
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Aff – Healthcare Helps Small Businesses
Healthcare helps small businesses
Smith and McAllister 7/21
Donna Smith and Edward McAllister, writers for Reuters “Small business seeks help in U.S. economic storm”
http://www.reuters.com/article/smallBusinessNews/idUSTRE56K0XI20090721?pageNumber=1&virtualBrandChannel=0 [LO
//AS]
Where small businesses may benefit is in healthcare reform being considered in the House of Representatives, specifically a proposed
insurance exchange through which businesses and individuals could shop for policies. Small businesses have seen insurance
premiums more than double in the last decade. Many Americans who lack insurance work for smaller firms that do not provide the
benefit. Small businessman Chris Link, who co-runs a promotional marketing distributorship in Nashville, said he is encouraged by
the healthcare reform efforts. "I am very impressed that the administration keeps pushing the matter," he said. "I know it is not easy,
but it is not an option staying where we are."
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Aff – No Small Businesses Impact
Small Businesses are safe
Amick 7/19
John Amick, writer for the Washington Poster, “Democrats Push Back on Unsavory Estimate”
http://voices.washingtonpost.com/44/2009/07/19/democrats_push_back_on_unsavor.html?hpid=politics[LO//AS]
The House plan proposes a surtax on the wealthiest earners in America, a point of high contention for legislators, mainly Republicans,
who insist this burden will fall on small business owners. "Well, if you tax the rich, that means that you're going to push small
business into a 45.7 percent top tax rate, which is like -- like 10 percent more than corporations pay," Republican Sen. Orrin Hatch of
Utah said on "Face the Nation." "And it's going to kill a lot of jobs, a lot of opportunities." Rangel answered Hatch, saying the
accusations of small business bearing the brunt of the tax burden is a miscalculation. "It's just wrong to say that this is a tax on small
businesses," Rangel said. "We exempt small business from a lot of the penalties. We give tax credits so that they're able to hire and get
people health care in small businesses. This is a tax on less than 1 percent of the wealthiest people in the United States of America."
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Aff – SQ Fiscal Policies Unsustainable
Current fiscal policy already unsustainable
Auerbach, a professor of economics and law and director of the Burch Center for Tax Policy and Public Finance at UC Berkeley,
and Gale, vice president of the Brookings Institution and co-director of the Urban Institute-Brookings Institution Tax Policy Center,
09 (Alan J. and William G., “Here Comes the Next Fiscal Crisis”, Los Angeles Times Op-Ed,
http://www.latimes.com/news/opinion/la-oe-auerbach8-2009jul08,0,7586160.story)
The U.S. confronts not one but two economic challenges: Its worst recession since the Depression and a growing imbalance
between federal spending and revenues that makes its underlying fiscal policy unsustainable. To get the economy
going, the Obama administration and Congress have committed trillions of dollars to bailouts of the financial and automobile
industries and to a stimulus package of tax cuts and government spending. These measures, on top of our current economic
weakness and the imbalance between spending and revenues, have left us with a projected federal budget deficit of $1.7
trillion in 2009, or 12% of U.S. gross domestic product, a deficit share we have not even approached since
World War II. Most economists accept the need to put aside concerns about fiscal balance as we address the recession. But soon
enough we will face pressure to shift our focus from the short-term economic problem to our longer-term fiscal
problem. And, unfortunately, poor policy choices in the past combined with the enormity of the recession make
the second problem worse and reduce the time we will have to deal with it. The nature of our short-term problem is
evident to all of us, as workers anxious about the future of our jobs, as homeowners worrying about the declining values of our houses,
and as Californians wondering whether our state government can still function. The longer-term problem, though, is less apparent to
most of us, and its more subtle nature has, until now, left our political leaders with little incentive to act. There are two parts to the
problem. First, over the next decade or so, even once we recover from the recession, federal revenues will fall far short of federal
spending. Under the policies laid out in the Obama administration's recent budget, for example, the annual deficit will be 5.5% of
GDP by 2019, an exceptionally high share in normal times. In the meantime, the national debt will accumulate so rapidly that it will
stand at 82% of GDP, its highest mark since 1948, when we were paying off our war debts. And we will be looking ahead to
even larger deficits and faster debt accumulation. That's because of the second element of the problem, the rapid
growth of our "big three" entitlement programs: Social Security, Medicare and Medicaid. Due to an aging
population and ever-increasing medical costs, these programs are growing much faster than the tax revenues we
have to pay for them. These realities aren't news, although the Bush administration's policies of massive tax cuts and increased
spending on all fronts made these underlying problems substantially worse. Recent developments, however, have made ignoring the
situation much harder. The deficits projected over the next 10 years will accelerate our arrival at a debt-to-GDP ratio that for most
countries would signal impending fiscal collapse. Indeed, Britain, with a debt-to-GDP ratio not appreciably worse than ours, was just
warned by Standard & Poor's that its creditworthiness might be downgraded. The United States has traditionally enjoyed a
favored status in this regard, as the supplier of the dollar, the world's reserve currency, and as a perceived haven
in times of financial stress. But for how long? In March, Chinese Prime Minister Wen Jiabao publicly questioned the safety
of U.S. Treasury debt. Over the winter, prices in credit-default swap markets implied a significant probability of default on U.S. debt
in the next five years. Default on national debt is what happens in failed states and banana republics; such a possibility for the U.S.
