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Sleepwalking through the valley of financial calamity
A financial bomb dropped on Friday, but it seemed like nobody noticed. Recovering from the news, I attended a high school graduation party on Saturday and took a walk through the graduate’s quintessential middle-class neighborhood. With a bright blue sky and the green hills of a neighboring horse farm providing a panoramic backdrop, I strolled past American flags flying from stately brick homes, lush manicured lawns accented by picket fences, and late-model cars parked neatly in driveways bearing university stickers. I should have felt upbeat but I couldn’t shake the ominous news that China’s U.S. Treasury bill holdings dropped by 97 percent. As life continues in an eerily peaceful manner, this was another signal that America is in serious financial trouble.
Why did I let this news get the best of me on what should have been a joyful day? Watching the happy college-bound graduate and my four children, I wondered about the world they will inherit knowing that their elders have failed them as financial stewards of their country. It appears certain that America will default on her obligations (e.g., debt, Medicare, Medicaid, Social Security, etc.) and the recent news about China is another flashing warning sign that this is likely to be true.
Although I felt strangely self-isolated at the party, I knew there are others across the country who felt the same way about the nation’s finances. For example, CNBC reported on Thursday that wage pessimism is the highest it’s been in 25 years. A recent internal survey by the investment firm UBS revealed that its wealthiest clients are far more concerned about America’s debt than they are about their own portfolios. In March, The Wall Street Journal reported that the world’s largest bond fund, Pimco’s Total Return Fund, dumped all of its U.S. Treasury holdings, and Stansberry’s Investment Advisory reported in May that the fund is selling Treasurys short (i.e., making a bet that U.S. Treasury bonds will depreciate in value). And one of the world’s greatest currency traders, Stanley Druckenmiller, recently recommended that Congress allow the Treasury to technically default on its obligations.
In short, America is in big trouble and a lot of people know it. Yet, we sleepwalk through the valley of financial calamity as Congress duels over paltry solutions, and the Federal Reserve floods our collapsing economic veins with monetary morphine dulling our reaction to calamitous financial news . . . while another high school class graduates. Our children will pay the price of our addiction unless we rip the IV tube from our arms, shed our selfishness, and get busy correcting our prodigal ways.
back to top59 Comments to “Sleepwalking through the valley of financial calamity”
Kitchen budget common sense says to stop borrowing and stop spending. In a short time we will catch up with our budgets.
When Reagan was President, I was disappointed because he didn’t stop the borrowing, instead he chose to rearm. Reagan had permission to do one big thing. Even back then I thought a national debt was very wrong.
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Our human nature is not very good at responding to alarming information. Someone telling us that they are going to slap us doesn’t usually provoke the response that the actual slap elicits. Like the people in the time of the Biblical Judges it us usually in the midst of the actual crisis that that God gets our attention.
We likely will not rip the IV tube from our entitlement arm until the bag is empty. And even then we will blame the providers rather than our own consumption.
Bible believing Christians should be leading the way in disciplined living and self reliance. Sadly, we are dozing with the rest of our worldly culture.
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“We likely will not rip the IV tube from our entitlement arm until the bag is empty. And even then we will blame the providers rather than our own consumption.”
See what’s happening in Greece right now? The populace is blaming the politicians. While I understand their frustration, you have to realize that the populace is as much to blame as the politicians, since they didn’t hold them accountable.
That is the US in a couple of years…
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Unemployment rose again to 9.1% (the official numbers) but you know it’s a lot higher than that, since those numbers leave out a lot of people who are actually unemployed. They should rename it something like “searching employment” percentage rate, since that’s what it really is.
The other reason you know it’s a lot higher is that job growth was only 54,000 for last month. Just to keep up with population growth you have to have something like 275,000 jobs added per month. If you add in the already unemployed, then the number of unemployed isn’t just rising a little….
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How will knowing this help? What should the average person do about it besides worry?
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#5 Great question!! My suggestions: Get committed to a good Church – Get out of debt – save – downsize – etc..
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KBells, I know you are a big fan of Dave Ramsey but if you ever get the opportunity take a Crown Financial Planning class. The church I have recently joined strongly encourages members to take the class and even offsets some of the costs I think. Anyone serving on the vestry must take it.
