The projected deficit is falling, thanks to a surging economy. It was initially projected to be well over $500 billion for the year, but that projection has been steadily shrinking every month. A couple of months ago we talked about it being $400 billion. Now it looks like it will be less than $300 billion.

The economy is surging so well that the budget actually produced a surplus in June.

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5659963

It's important to note, however, that it will still be a lot of money, and we need to continue to work towards removing it and returning to a balanced budget. The current plan (a bipartisan plan arrived at by both congress and the administration's OMB) calls for it being cut in half within five years, but I would imagine that that projection will now be better as well.

Good news, but I am rather iffy about it all. Buttonwood an economist from the economist magazine tells us to calm to calm down the economy isn’t exactly in the greatest of situations:
The historical evidence, it should be admitted, is mixed. On two of the previous occasions when profits had risen this fast for this long, stocks rose thereafter; and on two they fell. There are many reasons to plump for a less rosy outcome this time round, however. The first is that shares are expensive. High p/e multiples are perhaps justifiable when profits are depressed, but much less so when they are frothy. As your columnist has said before, when things can’t get any better they won’t.As a percentage of national income, corporate profits are already at record highs, and will, in the none-too-distant future, have to cope with, inter alia, tightening fiscal policy, tightening monetary policy, strong oil prices, the scrapping of corporate tax breaks, slowing demand (on which, more later) and quite possibly less pricing power.
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For elucidation on this last, intriguing thought, David Bowers, a strategist at Merrill Lynch, suggests turning to something that Buttonwood spends less time looking at than perhaps he should: America’s inventory-to-shipment (I-S) ratio. This, says Mr Bowers, is at an all-time low, largely due to a very rapid growth in sales. But it is set to rise. When it has done so in the past, he writes, “bonds have been a ‘buy’, earnings growth has been scarcer, industrial pricing power weaker, and high-yield credit spreads wider. Ignore this indicator at your peril.”
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Suitably admonished, Buttonwood read on. Shipments, it turns out, have been rising exponentially. And when things are flying out of the factory door at such speeds, factories stock up. Inventories, says Mr Bowers, could end the year 6-8% higher than they started it. Which would be fine if shipments followed suit. They are unlikely to do so because exponential growth is simply not sustainable. When final demand starts to weaken, the I-S ratio will rise, dramatically weakening corporate pricing power and (one assumes) profits.
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Which is where we get back to technology. Inventories have already started to rise sharply at Intel (by 29% year-on-year in the first quarter), Texas Instruments (30%) and Cisco (47%). Possibly, this is a foretaste of a broader problem, for America relies on demand from consumers who have, to be frank, consumed to the max and done so with borrowed money. In the 13 quarters from 2000, household debt surged by $2.5 trillion, writes Kurt Richebächer, an extreme bear (perhaps, then, a polar bear?). Of late, for the first time in history, consumption growth has exceeded growth in GDP. Against such a backdrop of tiny household savings and huge debts, the Federal Reserve has started raising interest rates. Small wonder, perhaps, that although consumers say they are confident, they are starting to rein in their spending. Car companies and retailers are already suffering as a result. At some point, so will the stockmarket.

Just as I suspected this “growth” is really just getting rid of the inventory that companies have accumulated from the years of recession, and the hi-tech sector has surging stock rates which is not a good indicator. As mentioned in the article the growth we are seeing now is not sustainable, it is not based on solid fundamentals but rather based on credit, people were/are buying on credit which imo is not a good trade off in the long run. Because spending is growing faster then GDP (income) there is a greater accumulation of debt then ever before. This “Bush boom” is not a result of tax cuts, it the result of low interest rates that made expansion and spending dirt cheap. Because inflation is on the rise in the US, the Fed had to raise interest rates to stem the flow of spending, and borrowing. A raise in the interest rate level will make it much harder to sustain this economic boom for much longer. Consumers who are already saddled with debt are going to spend much less, and the housing boom should cool off. You know not all growth is necessarily good growth. Good growth is when an economy has sustainable and affordable growth, this is not that economy. Whether the budget deficit is $500 billion or $300 billion, which still shows that the US is living beyond her means, way beyond her means.

IT inventories are high, but I think that's a different indicator, having more to do with the fact that many aspects of the IT industry are product-saturated right now. There's little incentive for people to upgrade their computers, for example (but it's a big sector and of course there's more to it than that).

Buttonwood's a smart guy and I've read a number of good articles at the Economist, especially over the past six months or so. I also encourage people to check out the position papers at the Centrist website I've posted some links from (www.centrists.org). The smart money says that the economy is growing but we need to pay close attention to it.

Anyway, getting back to your point, rather than say that the growth is not sustainable, I think we need to pay hedence to the old cyclical nature of the economy, in which growth is more cyclical in nature rather than "sustainable". But that's not to say that there's nothing we can do about it, a point which I think confuses a lot of folks.

I think it overstates the case to say that the boom is not a result of tax cuts. Alan Greenspan is a pretty independent-minded guy, and he feels they were a factor, and a lot of other economists feel they were a factor. But it's accurate to say taht they're not ENTIRELY due to the tax cuts, and one can certainly make a case that the tax cuts were a minor factor (I would disagree with that point; I believe Greenspan said that they account for about half the present growth rate, which is substantial in my book).

Excellent points about debt and housing, and of course your final point about living beyond our means is perfectly valid as well.

I think it overstates the case to say that the boom is not a result of tax cuts. Alan Greenspan is a pretty independent-minded guy, and he feels they were a factor, and a lot of other economists feel they were a factor.

But if it were tax cuts, borrowing shouldn’t have gone up as quickly as it did. There should have been enough excess capital in the hands of individuals to avoid using their visas, yet this has not happened. Thus through a simple logical deduction credit, not tax cuts were the reason for this recovery.

It's not that black and white. Perhaps people used their tax cuts, *and* they spent more money, so borrowing went up.

There should have been enough excess capital in the hands of individuals to avoid using their visas

Do you have any numbers on this? Perhaps it's valid to say that the tax cuts should have reduced the need to borrow, but the tax cuts worked out to, what, about $800/family? Surely that's not enough to remove all need for credit cards.

You can't just write the tax cuts off by saying things like "but if it were tax cuts" or "not [that] tax cuts were the reason for this recovery", implying that it's not possible for tax cuts to be even a partial factor -- you seem to think they have to be the only factor, or they weren't a factor at all. That's great for putting an ideological spin on the issue, but not so great for getting at the truth.