would have been unthinkable in the past. All of this will finally force difficult choices on policymakers. Healthcare reform, for
example, is crucial if we're to fix entitlement programs. But it alone won't be enough. Spending will have to drop, and taxes
will have to rise. And the choices could get harder still. If the economy recovers very slowly, those decisions will need to be faced
in the context of a weaker economic situation with demands for further fiscal stimulus. In the immediate future, policymakers
will face a delicate balancing act between encouraging economic recovery and establishing fiscal sustainability.
Short-term stimulus can boost an otherwise weak economy, so withdrawing stimulative policies and imposing fiscal discipline too
soon could slow the recovery. But delaying fiscal discipline too long could be equally destructive. Success will take new
ideas, some luck and uncharacteristic honesty and resoluteness — from our leaders in Washington and from the rest of us.
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Tradeoff Disad
ABL is on the cutting block and key to other energy programs
Jean 09
Grace V. Jean, writer for National Defense Magazine March 2009 “Military May Be Souring On Laser Weapons”
http://www.nationaldefensemagazine.org/archive/2009/March/Pages/MilitaryMayBeSouringOnLaserWeapons.aspx [LO//AS]
The Pentagon’s enthusiasm for laser weapons is not what it used to be. Disappointing technical performance,
competing budget priorities and uncertainty about the military’s future missions could jeopardize funding for laser weapon programs
in the years ahead, experts say. Just a year ago, the Pentagon’s science advisors warned that a lack of progress in the
development of directed-energy weapons has resulted in a significant decline in interest and support for these
technologies. The panel of advisors, known as the Defense Science Board, pointed out that not a single directed energy system has
been fielded to date, and that there are fewer programs currently under way than there were a decade ago. One of the toughest
technical challenges is producing lasers with enough lethal energy to surpass conventionally powered weapons, says Philip Coyle, a
senior advisor at the Center for Defense Information and a former director of weapons testing at the Pentagon. “It’s really hard to beat
the amount of energy in a rifle bullet, let alone even more powerful weapons systems,” he says. To do so with a laser requires a large
and heavy system that is not conducive to the rigors of the battlefield. Military laboratories and contractors have spent decades trying
to boost the power in laser systems while trying to pare down the package, with limited success. “It’s not easy and nobody has really
succeeded yet,” says Coyle. Some contractors who have long been developing such systems insist they are making
progress. To them, the debate isn’t about whether directed energy weapons will become a reality, but when.