Our own Michelle has actually taught it on a few occassions.
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#5 KBells
“How will knowing this help? What should the average person do about it besides worry?”
1. Tithe on all income. (i.e. income before taxesand/or deductions)
2. Pay all loan, credit card, overdraft payments, on time.
3. Stop putting more on all loans, credit cards, and overdrafts.
4. Don’t buy anything you want, only those things you need. (You want a soda, you need toilet
paper.)
5. Pay off the smallest debt owed. Then take the formerpaymet and add it to the second smallest
thing owed, and so on.
6. Put away 10% of your take home for emergencies. You will have an appliance, car or
other breakdown that you don’t have in a budget.
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This is crazy talk. China’s holdings in short-term T-Bills are returning to normal levels following China’s participation in the funding of TARP and the Stimulus. China’s holdings have always been modest. Even China’s share of the funding of TARP and Stimulus was modest.
Our debt ratios are lower than those of GB, France, Germany, and Japan, and far lower than those of many corporations with healthy stock prices.
Once the USA gets past the events that are driving the deficit (recession, Bush tax cuts, and Iraq & Afghanistan), it will stabilize. A stable deficit isn’t cause for a financial crisis.
Today’s problem is jobs, jobs, jobs. This is totally unrelated to future debt ratios. If we don’t fix the deficit in aggregate demand, long term deficits won’t matter, because we won’t have a long term outlook other than persistent high unemployment.
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“Once the USA gets past the events that are driving the deficit (recession, Bush tax cuts, and Iraq & Afghanistan), it will stabilize.”
ROFL HAHAHAHAHAH…blind as a bat, not a moth there scroop.
Recession and tax cuts do not matter, so long as you do NOT spend more than you take in. A recession only hurts, when you are already in debt and not in wealth. America has had years to build wealth and instead was building debt.
It’s a simple equation that for some reason is so hard for moths to understand.
You can not sustain an economic boom by debt from borrowing. Stop ignoring reality.
You wanna bring the troops home, that would be wonderful to me as well. You can’t promote democracy abroad when you can’t keep it running here.
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I have a simple solution for paying off the debt:
You won’t get 14 trillion dollars.
Fine 14,000 billionaires and take their money.
Or maybe fourteen million millionaires and take their money.
Won’t work you say?
Maybe the problem is that there ain’t 14 trillion dollars. Tax the rich. Tax the middle class. Tax the poor.
The next solution: Print it. There’s no constraint on the Federal Reserve. That will probably make the dollor worth 1/14 of what it is now.
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America has had years to build wealth and instead was building debt.
America was “building wealth” until Bush 43 cut taxes, occupied the Middle East, and pronounced economic doomsday.
Please don’t suggest that recessions are not involuntarily painful for the unemployed and for anyone who is forced to invade capital. Recessions are permanently harmful to the long-term careers of most young people starting out.
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“America was “building wealth” until Bush 43 cut taxes, occupied the Middle East, and pronounced economic doomsday.”
I’m sorry Scroop but we were in debt way back since before WWII.
If the government can just print money, then there is NO REASON FOR TAXES…If it can just “raise” the debt ceiling then there is NO REASON FOR TAXES.
How does taxes even play a role, if you can spend all you want from made up extra money???
Bush tax cuts and credits extended the upswing in the economy. You can argue that it shouldn’t have been extended, but it delayed the crash because people could still buy gas and pay a housing payment.
The consumer makes up almost 3/4ths of your economy. You don’t hamper the consumer. You empower it wisely.
Encouraging them to borrow is not a wise strategy. Debt is not a wise strategy. The over hanging debt is what crushed the economy and still is, because you and the rest of these politicians don’t seem to get that through your head.
The feds can’t support excess programs/jobs from a debt standpoint. Just like no family can’t support anyone else if they are suffering substantial debt.
You must cut costs/expenses/spending.
Deflecting to past presidents is a poor argument. Learn from their mistakes, learn from the clear economic examples. Don’t vote for a guy who will just do the SAME THING (Obama). Obama has been Bush times 10. He’s the SAME THING.
Get back to basic sound money principles. Do not spend more than you take in. Spend less than you take in, so that there is always a resource when times are rougher. Don’t go off on crusades when your in debt. Don’t go giving Egypt money, when you can’t fix New Orleans.