I'm not saying you're wrong, or that you don't have good points here. I'm saying you're assessment is too narrow. There are many factors in economic change. It's hardly a great leap to say that tax cuts have had an influence.

It's not that black and white. Perhaps people used their tax cuts, *and* they spent more money, so borrowing went up.

Perhaps indeed, and that’s the problem we don’t know. What we do now is that borrowing went up and with it so did the economy. What we do know is that private debt in the US has exploded, consumer debt accounting for much of it. Although I don’t necessarily cut the tax cuts out of the equilibrium completely, imo they did not facilitate enough to make this recovery what it is.



Do you have any numbers on this? Perhaps it's valid to say that the tax cuts should have reduced the need to borrow, but the tax cuts worked out to, what, about $800/family? Surely that's not enough to remove all need for credit cards.

I never asserted it was, and that’s exactly why the tax cut is largely irrelevant imo, because it wasn’t nearly enough for the majority of Americans. With higher interest rates coming inevitability, their costs are going to up dramatically, and their tax cuts will be used to pay down their debt, instead of buying more goods. That is the effect of this credit boom.

implying that it's not possible for tax cuts to be even a partial factor -- you seem to think they have to be the only factor, or they weren't a factor at all. That's great for putting an ideological spin on the issue, but not so great for getting at the truth.

Tax cuts are not that relevant in the grand scheme of things, what makes business’ hire is expansion and expansion is only possible with credit, not with a tax cut. I have to see any real evidence that this tax cut did anything important, Spending is going down, borrowing should be going down, etc. If it were the tax cuts at least spending should not be going down in tandem with interest rates going up.

There are many factors in economic change. It's hardly a great leap to say that tax cuts have had an influence.

An influence yes, but one that can be considered the source for this recovery, no.

Although I don’t necessarily cut the tax cuts out of the equilibrium completely, imo they did not facilitate enough to make this recovery what it is.

We're on the same page now.

We're haggling over trivialities, really. Tweaks. Mitigators. Not mainline factors.

Question: What aspect of the economy will be both the greatest indicator of growth and (counterintuitively) the greatest cause of inflation in the coming decade?

The answer to that question is not one that opposition liberals really want to talk about, because it's not what they perceive that the general public wants to hear. The economy owes political allegiance to no party, folks. It is what it is.

The answer is wages, by the way. Rising wages, leading to the now-forgotten wage-price spiral.

What aspect of the economy will be both the greatest indicator of growth and (counterintuitively) the greatest cause of inflation in the coming decade?

By the looks of it the greatest indicator of growth in the US economy is debt consumption, because it’s not wages that are paying for this expansion. Imo wages in the US cannot stay this high for much longer, there might just be a situation where the Fed raises interest rates so much to curb inflation that a very hurtful recession may be in the cards. Also the incidence of outsourcing will only continue to cut into the US workforce (I do support outsourcing) by forcing Americans to accept lower paying jobs, most Americans today work in the service sector anyways. Real wages in the US have fallen dramatically since the 70’s and nominal wages in the US are very high ($21) compared to China’s (.80). My question is: Does the US have an area of major comparative advantage anymore?

Sure they can, in fact they'll go higher. That's what happens when the economy grows -- wages go up. The issue here is not curbing inflation but curbing *stagflation*, a far more serious business and something we definitely need to be on the lookout for in the second half of the decade.

You're looking at global factors, and that's interesting, but remember that the basic factors of the economy are still virtually enclosed, and based around some fairly simple equations.

Let's say you're a computer programmer. You're just out of college, and you find that the job you thought was going to pay $80k/yr is actually only going to pay $40k/yr. (We'll set aside for the moment the fact that these things work in percentages -- some jobs for 80k, others for 60k, etc, and just assume this bloke couldn't get what he wanted.)

So he goes back to school, picks up a Master's in information systems management, or perhaps business. Now he goes back into the work force, picks up a little experience, and eventually he's back on track and on his way to a six-figure income.

What I'm getting at here is that as the economy further globalizes (and technology improves, and so forth) you see significant jobs go overseas. But that doesn't mean that the people who used to do those jobs are expected to turn themselves into Soylent Green. They have choices to make.

One of the points that I make sometimes with my students is that increased automation leading to layoffs is a GOOD thing. Who wants to sit around changing users' passwords all day when you can get a better job planning software rollouts or developing a security system? I've been making this argument for *years*.

But I'm digressing... Does the US have an area of major comparative advantage anymore? Sure. We have high real nominal wages of $21 versus China's .80. That's an advantage. Who wants to make .80? We leverage this advantage into a high standard of living, interesting and meaningful careers, and setting the future agenda for what society will become. Sounds good to me.

Sure they can, in fact they'll go higher. That's what happens when the economy grows -- wages go up.

In normal economic growth yes, but the US is one of the world’s most unfair states in terms of wage distribution, just because GDP increases doesn’t necessarily that wages increase. The rich are getting richer in the US, and the poor are stagnate in wage growth. There is a disproportionate amount of wealth in the upper echelons of American society.

The issue here is not curbing inflation but curbing *stagflation*, a far more serious business and something we definitely need to be on the lookout for in the second half of the decade.

I don’t see the similarities btwn the 70’s and this decade, maybe you would like to outline them for me.

You're looking at global factors, and that's interesting, but remember that the basic factors of the economy are still virtually enclosed, and based around some fairly simple equations.

I think you are underestimating the importance of Globalization, when stagflation was around Globalization was not possible. Firstly there was massive amounts of protection in the 70’s in all states, energy prices were much higher back then, compared to today (we have it cheap compared), and the Fed is being increasingly anti-inflationary.

What I'm getting at here is that as the economy further globalizes (and technology improves, and so forth) you see significant jobs go overseas. But that doesn't mean that the people who used to do those jobs are expected to turn themselves into Soylent Green. They have choices to make.

But there is the problem, there is only so far a person can go. High paying jobs in the US are becoming increasingly rare because hi-tech jobs are being outsourced to India, where education is very high, and wages are very low. Even in the US visas’ are given to foreign computer specialists so companies can hire workers for less. The trend in the US is pushing downward, and it’s only reinforcing the class divisions within the country. Where education is an absolute essential and with tuitions so high, only the rich will be able to afford such education and the system could collapse. There is where America’s dismal educational standards come into play.

One of the points that I make sometimes with my students is that increased automation leading to layoffs is a GOOD thing. Who wants to sit around changing users' passwords all day when you can get a better job planning software rollouts or developing a security system? I've been making this argument for *years*.