Lasers abound in civilian industries. But most of those systems operate at energy levels that are inadequate for
weaponization. “The fragility of the industrial base for directed energy is very real,” says Mike Rinn, vice president and program
director at The Boeing Co. Boeing is the prime contractor for the Missile Defense Agency’s airborne laser, a megawatt-class
chemical laser that is intended to shoot down ballistic missiles from a modified Boeing 747 aircraft. It requires unique components
and materials to deal with intense concentrations of energy and laser light, says Rinn. “You’re dealing with millions of watts of power,
and the materials want to heat up,” he says. “If they heat up, they can distort the beam.” In order to destroy a ballistic missile with a
laser, the system must generate high power over extended periods and it requires specialized technologies to control the beam, handle
the heat and cool down the laser. Such components have a hard time performing outside a controlled laboratory environment, says
Doug Beason, author of “The E-Bomb” and a former deputy director of the Air Force Research Laboratory’s directed energy
directorate. Boeing has been working with Mitsubishi Industries and Mitsubishi Heavy Industries to determine whether any Japanese
technologies might help in the development of the program. A study identified several areas, including solid-state lasers, sensors and
composite materials, that have potential. The airborne laser, however, could soon be on the chopping block. It has
experienced significant delays and does not have much to show for the $4.3 billion that the U.S. government
has spent since 1994. This year’s funding is being used to test and refine the system, which is expected to shoot
down a ballistic missile for the first time in a crucial demonstration this summer. “As impressive as that will be if
they can do it, it still doesn’t show that a real missile is going to stop in mid-flight,” says Coyle. The team has a long way to go to
prove that the laser not only can hit the missile, but also hit it in the right place to destroy it. “It would be just terrible if the mock
enemy missile kept right on going. That would be the death knell for the program,” he adds. More than that, the possible
demise of the program could impact other weapons systems under development. “There’s so much money
going into the airborne laser, that if it doesn’t work, then it’s going to sour people’s view of directed energy,”
says Beason.
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Tradeoff Disad
Expensive projects are trade off with ABL
Nowland and Varner ’08
(Adam Nowland has a degree in Business Management. Sean Varner is holds a bachelor's degree in Political Science and
History major from Grove City College. “Defanging Deterrence: The Fate of Missile Defense in an Obama Administration”
http://adamvn1.wordpress.com/2008/11/10/defanging-deterrence-the-fate-of-missile-defense-in-an-obamaadministration/)[LO//AS]
The Obama campaign was consistently centered around the ambiguous theme of change (after “hope”) and successfully
marketed it to the American people. The question now becomes, will this be selective change or drastic change? After all, while
Americans have given President Bush a low approval rating, not only does his approval rise when asked about certain issues, the vote
of last Tuesday should not be seen as a total repudiation of Bush Administration policies. There is, still, wide consensus on a number
of issues. Also, the percentage of people identifying themselves as liberal and conservative remained steady (despite the fact
Rasmussen found that Democrats were four times as likely to want to take an exit poll). So where does President-Elect Obama
fit in on missile defense? In fact, by searching all the transcripts of the Democratic debates, the subject of missile defense
comes up once. And that was by Senator Chris Dodd, who said we need a different set of priorities from missile
defense (”investing in the bridges and the highways and the water systems” to be exact). This is indicative of the Democratic Party’s
stance on a vital defense issue. They know it is popular, according to a Gallup survey in April 2002 (the most recent available),
respondents supported the deployment of missile defense by 64% to 30%. To oppose, cut, or reverse it is, then, a losing issue for
Obama. In the first presidential debate, Obama stated that “we are spending billions of dollars on missile defense. And I actually
believe that we need missile defense…but I also believe that, when we are only spending a few hundred million dollars on nuclear
proliferation, then we’re making a mistake.” Never mind the fact that counterproliferation is much cheaper than missile defense (MD)
by definition, his solution is to cut MD and funnel some of the money to inhibiting nuclear proliferation. Though it sounds like a
good idea, proliferation has been kept largely in check (there is no deterring regimes like Iran or North Korea from pursuing nuclear
programs with “friends” like Russia or China nearby) by current efforts. Obama, along with most other Democrats, has
stated that MD needed to be “proven” before it is deployed (see the youtube clip). “Proven” has become a code-
word for bringing something back to the drawing board and indefinitely suspending it because there is always
the chance it will not work 100% of the time. So what does this mean for the Missile Defense Agency (MDA)?
Expect to see the airborne laser system scrapped completely, the R&D funding for space-based systems
eradicated, and a minimal deployment (less than 30) of ground-based interceptors in Alaska and California. On a
side note, Obama will likely be forced to move ahead with the “third site” in Europe due to Russia’s bellicose rhetoric about placing
missiles in Kaliningrad. To not do so would be international weakness not seen since Kennedy’s meeting with Khrushchev in Vienna.