W
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Will our country even be around long enough to hand over our TOUBLES to our children?
CEOs keep stuffing even more money in their pockets.
People keep losing their jobs and many can’t find jobs.
People who HAVE JOBS must work longer and harder to MAYBE KEEP their jobs.
Meanwhile we continue bringing FOREIGNERS into the US to take jobs. Do they also end up on the GOV’T handout list?
An ad in the newspaper about hiring showed a young Asian. Some companies here want to get permission to hire more foreigners to fulfill their need for employees. WHY?!
Meanwhile, ILLEGALS DEMAND the “AMERICAN DREAM.”
WHAT IS THE AMERICAN DREAM?!
As a non-white person they can get a job and then file a LAWSUIT if they are let go for poor performance. DISCRIMINATION!!! WHY?!
Is it for Social Security, or as DC and the MEDIA like to call it, ENTITLEMENT? WHY?!
People who NEVER contributed to SS are receiving it. WHY?!
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Our debt ratios are lower than those of GB, France, Germany, and Japan…
Japan yes. For the rest it depends on whether you include intragovernmental debt. If you include it then the U.S. has a higher debt ratio than the U.K., France and Germany. See the wiki page.
Even if you leave out intragovernmental debt the OECD still shows the U.S. as having a higher ratio than Germany. To view their data go to stats.oecd.org then click on “Finance” at the left side bar, then “Central Government Debt”, then “Central Government Debt” again then “Total Central Government Debt (% GDP)”.
This all ignores the issue that the problem isn’t the current level of debt but the projected rate of increase given the government’s statutory obligations with respect to Medicare, Medicaid and, to a lesser extent, Social Security. If the U.S. were to pass a budget that kept its current debt ratio constant (i.e. deficit <= 3% GDP) then that would quiet most concerns.
Recession and tax cuts do not matter, so long as you do NOT spend more than you take in. A recession only hurts, when you are already in debt and not in wealth. America has had years to build wealth and instead was building debt.
To the extent the recession decreased (and is still decreasing) tax revenue, yes, it did contribute to deficits and the growth of the debt.
We spend about $150 billion/year on Iraq/Afghanistan. That’s just on the wars and doesn’t count increased defense spending in general. Since 9/11 our non-Iraq/Afghanistan defense spending has increased from around 3% GDP to around 3.6%. That represents another $90 billion/year.
The Bush tax cuts are thought to have “cost” between $100-200 billion/year in lost revenue depending on who you ask.
How about the recession? For 2007 the govt. collected 18.2% GDP in revenue. In 2008 it was 18.5%. For 2009 and 2010 it was 14.9%. The Bush cuts were in effect for all these years. So we’re looking at a swing of about 3.5% GDP or $500 billion between “peak” revenue (i.e. during boom times) and “trough” revenue (i.e. during the depths of recession). This doesn’t include the additional expense of paying out additional unemployment benefits during periods of high unemployment. Another reason the revenue is so low is that some portion of the stimulus “spending” came in the form of tax breaks other than the Bush cuts.
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Thorn, collecting taxes is a way of cutting costs and fairly allocating costs.
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BUDDYGLASS –
Entitlement programs are not a difficult problem. Did you know, for instance, that most of the future Medicare cost increases aren’t due to the increase in beneficiaries but the cost per beneficiary? Meanwhile, Canada has Medicare for all, with dramatically lower costs (however rising). Cost control is an attainable goal, which Republicans don’t address. The ACA act is the best means so far for dealing with the long-term deficit (besides letting the Bush tax cuts expire).
Economists — and the Economist Magazine — say stimulus now would lower the medium and long-term deficit.
According to reports I’ve seen, US government debt held by the public is lower than Japan, Italy, Singapore, Belgium, France, Germany, Israel, UK, Netherlands, Spain, Brazil, and the World average. It’s only a little higher than India.
http://www.economicshelp.org/blog/economics/list-of-national-debt-by-country/
Rankings change. The point being, nobody thinks Japan won’t meet its obligations or remain a major economy.