I agree with that, millions of people have been laid off due to the word processor. The only way to make a company not outsource is to have productivity levels that compensate for the low wages of a third world nation and the word processor for instance has increased the productivity of the secretary. But her job cannot be outsourced or traded. When it comes to manufacturing for instance that’s a different story.

Sure. We have high real nominal wages of $21 versus China's .80. That's an advantage.

It is? Considering that wage is actually one of the reasons why the US’ jobs are being outsourced? In a Globalized world $21 is not sustainable without massive protectionism.

Who wants to make .80?

You assume that prices are equal all over the world. In India for instance middle class is merely a salary of $8,000.

We leverage this advantage into a high standard of living, interesting and meaningful careers, and setting the future agenda for what society will become.

All unsustainable.

Before we go too far astray, there are a couple of premises I want to look at more carefully:

- You stated that inventories are high. That doesn't seem right to me, but I'm keeping an open mind here. Do you have any source/data on this? What I remember (and I don't have any sources either) was that inventories were consumed during the recession.

- Regarding debt, how do you know it's gone up? What you basically seem to be saying (and please correct me if I'm reading you wrong) is that you think the surge has come from debt spending by businesses, right? But I think if that were the case we would have seen it a lot earlier. Interest rates are climbing, so that window of opportunity for businesses is closing. Individuals are another story, though, of course, since many folks don't spend intelligently.

In normal economic growth yes, but the US is one of the world’s most unfair states in terms of wage distribution, just because GDP increases doesn’t necessarily that wages increase. The rich are getting richer in the US, and the poor are stagnate in wage growth. There is a disproportionate amount of wealth in the upper echelons of American society.

I'd like to see numbers on that, but I think you're missing my point. It's not that wages just automatically pop up to another level when the economy grows, that's not what I meant at all. What I meant was that as the economy grows, employees demand higher wages. We saw this all through the 1990s -- trends like people jumping ship to other companies just to move ahead, because they could get a huge wage spike that way.

When GDP goes up, wages have to go up.


High paying jobs in the US are becoming increasingly rare because hi-tech jobs are being outsourced to India, where education is very high, and wages are very low.

What I think is becoming clear is that this is a political exaggeration and does not reflect what's really happening. Yes, absolutely, some jobs are moving overseas. In the first half of this year that account for about 2% of job losses in the US, according to the government.


You assume that prices are equal all over the world. In India for instance middle class is merely a salary of $8,000.

Sure, India and China have cheap costs of living right now. Just like Japan did before its big boom. Now the shoe is on the other foot. Why do you think manufacturing moved to China and Korea and away from Japan?

Within five years China will have as many middle-class citizens as we have *total* citizens. The definition of middle class? Car ownership. Well cars cost the same to manufacture so they're going to sell for roughly the same price (within seven percent or so, which I believe is the average profit margin of a car company) no matter where you sell them. Voila -- instant inflation. Now that guy who could write software for 8 grand a year wants to move up. He needs gas for his car, he's got a baby on the way, and he wants to buy a house.


I agree with that, millions of people have been laid off due to the word processor. The only way to make a company not outsource is to have productivity levels that compensate for the low wages of a third world nation and the word processor for instance has increased the productivity of the secretary. But her job cannot be outsourced or traded. When it comes to manufacturing for instance that’s a different story.

I disagree with the premise of the second sentence. When you say that her job cannot be outsourced, by that you mean that *you* need a secretary, right? (Just making sure we're on the same page here.) Okay, that's a good point.

So what you're going to do is hire someone who's willing to work for that wage. Before that was one thing, now it's something different in terms of the actual person you get. But what difference does it make, so long as they do the job? And if it means you're getting a recent immigrant instead of a working mom, well doesn't that just mean that the working mom is finding something better to do?

Whether she finds her pay insufficient because of inflation, or insufficient because you can't afford to pay as much anymore, what difference? Either way she's looking for a new job.


I think you're confusing social issues with economic ones. This is simple supply and demand stuff, not a question of fairness. When you make a decision to pay X amount of money for a secretary, that's based on what you can afford to pay and what you believe the market expects to be paid. Has nothing to do with fairness.


Education is certainly a factor, I agree. I'm 100% behind improving education in this country. It's an investment in staying ahead and staying competitive as a nation. No question about that.

- You stated that inventories are high. That doesn't seem right to me, but I'm keeping an open mind here.

I haven’t said inventories are high this is what I said:

Just as I suspected this “growth” is really just getting rid of the inventory that companies have accumulated from the years of recession,

You agreed that IT inventories are large, all I stated is that we are getting rid of accumulation.

- Regarding debt, how do you know it's gone up?

In the 13 quarters from 2000, household debt surged by $2.5 trillion

I think that enough to substantiate my position. That is not gross debt either, that is merely debt added on since the low interest rates have taken effect. Public debt has also gone up as a result of the massive “twin deficits” the US is encountering at this moment in time:

Public debt (% of GDP):
1999: 57.98
2003: 62.43

To my knowledge it’s not like Argentina where the GDP decreased so the public debt increased because GDP decreased, no rather debt has surged.


you think the surge has come from debt spending by businesses, right?

Not only business but consumers, this surge wouldn’t have been possible if consumers in the depths of the recession did not spend. They didn’t have money to spend so they bought on credit. 2/3’s of the US’ economy is consumer based, to keep that up was essential. Also the housing boom:

Historically, Americans have generally plumped for fixed-rate mortgages, which can be swapped, with no penalty, for cheaper ones when mortgage rates fall.Traditionally, only about a fifth of new mortgages have been of the variable-rate variety. That proportion has been climbing sharply in recent years, however, because short-term interest rates (and thus variable-rate mortgages, which follow them) have been so much lower than long-term rates (on which fixed-rate mortgages are based). In April, fully one-half of all new mortgages were variable-rate—the highest total on record.
The rise in variable-rate loans has been greatest in areas such as San Francisco, where house prices are highest, presumably because that is the only way that would-be buyers can afford to get their foot on the property ladder. And almost 10% of those taking out such mortgages—more than double the figure of ten years ago—are dodgy borrowers, though in one of the euphemisms for which American financiers are justly famous, they are known as “sub-prime”. Personal bankruptcies, it is worth noting, are already at record highs.
Fuelled by cheap mortgages, the housing boom has also enabled America’s less-than-thrifty consumers to cash in the equity on their homes. Home-equity lines of credit (helocs) have soared even faster than house prices, are rising at 30% or so a year and now amount to more than $250 billion. Most helocs are variable-rate loans. Add in the surge in non-mortgage household debt in recent years, say the two CIBC economists, and almost a quarter of all household debt would immediately be affected by higher rates—70% higher than in 1994.
Yes wait until those interest rates raise, what a shock will be a coming.

