Animal Spirits: Are they Justified this Time?
“Animal Spirits” is the latest buzzword being used to describe the powerful market rally that continues to occur since President Trump was elected on November 8th. In fact, the S&P 500 has rallied over 11% since the election. What exactly are animal spirits?
Famous Economist John Maynard Keynes used the term in his book The General Theory of Employment, Interest, and Money, saying: “there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which
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Broken down to a simplistic formula, more spending and less revenue through taxes equates to more government debt. How much more? For estimate sake, the Tax Policy Center (TPC) (which aims to be nonpartisan) claims that Trump’s tax cuts will raise the National debt by approximately $7 Trillion by 2026 ($700 billion per year). Assuming this number is in the ballpark, it’s no wonder the market has rallied, as an extra $700 billion a year in fiscal stimulus should be great for the economy. But will these measures finally produce sustainable growth? “Animal spirits” would say …show more content…
History tells us that tax cuts have had a simulative effect in the past. However, it is less certain how effective they will be at current debt levels. Remembering that our current debt to GDP ratio is approximately 105%, history has shown that once debt to GDP rises to 100% growth slows significantly. Additionally, since the end of the great recession in 2009, it has become evident that more government debt ($8.431 trillion) on top of several trillion in monetary stimulus has done little to spur economic growth.
The main question then becomes: how should one invest their hard earned savings with so much uncertainty? After all, if the tax-cuts work we may be at the beginning of another economic expansion that will leave the US in great shape going forward. However if they are unsuccessful, we will have a suffocating level of debt with nothing to show for
Public debt is vexatious, but it is unlikely to precipitate a complete collapse of the American economy. Moreover, the sharp increase in public debt since the 2008 recession is within reason. The 2008 recession caused the loss of millions of jobs, which in-turn resulted in two notable effects—a reduction in government revenue due to diminishing tax receipts, and an increase in government spending due to an increase in unemployment. This exact paradigm occurred in virtually all
The growing national deficit is a looming problem in the United States now more than ever. The national debt is constantly increasing and government spending is out of control. If these issues are not solved then they could spell disaster for the nation’s economy when the infamous debt ceiling is finally reached. Currently the national policy on the debt is to continue raising the debt limit until a solution is found that is agreeable between both parties in Congress. The two main issues of over spending and the constant raising of the debts ceiling by Congress can both be resolved by government spending reform, balancing the federal budget and initiating pro-growth policies in order to increase the government’s tax revenue.
Debt.” 21). In other words, at least one-fifth of tax money did not bring US citizens any benefits. Besides, less capital is available for the federal government to invest in the
“Medicare, Medicaid, and Obamacare, ... Social Security, and interest on the debt are responsible for [83%] of the projected increase in spending over the next decade” (Amadeo). This spending needs to be reduced a lot. However, there is a problem with trying to reduce this spending, because the debt limit that Congress sets can be overruled by lawmakers and the President (Amadeo). The President often does this “to force Congress to agree to a tax increase”(Roff). This isn't going to help with the debt though, because the government is still spending more money than it is receiving from these tax increases. If the Government is spending more money than it is taking in, and has to overrule a limit that Congress has put in place, then that is too much spending. In addition to Medicare, Medicaid, Obamacare, and Social Security, the US spent 35 billion dollars on foreign economic aid in 2014 (Tompson). 35 billion may seem like a lot of money, but it only comes out to being around 1% of the budget. The bigger issues are Social Security at 24% and Medicare plus Medicaid at 25% (Policy). These programs need to be slimmed down in order to reduce government
Multiple steps can be taken to improve our country’s economic growth, but the most effective one would be to make cuts to all of federal spending. If we reduce the amount that is sent to the federal costs then they will have to adjust how they divide their spending, which can lead to a reduction in any deficits. “The solution to these problems is to downsize every federal department by cutting the most harmful programs...Federal spending cuts would spur economic growth by shifting resources from lower-valued government activities to higher-valued private ones.” (Chris Edwards) Edwards mentions here how if we called for cuts that the government would shift in a way that they’ll
In short, the larger the tax cuts, the larger the deficits, the larger the deficits the larger the debt that is incurred to offset the budget deficit. The Committee for a Responsible Federal Budget, a non-partisan organization put out an article talking about the impact of the tax plan that Donald Trump is proposing. In the article titled How Much Will Trump's Tax Plan Costs it says, "Based on what we know so far, the plan could cost 3 to 7 trillion over a decade- our base-case estimate is 5.5trillion in revenue loss over a decade." Either way, the tax plan presented by Donald Trump, even with the best case scenario it is a loss of $3 trillion in revenue. The more revenue the government loses from tax cuts, the more the deficit and debt