Here’s the mother of all Republican-busting graphs:
http://delong.typepad.com/sdj/2011/05/the-republican-party-budget-arsonists-wearing-fire-chief-hats.html#more
The fault is not entitlements, but Bush-era policies and economic vandalism.
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Scroop Moth
I have a different problem with Obamacare than many others. I don’t think it is fair to make all medical personnel work for the government. If they want to work for the government today I am sure they can find a government job. Many CA prisons have openings for MDs.
How can you think that MDs want to work for the government when they choose not to now? How is it fair to take person and make it so they must work only for the government? It will be against the law for any medical person to work privately.
Many people refuse to work at a union job. How long will it be before all medical people are required to work at a union job?
I worked at a school job before it was required to join the union. I despised the union. I hated having to give them money. I didn’t believe anything they did. This will happen to everyone in the medical field if Obamacare is fully implemented. Union education is sure a thing to be glad for. Let’s do it to the medical field too.
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Entitlement programs are not a difficult problem.
Um. I beg to differ. They’re the main drivers of projected spending growth.
Did you know, for instance, that most of the future Medicare cost increases aren’t due to the increase in beneficiaries but the cost per beneficiary?
Some documentation would be nice. Obviously rising healthcare costs are a huge part of the projected costs, but I was under the impression that demographics also play a big part.
Cost control is an attainable goal, which Republicans don’t address.
Agree that Republicans don’t address it, but I have serious doubts that it’s an attainable goal. So long as insurers, whether they be private or public, are saying, “We’ll pay for basically anything you need done,” it’s going to be nearly impossible to contain costs.
The ACA act is the best means so far for dealing with the long-term deficit
I tend to favor a system of vouchers coupled with various new regulations on private insurers.
Rankings change. The point being, nobody thinks Japan won’t meet its obligations or remain a major economy.
Actually the credit rating agencies do, which is why they downgraded Japan’s sovereign debt rating. Here are the countries that Moody’s rates as AAA along with their public debt ratios from the link you posted:
102.40 Singapore
83.50 France
78.80 Germany
76.50 United Kingdom
70.40 Austria
64.60 Netherlands
58.90 United States of America
47.70 Norway
46.60 Denmark
45.40 Finland
40.80 Sweden
38.20 Switzerland
34.00 Canada
25.50 New Zealand
22.40 Australia
16.20 Luxembourg
The U.S. is certainly nearer the top than to the bottom. And this is using the numbers in the link you supplied which, IMO, are more favorable to the U.S. than others I’ve seen. Here’s the same list (minus Singapore) using the OECD’s stats:
85.5 United Kingdom
67.4 France
65.8 Austria
61.3 United States of America
51.8 Netherlands
44.4 Germany
41.7 Finland
39.6 Denmark
36.1 Canada
33.8 Sweden
30.5 New Zealand
26.1 Norway
20.2 Switzerland
12.6 Luxembourg
11.0 Australia
What has people spooked is that the U.S. is projecting its debt to keep growing at a fairly brisk clip.
The fault is not entitlements, but Bush-era policies and economic vandalism.
Bush policies (tax cuts & foreign wars) have done their damage, but even without them our projected Medicare/Medicaid spending would pose a serious problem going forward. It’s going to have to be addressed eventually.
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“Thorn, collecting taxes is a way of cutting costs and fairly allocating costs.”
? Collecting taxes actually costs money. The IRS doesn’t run for free. Unless you lower the amount you collect or streamline it you will not cut costs.
And it does not allocate cost, when you have a printing press out back anyway.
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I see this headline on Drudge this morning:
REPORT: 30% of companies to drop health coverage because of Obamacare…
I don’t think Obama and Co. are focused on what’s necessary to get the economy on track. Indeed, I don’t think they have a CLUE what to do…
That’s because these guys are all politicians, and follow the Keynesian “economists” advice… to a point. Then they let their political survival instincts kick in…
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“Bush policies (tax cuts & foreign wars) have done their damage, but even without them our projected Medicare/Medicaid spending would pose a serious problem going forward. It’s going to have to be addressed eventually.”
This is still gross error.
Cutting taxes doesn’t matter, so long as you still DO NOT SPEND MORE THAN YOU TAKE IN.
PERIOD.
Going to war doesn’t matter, so long as you abide by the same principle.