But I think if that were the case we would have seen it a lot earlier. Interest rates are climbing, so that window of opportunity for businesses is closing.

It is but in the recession business’ were creating jobs, but not in the US. China and India had record inflows of FDI from the US during the recession. A recession is to allow the economy to readjust from former defectiveness in the economy. Also yes as shown individuals don’t use their money wisely but the way the US economy works they are the most relevant part of the equation.

I'd like to see numbers on that, but I think you're missing my point.

I don’t the number on me right now, but on Lou Dobbs they had talked about the ineqity in the US economy. Wages for the top 1% have risen by 100’s% since the 80’s and the bottom 20% about 6%.

What I meant was that as the economy grows, employees demand higher wages.

Do employees have that power today? Honestly? Taking into consideration international competition for their jobs?

We saw this all through the 1990s

Different time, and different America.

When GDP goes up, wages have to go up.

Obviously, but that doesn’t mean its across the board growth.

What I think is becoming clear is that this is a political exaggeration and does not reflect what's really happening.

What is really happening then? Outsourcing is a small factor in the market, but it is a factor that is gaining in strength. The fear of outsourcing (real or imagined) is changing the economic policies of the US. Over 15% of the US GDP is located overseas in FDI, and increasing.

According to an OECD report published on June 28th, China overtook America as the world’s chief recipient of foreign direct investment in 2003, drawing $53 billion, while America’s share dropped drastically to $40 billion. An author of the report attributed China’s allure to the usual high-growth-related factors as well as to new interest in the production of consumer goods for the domestic Chinese market.

Sure, India and China have cheap costs of living right now. Just like Japan did before its big boom. Now the shoe is on the other foot. Why do you think manufacturing moved to China and Korea and away from Japan?

I’m aware that as productivity rose in Japan, Korea, and Taiwan rose the economies grew into giants. But that is virtually impossible in India or China their populations are much too large to facilitate such growth in wages or living standards. It would take a very long time indeed to have those economies reach the levels of Korea today, virtually impossible. So I’m not buying that argument just yet.

Within five years China will have as many middle-class citizens as we have *total* citizens.

Actually I think they now have more…I’ll have to check.

Car ownership. Well cars cost the same to manufacture so they're going to sell for roughly the same price (within seven percent or so, which I believe is the average profit margin of a car company) no matter where you sell them. Voila -- instant inflation.

Then you can explain this? Chinese demand for cars last year was around 13% growth, Chinese demand has been growing by 7-10% for consumer goods yet her inflation levels are as follows:

Consumer prices (% change pa; av)

1999- -1.48
2000- 0.35
2001- 0.73
2002- -0.77



by that you mean that *you* need a secretary, right?

Not really, what I mean is that her job like a hair dressers job cannot be outsourced to another nation because she is not a commodity. She is doing a service that is not exportable.

But what difference does it make, so long as they do the job?

I think there is a difference, productivity is a factor. The more productive you are the more you are paid. If I hired a nonlinguistic illegal immigrant from Mexico to do my work, I can pay her less then $5 minimum if I really wanted to, because she can’t answer my phone. If I hired a recent legal immigrant from Hungary and she can speak English, I have to pay her more. But still wages are being pushed down.

well doesn't that just mean that the working mom is finding something better to do?

Standing in the unemployment line is something that I wouldn’t call “better”.

Either way she's looking for a new job.

With her skills will actually find one? If I fired her or she quit the job the chances of her finding a job with more pay is less likely then one with the same pay or even less.

This is simple supply and demand stuff, not a question of fairness. When you make a decision to pay X amount of money for a secretary, that's based on what you can afford to pay and what you believe the market expects to be paid. Has nothing to do with fairness.

If she part of a union? The economy is not so cut and dry as it should be.

Education is certainly a factor, I agree. I'm 100% behind improving education in this country. It's an investment in staying ahead and staying competitive as a nation. No question about that.

Talk is cheap…;)

You agreed that IT inventories are large, all I stated is that we are getting rid of accumulation.

Right, but I'm not so sure about the economy as a whole. This isn't a criticism, it's a question. I don't know the answer, so I can't say you're wrong. I want to know more.



- Regarding debt, how do you know it's gone up?

I think that enough to substantiate my position. That is not gross debt either, that is merely debt added on since the low interest rates have taken effect. Public debt has also gone up as a result of the massive “twin deficits” the US is encountering at this moment in time:

Public debt (% of GDP):
1999: 57.98
2003: 62.43

To my knowledge it’s not like Argentina where the GDP decreased so the public debt increased because GDP decreased, no rather debt has surged.


Interesting numbers. Where did they come from? I'll take them as writ for the moment.

Is that enough to account for the surge in the economy? If so, how? And why would that happen?

Consumers historically tend to pull back during a recession, not spend. They need a motivation to change their habits. If wages aren't up, and nothing else has changed, why did they start spending money they didn't have? We need a motivation here.


you think the surge has come from debt spending by businesses, right?

Not only business but consumers, this surge wouldn’t have been possible if consumers in the depths of the recession did not spend. They didn’t have money to spend so they bought on credit. 2/3’s of the US’ economy is consumer based, to keep that up was essential. Also the housing boom:
Yes wait until those interest rates raise, what a shock will be a coming.


There's no way that you're going to convince me that people without jobs were buying houses. (chuckle)

Sure you're going to have a small number of people getting by on credit cards, but they doesn't work for very long. Not nearly as long as we had a recession.



What I meant was that as the economy grows, employees demand higher wages.

Do employees have that power today? Honestly? Taking into consideration international competition for their jobs?


I believe they do, and I believe they will. What are we, three generations into the "ship the plant overseas and watch the foreign workers' salaries triple; now ship it someplace else" cycle now? There's a limit here... the Martians aren't ready to start building Saturns yet.

I'm not saying it's a bad question, I'm saying you're overstating the case of outsourcing. Just my opinion, of course.



We saw this all through the 1990s

Different time, and different America.


Maybe, and I won't say many of your points aren't good ones -- they are. But my original point in this thread (I think? lol) was that economies are cyclical.



When GDP goes up, wages have to go up.

