I'd love for people to be a bit more cautious when they discuss, or in cases on here that I've seen, rant and rave about impending economic doom.
 
I myself am a finance and economics guy.  I studied this stuff in college, got my degree in it, worked in banking, the dot.com industry, I'm working on my master in the subject and I run my own business.  I've followed the "warnings" issued by Greenspan for years now.  He was absolutely correct when he spoke of "youthful exuberance" in the dot.com craze that over inflated the prices of dot.com stocks.  He was also very wrong when during that time, he succumbed to political pressure to keep interest rates artificially low to provide the appearance of a vibrant economy.  Low and behold, a few years later, the bubble burst, followed shortly by 911, corporate scandals, war, and well, you get the idea.
 
I respect Greenspan tremendously, but most economists agree that Greenspan is an "old school" kind of guy.  Hard not to be when you're as old as he is.  He has seen it all.  But the thing that he gets criticized most for is his either inability, or unwillingness to embrace the "new" economy.  He doesn't believe that internet businesses are "real" businesses... in any sense of the word.  He doesn't believe that self-employed and sole proprietors are "real" income earners.  He believes that unless you work for a large, established corporation earning a steady paycheck from which taxes can be withheld, you don't really exist as a "worker."
 
He also believes that the best way for a government to manipulate it's nation's economy is through taxes and the control of the money supply through the buying and selling of federal bonds (known as Keynesian Economics... made popular in the 1950's).  So when he says that the deficit is scary, what he's really saying is that the only way he sees to combat the deficit is to raise taxes and sell more gov't bonds.  He believes that the bonds that will be sold in the future will be at a higher interest rate than the ones now... so when they come due, you'll either have to raise taxes or issue more bonds for even higher interest rates to pay off the currently due bonds.  It's a circle and one that is not easily broken.  But neither is it as bad as it sounds.
 
Number one, we got a nice break in the 90's and 00's with low interest rates.  This allowed us to issue bonds for lower interest rates than the ones we had to pay off left over from the 80's.  This bought us some time.  Number two, the deficit as a percentage of GDP is currently at one of the lowest levels it's been since the dawn of deficit spending.  Every financial planner will tell you that the way you measure debt isn't in raw numbers, but as a percentage of your income and net worth.  If I'm a million dollars in debt, that sounds horrible.  But if I'm Donald Trump and I make a hundred million dollars a year, that debt isn't so bad.  Conversely, if I'm $50,000 in debt, and I only make $25,000 a year, my debt to income ratio is horrible.  So when you talk about debt, you HAVE to look at it in terms of your income and net worth... i.e. GDP.
 
I could go off on this topic forever, and I'd be glad to for anyone who wants to, but the final point I'll make here is about our current deficit.
 
In the 1990s, we had an economic revolution that was comparable to the Industrial Revolution of the late 19th century.  A new invention that made its way to the masses (hint hint... you're using it right now)... paved the way for thousands of new companies and tens of thousands of new ideas.  A New Economy was created due to the Internet.  A new way of doing business.  A more informed consumer.  A quicker spreading of knowledge and information.  These new ideas were given billions of dollars of investment money from the venture capital firms.  Those billions of dollars given to the dot.com ideas were spent on office space, office furniture, computers, advertising, and over payed new college grad employees who in turned bought houses, cars, clothes, etc...  In short, the economy of the 1990's was built on Venture Capital money... it was fake.  And Greenspan knew it.
 
But all that spending and all that income being made did create a huge spike in tax revenue to the gov't.  Thus, in the late 1990's we had a surplus.
 
NOTE:  The surplus has NOTHING to do with gov't policy, budget regulations, "good" government, or anything coming out Washington, DC.  The Internet would have been invented without Al Gore, the venture capital money would have been spent and a budget surplus would have been created no matter who was in the office at the time.
 
However, when that surplus did occur, there was a huge debate in Washington about what to do with the surplus.  One group said, "save it."  Another group said, "a surplus, by definition, means we overtaxed people... so cut taxes."  And still another group said, "Great!  Let's spend it!".
 
The "Spend It" crowd won.  (surprise, surprise)
 
So we have a spike in tax revenue, and the congress chooses to lock us into long-term spending on a bunch of programs that do nothing to maintain the economy.  When the dot.com bubble burst and the spike in tax revenue ended, we still had long-term spending on the books... Now add in 911, two wars, corporate scandals and you have a DEFICIT.
 
So the "Deficit Correcting" measures that Greenspan is talking about is not TAXES... but SPENDING.  We have to reduce gov't spending, or at the very least, keep spending where it is and don't let it grow until the laws of supply and demand catch up.  The 4% growth cap on discretional spending that the last budget included is a HUGE step in that direction.  Low unemployment and lower taxes is another great factor in keeping demand growing.  And I support cutting foreign aid to countries that hate us, cutting spending on gov't handout programs that don't produce any results, and stopping the pork barrel spending that continues to flow from DC.
 
We are on our way.  We'll get there... the natural way.  But if you do anything to stifle demand, such as raise taxes (doesn't matter on who... raising taxes has the same effect no matter who the hikes are on), you will absolutely increase the chances of falling demand without a corresponding fall in prices (the definition of Stagnation.)
 
Sorry for the essay... but I love this stuff and I can't stand it when disinformation is spread.
 
- Andrew