The problem isn’t cuts or war. The problem is spending way more than you have.
CUT THE SPENDING.
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“? Collecting taxes actually costs money.”
You’re joking around, right? You meant this as a gross understatement to make a point, yes?
Collecting taxes actually cost a great deal more than just paying the IRS, and the amount of taxes. Otherwise we wouldn’t have legions of accountants and lawyers and politicians to make sure we followed tax codes.
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Just to underscore Thorn’s admonition to CUT THE SPENDING, here’s the record on unfunded obligations:
$62 Trillion in unfunded obligations.
And you think this is easily fixed, do you Scroop?
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Bombshell?
From the article:
In August 2008, before the bank bailout and the stimulus law, overall Chinese holdings of U.S. debt stood at $573.7 billion. That number continued to escalate past May 2009– when China started to reduce its holdings in short-term Treasury bills–and ultimately peaked at $1.1753 trillion last October.
As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.
More like the sound of a pin hitting the ground.
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“You meant this as a gross understatement to make a point, yes?”
Pretty much yes.
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“More like the sound of a pin hitting the ground.”
But if your not in Arcadia land, does it even make a sound?
Your ignoring three major things. 1. China got rid of nearly all of its short-term holdings. 2. It’s overall holdings still decreased by 300 billion and 3. The US debt has practically DOUBLED since then.
Where do you expect to find a buyer bigger than China that wants to invest? ? ? ? ? ? ? ? ? ? ? ? ?
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The problem isn’t cuts or war. The problem is spending way more than you have.
Sure. So going to war and not collecting more revenue increases the deficit and therefore the debt. Cutting taxes while not reducing spending increases the deficit and therefore the debt. These are what Bush did.
Tax cuts increase the deficit and therefor the debt regardless of what you’re spending. Say we were spending 18% GDP and collecting 18% GDP, i.e. a balanced budget. If we started collecting 20% GDP then we would have a surplus, which would reduce the debt quicker than simply having a balanced budget.
Reducing collected revenue always either accelerates the rate of debt growth (if you’re operating at a deficit) or retards the rate at which the debt is shrinking (if you’re running a surplus). Always.
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So what? Reducing or raising taxes will change very little in the large scale.
When your unfunded obligations exceed $60 trillion, talk of a few billion in taxes doesn’t amount to a spit in the ocean.
Cut the spending.
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Thorn: Cutting taxes doesn’t matter, so long as you still DO NOT SPEND MORE THAN YOU TAKE IN.
Say you have cut all your optional expenses, and are left with monthly bills that average $480 a month, but vary but +/- 10 percent.
Scenario One: You earn $500 a month.
Scenario Two: You earn $750 a month.
Under which scenario is it more practical to advise yourself to just spend less than you earn?
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The problem with your analogy, Conan, is that not all optional expenses have been cut. In fact, very few have.
And if enough isn’t cut, optional or not, it won’t matter because you’ll be bankrupt anyway….
Best way to fix the problem is for the country to make more money. But I don’t see Congress or the Administration fixing that problem- instead they are creating dependents by the truckload…
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“Under which scenario is it more practical to advise yourself to just spend less than you earn?”
In both scenarios. If you have a fluctuating income and bills, it is all the more reason to have extra cash in your bank, so when the month is down you can still afford your bills.
This is known as savings…well to some people anyway.
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Buddy,
Your still assuming spending doesnt change.
At 18% spending and 18% collecting. You can also reduce spending to 16% and have a surplus.
You can also reduce spending to 14% and reduce collecting to 16% and still have a surplus.
Spending less, always gives you more money in the bank. ALWAYS.
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“Under which scenario is it more practical to advise yourself to just spend less than you earn?”
Either one. The worst thing you can do is insist on denial of a problem. Which Democrats seem to think is not a problem.
Obviously something has to change. If your expenses are greater than your income, you have to either make more or spend less.
If it means you have to move into cheaper housing or eat less expensive food, or take the bus, then those choices have to be made. The problem doesn’t go away by itself.
These are hard choices that we make every single day out here in the real world. And they can be made…
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Your still assuming spending doesnt change.
No I’m not.
At 18% spending and 18% collecting. You can also reduce spending to 16% and have a surplus.