Obviously, but that doesn’t mean its across the board growth.
[/quote

Fair enough, and I got your point about wage fairness. Maybe those are factors, I don't know, but I still think that if they are factors, they're minor ones. The cycle is still paramount.


[quote]
What I think is becoming clear is that this is a political exaggeration and does not reflect what's really happening.

What is really happening then? Outsourcing is a small factor in the market, but it is a factor that is gaining in strength. The fear of outsourcing (real or imagined) is changing the economic policies of the US. Over 15% of the US GDP is located overseas in FDI, and increasing.


Good points.



Sure, India and China have cheap costs of living right now. Just like Japan did before its big boom. Now the shoe is on the other foot. Why do you think manufacturing moved to China and Korea and away from Japan?

I’m aware that as productivity rose in Japan, Korea, and Taiwan rose the economies grew into giants. But that is virtually impossible in India or China their populations are much too large to facilitate such growth in wages or living standards. It would take a very long time indeed to have those economies reach the levels of Korea today, virtually impossible. So I’m not buying that argument just yet.


I don't understand... what factors might stop that from happening?

We'll probably have to agree to disagree here. Methinks before much longer the Chinese will be telling all of US what's possible and what's not possible.



Car ownership. Well cars cost the same to manufacture so they're going to sell for roughly the same price (within seven percent or so, which I believe is the average profit margin of a car company) no matter where you sell them. Voila -- instant inflation.

Then you can explain this? Chinese demand for cars last year was around 13% growth, Chinese demand has been growing by 7-10% for consumer goods yet her inflation levels are as follows:

Consumer prices (% change pa; av)

1999- -1.48
2000- 0.35
2001- 0.73
2002- -0.77


Source? Again just asking; I'll take your word for it.

You have to remember that inflation isn't tied to demand. We see the same thing in this country -- inflation has been systemic (essentially nonexistent) for almost 20 years, while the economy has grown tremendously. Plenty of ways to deal with this, especially if your government has far more direct control of the economy than ours does.

By the way, the Chinese are borrowing like there's no tomorrow. I'm talking about the government now, not the consumers (I have no idea what they're doing). I believe we talked about this in another thread recently, but something like 50% of their foreign debt is non-performing and in danger of default.

Of course, we were talking about Chinese consumers, not the government, but like I said, the government has a big impact on inflation (or lack thereof).



But what difference does it make, so long as they do the job?

I think there is a difference, productivity is a factor. The more productive you are the more you are paid. If I hired a nonlinguistic illegal immigrant from Mexico to do my work, I can pay her less then $5 minimum if I really wanted to, because she can’t answer my phone. If I hired a recent legal immigrant from Hungary and she can speak English, I have to pay her more. But still wages are being pushed down.


Sure, some wages go down, others go up.



well doesn't that just mean that the working mom is finding something better to do?

Standing in the unemployment line is something that I wouldn’t call “better”.


And how many working moms (or shall I say non-working moms) are doing that? Unemployment is rock-steady at the sub-systemic level of 5.6%.

Interesting numbers. Where did they come from? I'll take them as writ for the moment.

http://www.economist.com/countries/USA/profile.cfm?folder=Profile%2DEconomic%20Data

Is that enough to account for the surge in the economy?

The increasing amount of debt by both the public and private communities? I think so, there has been more debt accumulated by both then actual GDP growth. Also the share of exports that the US has undertaken since Bush took power has actually gone down, meanwhile imports are booming:

Exports:
2001- $723 billion (f.o.b., 2001 est.)
2003- $714.5 billion f.o.b. (2003 est.)
Imports:
2001- $1.148 trillion (f.o.b., 2001 est.)
2003- $1.26 trillion f.o.b. (2003 est.)
Source: CIA Worldfactbook

So what was the impetus for growth in the US economy? Spending, not actual economic growth, what facilitated spending? Low interest rates. And the US economy is already on it’s way to a $600 billion trade deficit.

Consumers historically tend to pull back during a recession, not spend.

This wasn’t a “traditional” recession; here we had consumers keeping the economy alive. Usually consumers in a recession don’t spend because they don’t have access to money, or they save, or credit isn’t easy. In this recession the opposite happened, consumers spent, and they spent by borrowing huge ($2.5 trillion worth) of credit, approximately 22% of the entire GDP. American external debt has also exploded:

External Debt
1995: $862 billion (1995 est.)
2001: $1.4 trillion (2001 est.)

If wages aren't up, and nothing else has changed, why did they start spending money they didn't have? We need a motivation here.

Welcome to the world of low interest rates, that was the motivation for much of this spending. Another reason being that Americans felt it as their “patriotic” duty to incur unsustainable amounts of debt to make sure those terrorists, don’t win. There are many psychological reasons for this, the economy is 10% monetary and 90% psychological.

There's no way that you're going to convince me that people without jobs were buying houses.

That’s not the point, the point is people who can’t afford to buy houses with normal interest rates are buying houses, as noted these new home owners aren’t considered the best in terms of their credit, but shit when easy credit comes along why not use it?

Sure you're going to have a small number of people getting by on credit cards, but they doesn't work for very long. Not nearly as long as we had a recession.

Why not? They just pay their monthly installments, and with the way the credit card companies constantly lowering their standards so basically everyone gets a credit card offer the base has grown. What I’m scared about is the lack of savings, looks like the foreigners are going to start mortgaging your future. Already your biggest creditor is China with over $165 billion owed to her, and both Japan and China have over $1 trillion in FOREX. The US has about what? $70 billion?

What are we, three generations into the "ship the plant overseas and watch the foreign workers' salaries triple; now ship it someplace else" cycle now?

Yes, yes we are. Western markets are saturated; the American market cannot grow much further imo. Companies aren’t stupid they know the future is not in the US, the EU, or Japan anymore. China, India, Mercosur, are the new markets to expand and exploit. The decline of the West is happening, we have to live with it imo.

But my original point in this thread (I think? lol) was that economies are cyclical.

And with cycles things are supposed to turn out differently then before the beginning of the cycle.

Maybe those are factors, I don't know, but I still think that if they are factors, they're minor ones. The cycle is still paramount.

They cannot be “minor factors” when less and less people have more and more money in their pockets. Markets shrink, wages go down and the cycle surely does happen.

I don't understand... what factors might stop that from happening?

Population that is the single greatest factor. Some segments and regions of India and China will adequately develop, but much of the country and population will always need to be improved so costs will remain very low for a while to come. China alone can easily replace the entire western economy.