So far, it seems like the programs Obama would have cut are the ones that are, admittedly, years away from deployment. But, enter
Barney Frank stage left with this quote. The chairman of the House Financial Services Committee (of Freddie Mac and Fannie Mae
fame) believes the US can cut the defense budget by an astounding 25%. Such an unprecedented cut would come not just from ending
the war in Iraq but also from MD and other future weapons systems. Where, therefore, does “pragmatic, centrist” Obama mesh with
the most-liberal-Senator-in-the-Senate Obama? Despite extraordinary progress in the past eight years in the area of missile defense,
Obama is likely going to set his “scapel” (or hatchet) to missile defense and bring it down to Clinton-era levels. How
else does he expect to pay for his massive health-care, tax rebates, and auto bailout plans? “Proven” systems like the Aegis
destroyers, SM-3 interceptrs, PAC-3 terminal missile defenses may survive the bloodletting. But the goal of a layered sea, land, and
air-based defense that could intercept missiles in their boost, midcourse, or terminal phases will be gone for four years. If China or
North Korea were looking for the opportune moment to launch an electromagnetic pulse attack or threaten nuclear blackmail, the next
four years look pretty promsing to them. As Obama makes abundantly clear in this primary-era ad (which you must watch), American
primacy is not at the top of his priority list. His pipe dream (or “smack,” since I guess he can afford it now) involves a world without
nuclear weapons or rapidly developed combat systems. Moscow, Beijing, Pyongyang, Tehran, and Caracus must be euphoric
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Tradeoff Disad
The ABL is key to stopping nuclear war, fighting insurgents, and much more
Robinson-Avila 2/13
(Kevin Robinson-Avila is a staff writer for New Mexico Business Weekly, a newspaper that covers most of the U.S. Laser programs,
as they are based in New Mexico. “Airborne Laser nears critical test”,
http://albuquerque.bizjournals.com/albuquerque/stories/2009/02/16/story3.html) [LO//AS]
the laser could radically improve U.S. efforts to guard against ballistic missiles, because the
weapon destroys targets in the boost phase when they’re easier to hit, and it does not require deployment of
systems in controversial places like Poland. “It can revolutionize warfare,” said retired Lt. Gen. Mike Dunn, president of the
Air Force Association in Arlington, Va. “Instead of facing messy negotiations with Russia or other countries to deploy
missiles, we can fly Airborne Lasers to hot spots such as Iran or North Korea to monitor and guard against
missile attacks.” The system — which uses a chemical reaction to generate intense infrared laser light — relies on sensors mounted
Supporters say
in the 747 to detect burning propellant from missiles. Tracking lasers lock onto targets and then fire, said Michael Rinn, a Boeing vice
president and the program director for the Airborne Laser Program. “In the last few years, we’ve successfully
demonstrated all the key technologies that make the Airborne Laser a reality,” Rinn said. “We know it works.” In
fact, technology developed under the Airborne Laser program has led to a number of spin-off laser-weapon
systems that Boeing also is developing. The company received $200 million, for example, to mount a less-powerful laser on a small
C-130 aircraft to fire at ground targets, such as trucks and tanks. It also got $43 million from the Army to build a truck-mounted laser
system to shoot down rockets, artillery and mortar projectiles. And, Boeing itself is financing an effort to equip an Avenger
combat vehicle with lasers that can destroy explosive devices on the ground and unmanned aerial vehicles overhead.
The Airborne Laser and other laser-weapon programs have had a huge impact on New Mexico. Boeing currently employs about 450
people in New Mexico, about 350 of them in laser-related work, said Lee Gutheinz, Boeing program director in Albuquerque for highenergy laser and electro-optical systems. About 200 are directly employed in the Airborne Laser Program, and Boeing annually
spends up to $150 million on the procurement of goods and services. Albuquerque-based Applied Technology Associates, for
example, has provided a lot of optics engineering, said President and CEO Anthony Tenorio. “We’ve received about $10 million
in the past decade to develop technology for the Airborne Laser,” Tenorio said. “We’ve added at least 10 full-time
people over the years to support that work.” Rinn said the advances in laser technology that gave rise to the Airborne Laser
and other systems were largely developed in New Mexico over the past 30 years. “In 100 years, when people look back at the new
age of laser and photonics applications, New Mexico will be recognized as the originator of much of that,” Rinn said.
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