Yes. And you could increase revenue to 20% at the same time and have a 4% surplus instead of a 2% surplus.
Spending less, always gives you more money in the bank. ALWAYS.
Agreed, and I think we should cut spending. I also think we should increase revenue.
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About 10 minutes ago Obama made a joint speech with German Chancellor Angela Merkel at the White House. Obama stood before the world and claimed that the world wide economic crisis was caused by the policies of the last 10 years. The essence of his speech was this, “It’s not my fault! It’s George Bush’s fault!” No one blinked.
If everything is George Bush’s fault, then why has Obama kept nearly all of Bush’s policies and voted to extend the tax breaks? We have more wars, more Patriot Act, more spending and so on. Can Obama name a single policy that caused the crisis which he has not also signed on to? Obviously this is unabashed partisan political chicanery from the get go.
Aside from this being untrue, it shows a complete lack of leadership. Who wants to follow someone who complains incessantly, “It’s not my fault! Don’t blame me! It’s not my fault!”
The economic crises had to do with a Federally backed mortgage industry in default and a Federal Reserve which was designed to make banks too big to fail. Bailouts are a normal part of the mechanism which allows banks to make risky investments. If they fail, the difference is extracted from the taxpayers, the lenders of last resort.
Bush era policies certainly contributed to the economic woes, but it has nothing to do with tax breaks. What’s wrong with letting people keep more of their money? If it is so wrong, why did Obama and the Democrats vote to extend it? And all of that is just a drop in the bucket compared to the trillions Obama wasted on specious programs and kickbacks to unions and contributors. Has the nation sleep-walked through Obama’s massive accumulation of debt? Yes. Lee is right.
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“Economists — and the Economist Magazine — say stimulus now would lower the medium and long-term deficit.”
Uh. Yeah….
Because that’s worked so well so far.
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“Agreed, and I think we should cut spending. I also think we should increase revenue.”
I didn’t say revenue shouldn’t be increased, but taxes are not where the increase in revenue should come from.
Over 70% of the economy is driven by consumer spending. Your dominant driver of the economy can gain revenue by the government taking less from them, not more.
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A good way to increase revenue is to revise the tax code. This should be a simple tax rate with no deductions and no exceptions. The IRS will become essentially unnecessary.
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I didn’t say revenue shouldn’t be increased, but taxes are not where the increase in revenue should come from.
How are you going to increase federal revenue if not from taxes?
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Why do you need to increase federal revenue if your cutting spending?
The country doesn’t run on 70% government revenue.
It runs on 70% of consumer revenue.
Federal revenue will go up though, when more businesses decide this is a much better place to do business again.
Also, Xion makes an excellent point as did MiM earlier. A simple tax code, means less lawyers, IRS, avoidance, and loopholes that raise expenses.
The fact is, there a ton of simple ways to reduce spending, costs, and at the same time revenue will go up without raising anyone’s taxes.
Raising taxes is solely about the politician feeling justified in spending more than he has or should. It has nothing to do with economic prosperity.
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Why do you need to increase federal revenue if your cutting spending?
Because we have a debt ratio that, apparently, you think is too high.
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And that can’t be resolved just as easily if not faster by increasing consumer revenue instead?
The government keeps spending, and increasing its spending…whether by revenue or not hasn’t stopped them.
IT DOESN’T WORK.
We’d be way out of the hole if government spending was the answer.
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Here is some more economic chicanery from the Wizbang School of Accounting, er … I mean the White House. Some might call it politics. Others would just call it lying.
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And that can’t be resolved just as easily if not faster by increasing consumer revenue instead?
Explain exactly what you mean by “consumer revenue”.
When I say “revenue” I mean “the amount of money the federal government collects in taxes”.
For the purpose of reducing the debt, the only two things that matter are:
1. The amount of money the federal government collects in taxes and,
2. The amount of money the federal government spends.
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Actually I misspoke. For the purposes of reducing per-GDP debt there’s a third thing that matters:
3. GDP growth.
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Yeah, you did mispoke alright. You left out the private sector- which is probably the most salient point of all three. It doesn’t pay to leave that out…
…for some odd reason.
Freudian slip? Or just the typical liberal “oversight”?