Source? Again just asking; I'll take your word for it

http://www.economist.com/countries/China/profile.cfm?folder=Profile%2DEconomic%20Data

By the way, the Chinese are borrowing like there's no tomorrow. I'm talking about the government now, not the consumers (I have no idea what they're doing). I believe we talked about this in another thread recently, but something like 50% of their foreign debt is non-performing and in danger of default.

The Chinese aren’t borrowing from us; no Chinese internal debt is huge and non-performing. China is in a Current Account surplus.

The effort to rid the banking system of its penchant for granting loans to loss-making (and politically well-connected) enterprises is starting to bear fruit, as China prepares to open its sector to foreign banks by 2006. In the late 1990s, the state banks saw 20-40% of their loans go bad. New reports show that the China Development Bank has reduced its rate to 2% for 2003 and turned a profit.
Sure, some wages go down, others go up.

True, but the question I pose is going to become within this decade: What can an American do that an Indian can’t, especially for much cheaper?

And how many working moms (or shall I say non-working moms) are doing that? Unemployment is rock-steady at the sub-systemic level of 5.6%.

That is still well below the 3.98 of 2000, there is significant room for improvement. And these new jobs are crap...quite literally.

Some of them, sure, but not all of them. I'm watching the IT industry absolutely take off again, turning down four job offers (two of them six figures) in the last five weeks. Comparing Monster entries alone, with what was being posted a year ago, it's amazing.

But I'm afraid that doesn't help our hypothetical working mom, who's a former secretary. She needs a bit more help, I'm afraid.

Anyway, in general, looking back over this thread, I think we agree more than disagree, and you've given me some food for thought, which is always nice. I want to give some more thought to your points here, especially about debt fueling the growth rate. It's not what you typically read, but maybe I should put The Economist back on my regular list.

Thanks for the links. :-)

Interesting paper: Borrowing to make ends meet (http://www.demos-usa.org/pubs/borrowing_to_make_ends_meet.pdf)

Average credit card debt for American Family in 1989 = $2697.00
In 2001 = $4126.00

Now connect the dots to Offshoring, Outsourcing, China sourcing etc...you could get a better picture....

Borrowing to keep up with the Joneses, more likely.

I'm watching the IT industry absolutely take off again, turning down four job offers (two of them six figures) in the last five weeks. Comparing Monster entries alone, with what was being posted a year ago, it's amazing.

That’s seems to be the exception not the rule. Also the IT industry isn’t exactly “taking off” if they have inventory, and they have depressed stock prices, and profits. Let me ask you, are these “jobs” paying as much as they did in let’s say? 2000?

No, not from what I've seen. They seem to have taken an across-the-board chopping of 10-20%. Bear in mind that as a former instructor (I got laid off in 2003 and went back to school; working on a PhD now), tech worker (consulting and administration) and now again as a student, I have a lot of contact with the job market (at least in the IT sector) both in terms of students going out into the labor pool, and higher-end tech workers whom I've worked with and/or met as fellow instructors.

Just to give an example, I was offered positions at $110-115k in the '99-'02 time frame, and that same basic job description is coming in to me now at $85-90k (one offer was $89k plus profit sharing). These would be fairly mid- to high-level network administration and support type roles (which is why I wasn't interested -- I have PhD fever now), and are based on 10-15 years of experience plus a degree. This is consistent with what former coworkers and fellow students have been telling me. I have other examples but I think this illustrates the point pretty well.

So we're on the same page here as far as the economy is concerned, I think we just differ on whether the glass is half empty or half full (that's not a criticism, I respect what you've been saying). There are a lot more job opportunities showing up then there were a year ago. They don't pay as well, but once people get in there and start doing those jobs, then requesting pay increases, we'll see what happens. I think they'll get 'em, as the economy booms. You think the employers will laugh in their faces and ship the jobs overseas or just cut their pay or hire a cheaper replacement (right?). IMO that stops working at some point because the replacements aren't there and the job can't be shipped overseas (you can't change a backup tape if you're sitting in a cubicle in Seoul).

Since you are deeply in the American IT sector, my questions shouldn’t be to hard to answer.

- Now that the US is running an IT trade deficit, what is that indicative of in the American IT industry?
- Now that Bangalore India has more IT workers then Silicon Valley (I know, it’s true) does not India have a bigger external economy of scale, and thus even cheaper to do it there within this decade?
- What can an American do, that an Indian can’t within this decade? What justifies maintaining 89K salries when a Indian can do it for 25K?
I think they'll get 'em, as the economy booms.

The question is, is this boom sustainable? Taking into consideration the hikes in the interest rate?

You think the employers will laugh in their faces and ship the jobs overseas or just cut their pay or hire a cheaper replacement (right?).

That would seem logical, if the person in India for instance has the same technical knowledge, slightly lower productivity, but substantially lower wages; it would be illogical not to move. Of course the heart of the American economy is not the big corporation, most people are hired by small, and medium sized business that find it better to utilize American labour, but eventually to their own detriment.

IMO that stops working at some point because the replacements aren't there and the job can't be shipped overseas.

Not all jobs are going to be shipped overseas of course not, I suspect that much of the R&D will be in the US, and very advanced technological work as well. But the meat and potatoes of America is at threat from excessive labour costs, and the American govt’s inability to offer universal healthcare, and better education.

- Now that the US is running an IT trade deficit, what is that indicative of in the American IT industry?

Well, I would say that it's indicative of lower salaries for the same positions. Programmers that were getting hired for $60-80k are getting hired now for $40-60k. And there are fewer programming positions.

On the flip side, people know this, and aren't going into programming with the same zeal as before. If you take a look at what the school are turning out, both at the high end institutions (Georgia Tech, MIT, etc) and the local colleges and universities, you see that programming isn't really a popular subject anymore. Students today are taking courses in IT management, decision support, expert systems, human-computer interaction, and of course the all-popular buzzword of 21st century computing: Security.

20 years ago when I was a freshman at Georgia Tech, everyone was going to become a programmer. Everyone. Today that's really rare.

You also have the interesting influence of the new private, for-profit institutions cranking out entry-level programmers in a year (career changers with previous college credits) or two (high school graduates). These folks are taking entry-level programming jobs that your GT/MIT grads are passing on, or staying in only briefly. For this particular student, that's a new career job, and they're likely to stick with it a while -- they see it as a plataeu position, not a launching point.

Either way, wherever those programmers come from, they're not like programmers from 20 years ago. They can do more with less knowledge because the tools are better, and the expectation of productivity is much higher.

In other words, the whole nature of the industry has changed.