So they decreased their deficit by $10,000 which sounds great for one year, but they actually still increased their debt by another $15,000. The same thing works for the government. The government has the Gross Domestic Product (“GDP”), which is basically how much money all the new goods and services are worth that everyone in America buys within a given year. The GDP represents the “how much we earn” part. The second part is everything the government spends money on; healthcare, defense, education, welfare, social security, etc. According to President Obama’s State of the Union Address, we are making progress with our debt elimination. He cited that the deficit has dropped from 6.8% of the GDP in 2012 to 3.9% in 2013. Based on my example above, we know that the deficit is not the same as the debt and that the debt continues to get larger every minute of every day. Unfortunately, while the deficit percentage of the GDP did get smaller last year, the debt percentage of the GDP is ridiculously high at 73% according to the Congressional Budget Office (“CBO”); this means that the debt is higher now than any time since after World War II. And while it may reduce for the next few years due to economic growth, the Committee for a Responsible Federal Budget (“CRFB”) predicts that the debt will grow to 79.2% of GDP by 2024 and 100% by 2023. This means that
Despite America being in trillions of dollars’ worth of debt the government continues to borrow more money and surprisingly functions. Foreign countries continue to lend the United States money because the economy of other nations would plummet. Other countries are just as dependent on the American economy flourishing as Americans are. With regards to this, the public debt and deficit will be increased if a nation goes over budget. The deficit is the amount of money the nation has spent versus the amount of money a nation has earned. Public debt is how much the government has borrowed from other countries and has not payed back. Both the national debt and the deficit affect each other. Generally, government debt increases from spending and decreases from taxes. However, government debt fluctuates throughout the course of a year. For example, if a nation spends more than budgeted they will increase the debt. In a like manner, if a nation goes under the national debt they will reduce the
In a world filled with economic turmoil, one might look at a loaf of bread today at the grocery store and wonder if it will cost the same tomorrow. The inflation factor has driven prices of food, energy and many other life essentials to an all-time high. In countries like America where the national debt has soared into the double digit trillions. It becomes a question in the minds of many, “how will we ever pay this money back?” This is a question of great magnitude and many factors decide if, and how it is possible. On a much smaller scale, the average household in America lives within a budget to manage income to debt ratio. This budget allows for the necessities to be purchased while allocating a set amount for debt obligations. When there is not enough money for required expenditures, adjustments must be made to compensate. This type of adjustment is comparable to the adjustments that must be made by the American government to allow the debt ceiling to be lowered, while still making financial obligations for consumer families affordable and manageable. This concept is often referred to as tax reform, and it is the only way America will regain strong financial standing as a country.
There are four long-term challenges facing the US today that must be addressed by the next President and Congress. These are serious challenges, and are not small tasks to accomplish. By any means the challenges the next President and Congress faces will be discussed in fully on how they impact the economy and what steps should be taken to fix them. Before I deliberate the four topics in detail - I am going to give a brief description of each topic; The first topic that most importantly needs to be discussed is the national debt, When someone mentions $17 trillion dollars what do you think? What comes to most minds is that is an excessive amount of money. Truth be told that is sadly the amount of debt the United States has incurred, and that number is growing at an extensive rate each day. When I have concluded the ending of my discussion the debt will have already increased significantly. That deficit will need to be reduced through a combination of spending cuts and/or revenue increases that will yield a net savings of $1.345 trillion dollars by 2030.
The Congressional Budget Office (CBO) projects that interest payments on US debt will increase from 1.2% of GDP in 2009 to 3.9% in 2020, which could significantly dampen GDP growth. Mankiw projects that the current deficits have already reduced national income by 3 to 6 percent, which could conceivably increase in the years to come.
Not only do we need to cut down on our debt but we also need to change the current tax break system. A good start would be to make the wealthy pay more for taxes because as it stands right now, the tax policy is flipped upside down because the wealthy pay less in taxes than a middle class citizen would. America’s tax is unfair to middle class citizens. For example,if you pay 100,000 dollars for a house, you may pay 1 thousand dollars a month. The homeowners taxes can decrease a little bit, but in comparison if a wealthy person buys a house for the same
The Spirit Animals: Fall of the Beasts series is an amazing series. Lots of amazing things happen in this book. Conor gets infected by the Wyrm, an ancient foe of Erdas, Zerif, a very bad man, is stealing the Great Beasts, Conor and Meilin go to the lost city of Sadre, one of the first cities in Erdas that has been overrun by the Many, Sadreans infected by the Wyrm, and Rollan and Abeke go to Nilo to rescue Tellun the elk, but sadly get attacked by Zerif and lose Tellun. Conor gets infecter by Wyrm, an ancient foe of Erdas. The Wyrm is an evil traped within an egg enderneath the Evertree, the heart of Erdas, but when the Evertree dies, the egg falls and cracks, letting parasites escape and infect Zerif, the Sadreans and sone people as well.
cuts will lead to an increase in federal borrowing, which in turn, will further reduce
Some people believe that one of the main reasons of high national debt is high tax rates. High taxes cause people to have to pay more money to the government due to issues they must resolve. Paying taxes is already difficult enough for most Americans and having to pay all of these taxes off will be quite hard but will certainly decrease debt. The