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And I’m not talking about the bogus figures for GDP that the government spews – which includes things like the cost of the hurricanes that destroyed N.O. and the gulf oil spill.
I’m talking about REAL GDP which is production by the private sector. You don’t have that, you don’t HAVE any tax revenues…
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Yeah, you did mispoke alright. You left out the private sector- which is probably the most salient point of all three.
That was intentional. “The private sector” (however you care to define that) does not impact the deficit or debt-to-GDP ratio except insofar as it affects GDP growth and total tax revenue.
For the purpose of the debt tax revenue and GDP growth are all that matters. Obviously if your economy falls apart you’ll have a hard time generating tax revenue.
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“The private sector” (however you care to define that) does not impact the deficit or debt-to-GDP ratio except insofar as it affects GDP growth and total tax revenue.”
You’re talking out of both sides of your mouth. The private sector has everything to do with GDP growth.
As opposed to, let’s say….
….the public sector. Does the public sector actually produce? Hmmmm???
Like I said before, if you don’t have production by the private sector, you don’t have GDP, or tax revenuse.
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“Explain exactly what you mean by “consumer revenue”.
When I say “revenue” I mean “the amount of money the federal government collects in taxes.”
I mean exactly consumer revenue. When I work, I get paid and that’s my revenue. The more money I have the more I can spend.
As you admit in post 49, the private sector affects GDP growth and total tax revenue.
If this is the case, as I’m attesting to, then raising taxes isn’t necessary. You can achieve increased federal revenue, by empowering the consumer. The more the consumer spends, the more the private sector grows, and thus so does revenue for the government.
$1 spent by the consumer is worth more than $1 spent by the government.
Let’s put it to you this way. I pay over 30% in taxes. Say we cut that to a modest 15%. That’s another 5000 or more in my pocket now. Multiply that across America and it quickly multiplies far faster than any TARP bill can compare too.
Why? Because instead of guessing where to put the money, my money goes to two things. 1. What I want and 2. What I need. It goes directly to local businesses, housing payments, charities, etc.
It doesn’t have to pass through multiple agency hands to get back to those businesses that need it. It avoids a loss from friction from excess piping so to speak.
My personal opinion is that if God can run his kingdom on a 10% tithe, the government certainly doesn’t need more than that from its people. Then again, God is far more efficient, so I’ll concede to 15% so long as that extra 5% is going toward debt reduction and in the future a rainy day fund…also known to most familys as a savings account…
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BUDDYGLASS –
Your skepticism about the prospects for control of medical costs is valid enough and may force us all to deal with the fact that we’re all going to have to eat huge medical costs in return for longer lives.
On the other hand, other societies have lower costs and longer lives than ours, so I think that some degree of cost control is indeed attainable. I hope so. Who wants to undergo medical procedures just to be doing something? Nobody but some of the very rich who fly around the world spending billions in vain.
This CBO graph merits study by all debt demagogues. The problem is not we the beneficiaries but the cost of the services.
http://en.wikipedia.org/wiki/File:Medicare_and_Medicaid_GDP_Chart.svg
What did you think of the “origins of the deficit” graph?
I trust that arguing against me will provide you with cred in your efforts to pry the crosses and automatics and roadmaps to serfdom out of the cold dead fingers of the end-timers, survivalists, and gold hoarders hereabouts.
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why has Obama kept nearly all of Bush’s policies and voted to extend the tax breaks?
1. Sens. Landrieu, Ben Nelson, Begich, Johnson, Manchin, Pryor, Tester, Webb, Warner.
2. False doctrines about personal income tax rates and economic prosperity.
3. Dishonest debt demagoguery.
4. Voters are too exhausted and tormented to think straight, and Democrats too feeble to straighten them out, and Democrats had a killer midterm election.
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BOB I don’t think it is fair to make all medical personnel work for the government.
ACA doesn’t employ a single doctor, nurse, nurse’s aid, or housekeeper for the purpose of medical treatment.
Where did you get that?
The ACA doesn’t even offer payment in return for services. Lefties wanted it to, through the “public option” — did you hear that it was optional, btw? — but conservadems nipped that in the bud, so all that we’re left with in the ACA is an essentially conservative scheme for health care reform that right-wingers dreamed up in the early 90’s as a response to Hillarycare.