By the way, one thing that hasn't changed since the Bubble is that companies still feel they have to "hire knowledge". Technology changes very fast, and once an employee has been with the company a while an employer feels that they know that employee and their knowledge set is already part of the company knowledge pool, so they don't have any further knowledge to offer. Want the latest security technology? Gotta hire it. They still haven't grasped the fact that you can do that internally through training. But where a company would pay double the appropriate salary to hire that knowledge five years ago, they won't do that now.

But I digress.


- Now that Bangalore India has more IT workers then Silicon Valley (I know, it’s true) does not India have a bigger external economy of scale, and thus even cheaper to do it there within this decade?

Sure, more competition for the same jobs means lower pay. Until all of those people are employed, that is. Then the situation changes.

We saw this in the 1990s when labor was in demand. The situation was so out of balance in favor of labor that you had to actually quit and go to work for another company in order to get the wage that others with similar experience and responsibility were getting.


- What can an American do, that an Indian can’t within this decade? What justifies maintaining 89K salries when a Indian can do it for 25K?

Nothing. We're not supermen, we're just people. We've never done anything that another country couldn't do just as well, IMO that's not what makes America great at all.

Anyway, the bar slides up and we have to keep pace or we get left behind. (BTW, if we're talking about programming, the Indian doesn't do it for 25, he does it for 40.)


Not all jobs are going to be shipped overseas of course not, I suspect that much of the R&D will be in the US, and very advanced technological work as well. But the meat and potatoes of America is at threat from excessive labour costs, and the American govt’s inability to offer universal healthcare, and better education.

Well, at least you're not saying that jobs are a right and wages should be fixed and "living wage" should be the rule. (grin) That seems to be what the left wants us to believe these days.

But we've seen the "meant and potatoes" threatened before. Look at how imports and robotics threatened the car-making business starting around... what... the 1970s? If the doom and gloom you heard back then had held sway then unemployment certainly would not have fallen to 4% during the Clinton administration! AND average wages CLIMBED during those decades, so they obviously weren't all getting jobs at McDonalds. Obviously those people found something else do to.

Now we'll just have to do it again.

Here is what I found in the job scene:

IT Industry: There still are plenty of needs for low level programmer jobs such as Java developer, Report writers etc. But they are divided into tools area. People are looking for experience in specific tools such as Cognos, Business Objects, Microstrategy etc not to mention Peoplesoft and SAP. In the past, companies were switching from legacy systems to new client server systems and hence there was a lot of activities. Now, most people already implemented SAP, Peoplesoft etc ERPs and CRM packages. The only need is for updates and twiks. People still needs DBAs and network adminstrators but that jobs dry up fast.

Non-IT sector: Non IT sector jobs are basically business and MBA type jobs that is slowly drying up because most companies either went belly up or went offsourcing/outsourcing. So, this is a depressed market. I have strong and successful International Marketing experience, yet no body even looked at my resume for the last 8 years. That is perhaps because, we do not produce anything for export - we import.So, I moved to IT staying a step ahead of the market.

Your experience counts only for the last 3 years. Anything before that, most companies ignore it, no matter how great you were. As a result, there are very few people who are multi disciplined and hence can not solve complex systemic problems.

Yes, the salary has dropped 15 to 20% but that is for low to mid level people. Salary for VPs and Directors are stable.At the same time the quality of these VPs and Directors are at the low point. These are the people that are technology and business dynamics ignorant.

But companies are making profit. This happens because, the companies no longer are growing and in fact shrinking.Some make temporary profit and others operate on a smaller scale. There is nothing wrong in operating in a reduced size except, the big guy catches all the fish and soon you get smaller and smaller until you are no more.

Such is the wonder of neuroeconomics....:D

Well, I would say that it's indicative of lower salaries for the same positions. Programmers that were getting hired for $60-80k are getting hired now for $40-60k. And there are fewer programming positions.

Well Pangloss you have a good synopsis for a question I didn’t necessarily ask. Who are getting hired for $40K now is the point I was trying to make. In 1998 the US ran a huge surplus in technology trade, today it is in a huge hole. Why is the US importing more technology based products then it exports? Something must have happened btwn 1998-2003.

Sure, more competition for the same jobs means lower pay. Until all of those people are employed, that is. Then the situation changes.

But that’s impossible and that’s the point, in India the number of people who could be hired is infinite. India’s labour force is 406 million persons (labour force not population) that is 4x as much as the US. I can hire 15 Indian labours to make a computer and it would still be cheaper then to get one American to make that same computer. Thus I push down the productivity and keep costs low.

Nothing. We're not supermen, we're just people. We've never done anything that another country couldn't do just as well, IMO that's not what makes America great at all.

Ok so then why as a corporation should stay in the US? What makes the US competitive? Surely not her education system, Canada is a much better place (I should know), India has high educational standards, or Russia? I am at pains to imagine where the US has a solid comparative advantage.

Anyway, the bar slides up and we have to keep pace or we get left behind. (BTW, if we're talking about programming, the Indian doesn't do it for 25, he does it for 40.)

50% less then a American no?

Well, at least you're not saying that jobs are a right and wages should be fixed and "living wage" should be the rule. (grin) That seems to be what the left wants us to believe these days.

No I don’t want to go back into the situation of stagflation, where wages and unemployment were artificial. In order for the US to do what those “leftists” want trade restrictions would be necessary, and totally distort the Global economy.

Look at how imports and robotics threatened the car-making business starting around... what... the 1970s?

In response American productivity has went up in those industries to remain competitive, but they still lag behind the Japanese in terms of productivity. American industry in the 70’s and before was artificially propped up through trade restrictions, and American consumers were paying more for less.

AND average wages CLIMBED during those decades, so they obviously weren't all getting jobs at McDonalds. Obviously those people found something else do to.

Which is true, they did new industries emerged. But back then the transition was slower, and globalization simply didn’t exist.

But back then the transition was slower, and globalization simply didn’t exist.

Good thinking. That is a dynamic behavior most people do not get it including a friend of mine who writes high profile articles for Business Week.

Are you serious? I'm 18 and I know that...

I am not kidding. People get so bog down in "now" that they forget the interactive variables and time factors. Companies spend millions of dollars to build what is called Performance Management Systems, yet choose the criterias that they have no or little control over it. I see that all the time.

May be when you get your education and join the business world, you could make a difference. We need smart people to lead us from the coming disasters.

Who are getting hired for $40K now is the point I was trying to make. In 1998 the US ran a huge surplus in technology trade, today it is in a huge hole. Why is the US importing more technology based products then it exports? Something must have happened btwn 1998-2003.


Sure, more good work is being done overseas. It's called competition. You don't need someone with 20 years in IT to tell you that. (grin)



Sure, more competition for the same jobs means lower pay. Until all of those people are employed, that is. Then the situation changes.

But that’s impossible and that’s the point, in India the number of people who could be hired is infinite. India’s labour force is 406 million persons (labour force not population) that is 4x as much as the US. I can hire 15 Indian labours to make a computer and it would still be cheaper then to get one American to make that same computer. Thus I push down the productivity and keep costs low.


Right, we've already established that this is your position, and I respect your points, but disagree. Like I said the other day, these countries are going to begin telling US what's possible and what's not possible. But I see no reason why you can't ramp things up to the next level.

You have ten times as many people writing software, sure, but ten times as many people BUYING software. Everything steps up.



Ok so then why as a corporation should stay in the US? What makes the US competitive? Surely not her education system, Canada is a much better place (I should know), India has high educational standards, or Russia? I am at pains to imagine where the US has a solid comparative advantage.


Sure, those are good questions, and I'm sure the big companies ask themselves this question all the time. I'm not MBA type, so if you're looking for an expert opinion you're asking the wrong guy, but I would imagine that there is an answer to this question, and it's been analyzed to death. I would also imagine there's a point at which the question is answered with "it's time to move overseas". We should endeavor to find out what point that is.



Anyway, the bar slides up and we have to keep pace or we get left behind. (BTW, if we're talking about programming, the Indian doesn't do it for 25, he does it for 40.)

50% less then a American no?


Yup.



Which is true, they did new industries emerged. But back then the transition was slower, and globalization simply didn’t exist.

Well I could nitpick about that, obviously we had imports and we've seen how that can go. The automobile industry found ways to compete, but the domestic television manufacturers, for example, did not. But certainly the pace has quickened and education is poorer (at least relatively, if not overall).

So that's the $64,000 question. Of course, if we knew the answer to that one we'd both be worth a lot more than $64,000.

You know what the Chinese word for "danger" is the same as, right?

I am not kidding. People get so bog down in "now" that they forget the interactive variables and time factors.

Well I guess they never heard the axiom: “no pain, no gain.” Yes individually a person can be smart, but in a collective the “tyranny of the majority” really shows its face. So very Enron….

May be when you get your education and join the business world, you could make a difference. We need smart people to lead us from the coming disasters.

LOL! I’m not dumb, do you honestly think I am going into that horror zone called the private sector! Economics is merely a sideshow for me. Become a proletariat, or petty bourgeoisie, lol!

Pangloss

Sure, more good work is being done overseas. It's called competition. You don't need someone with 20 years in IT to tell you that.

Or can it because foreign companies and subsidies are more competitive then American industry, and since trends continue what makes us think that Silicon Valley won’t become the next Detroit?

Like I said the other day, these countries are going to begin telling US what's possible and what's not possible. But I see no reason why you can't ramp things up to the next level.

Well let me tell you what I think will happen in India and China, because inside these countries within the next 20 years there will be regions that exceed European states in GDP, but there will also be provinces within those nations whose GDP still resembles that of African nations. As I told you before China alone is the size of the entire western OCED nations population. Let me get hypothetical here for a second:

Let’s say in India Bangalore which is the tech capital of the country grows and achieves a sizable external economy of scale (this effectively negating comparative advantage). The province in which Bangalore is located which is Karnataka, then assume that the GDP of Karnataka is $800 billion (the size of South Korea’s economy) and approximately the same population, 52.7 million. The GDP per capita of Karnataka would be around $15,000. But let’s take the most populous non-nation in the world, Uttar Pradesh whose economy is traditional Indian, no hi-tech. Cotton, agriculture, and light industry. Let’s say her GDP is around $500 billion, now by face value that might seem like much right? But let me throw in some numbers, Uttar Pradesh’s population is 166 million, so her GDP per capita would be around $3,000. (Here I’m not factoring in India’s huge population growth rates). Now what does this mean? India itself is a mini-world economy. Because Karnataka is so much richer, and Uttar Pradesh so much poorer do you think it is really all that possible to have prices increase that much. If prices were at Uttar Pradesh levels Karnataka market would be underperforming, and if prices were at Karnataka levels Uttar Pradesh would suffer from very high levels prices, so what happens? The Uttar Pradeshi’s move to Karnataka to bring down their per capita rate and bring it within Uttar Pradeshi’s levels. This migration happened in the Industrial revolution in England, the US, Latin America (Argentina and Uruguay mostly), and other developed states. The poor flock to the rich areas to find work, and we are still omitting India’s overall population of 1,065,070,607. We haven’t discussed the ramifications of about 847 million persons. Same goes with China, imo it would take a VERY long time for wages and prices to go up in the entire nation.

You have ten times as many people writing software, sure, but ten times as many people BUYING software. Everything steps up.

Are there? If ten ppl make the software in India at .74/hr, that’s $7.40 per hour for ten people. I can decrease prices but to relative levels of course. I still want to make the same if not more in profit. With influxes from let’s say good ole Uttar, prices for labour decrease significantly. Supply and demand, that’s why I don’t buy that wages and prices will increase too much in these nations because you forget about migration.

We should endeavor to find out what point that is.

Indeed….


The automobile industry found ways to compete, but the domestic television manufacturers, for example, did not.

But should we have sustained those inefficient TV manufacturers? Are you suggesting protectionism?

But certainly the pace has quickened and education is poorer (at least relatively, if not overall).

Welcome back potter.

But should we have sustained those inefficient TV manufacturers? Are you suggesting protectionism?

God no, we have no choice but to compete now.

Interesting points about the poverty levels of India and China lengthening the growth process. I hadn't thought about that.

What a load of crap! A deficit in paper. The only deficit is in the intellect. Wake up now
The projected deficit is falling, thanks to a surging economy. It was initially projected to be well over $500 billion for the year, but that projection has been steadily shrinking every month. A couple of months ago we talked about it being $400 billion. Now it looks like it will be less than $300 billion.

The economy is surging so well that the budget actually produced a surplus in June.

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5659963

It's important to note, however, that it will still be a lot of money, and we need to continue to work towards removing it and returning to a balanced budget. The current plan (a bipartisan plan arrived at by both congress and the administration's OMB) calls for it being cut in half within five years, but I would imagine that that projection will now be better as well.