Private insurance companies of course will continue to dictate their own payment schedules (and premiums.)
I hope you’re not listening to Doctors about this. They may know something about pancreatic polypeptides, but they don’t know squat about the economics of health care, or they would have figured out how to provide services at a sustainable cost. Right? Plus, doctors were wrong about the creation of Medicare. They had all the same complaints then, and none proved true. Doctors still work for themselves and their incomes have quintupled.
Bob, you need to come back out of the woods. Move back to LA and talk to some humans.
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Like I said before, if you don’t have production by the private sector, you don’t have GDP, or tax revenuse.
And if you don’t tax the private sector you don’t have tax revenue. Taxing slows growth but increases the amount of money the govt. has at its disposal. Cutting taxes accelerates growth but decreases the amount of money the govt. has at its disposal. If the govt. is operating at a deficit, then reducing the amount of money at its disposal enlarges that deficit and grows the debt.
If this is the case, as I’m attesting to, then raising taxes isn’t necessary. You can achieve increased federal revenue, by empowering the consumer.
In other words, cut taxes and federal revenue will actually increase. This is false.
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“If the govt. is operating at a deficit, then reducing the amount of money at its disposal enlarges that deficit and grows the debt.”
It only enlarges the deficit if you continue to not decrease spending or ignore paying off the debt. I’m not expecting the debt to be paid off tomorrow.
Besides the reduction of government revenue, by enabling it’s people, is like purchasing seed to be planted. Consider it the investment cost, because as that harvest is reaped, the profits will more than make up for the initial cost. The temporary loss of tax revenue is regenerated later anyway as the economy grows.
When it does so, as you continue to spend only within your means, more and more excess can go to paying down the government debt faster.
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“In other words, cut taxes and federal revenue will actually increase. This is false.”
This is not false, and you said so yourself above when you admitted that GDP and tax revenue grows as private sector grows.
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It only enlarges the deficit if you continue to not decrease spending or ignore paying off the debt.
Which is exactly what Bush did. Cut taxes right after starting a foreign war and without any other reductions in spending. Ergo the tax cuts did contribute to the deficit because there was no commensurate reduction in spending.
This is not false, and you said so yourself above when you admitted that GDP and tax revenue grows as private sector grows.
Yes it is. Federal revenue is a function of two things: the size of the tax base (i.e. personal income, business income, consumption, etc.) and the rate at which it is taxed. If the private sector grows evenly and the tax rate stays constant then you collect more revenue. Lowering the tax rate can spur growth, but at the cost of lost revenue.
Take your argument to its absurd conclusion and reduce the tax rate to zero. Collect no taxes. This will create the highest possible growth rate. It will also result in zero revenue being collected.
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“Ergo the tax cuts did contribute to the deficit because there was no commensurate reduction in spending.”
I agree Bush should’ve reduced spending, even while going to war…make spending cuts elsewhere.
Without the tax cuts, would you have had any substantial economic growth though?
Remember 2001-03 wasn’t great economic times either. I didn’t find a job out of college. Without the tax cut, the private sector wouldn’t have maintained, and thus you’d start losing even more revenue on the federal end had it have collapsed. And had you raised taxes to support the war, you would have stifled revenue growth all the more.
“Take your argument to its absurd conclusion and reduce the tax rate to zero. Collect no taxes. This will create the highest possible growth rate. It will also result in zero revenue being collected.”
That conclusion is absurd because it would ignore the need for a government entity which costs money to run.
I’m not arguing that. Government has a role. But does it need 30% of half of America? I haven’t even really mentioned business directly either.
Can they run the basic needs of the government on half that? I sure think they can.
To your absurd idea though. If the government can just hand money like TARP over to businesses…and spend 700 billion it doesn’t have. Why can’t it drop the tax rate to zero instead?
If government is capable of running in debt, then the tax rate doesn’t matter, since their “revenue” is being entirely generated off a printing press.
Honestly, who wouldnt’ come to America though, if you dropped the income tax rate to 15% and the capital gains to 15%, and the business tax to 15%….
Every business would be signing up to do business here again.
And so that initial “loss” is returned by the massive increase in business and consumer spending you’d receive.
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