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Cutting The Deficit: A Bipartisan Joke
President Obama's proposal to cut the deficit by x trillion dollars over ten years is just another punch line in the serial joke that our political machinery has been telling us for too long: that somehow, deficits will be "cut" in ten years, while tax cuts and spending increases (the jobs bill, for example) are needed immediately.
OK, cutting taxes and increasing spending are politically expedient. We love to receive handouts—spanning the entire spectrum from the homeless guy down the street to Goldman Sachs, GE, and AIG, and even Silicon Valley stars like Solyndra and Tesla.
Raising taxes and cutting spending and are painful procedures. People get upset. Consumption might edge down. Companies that have gotten fat on handouts get in trouble. Wall Street blows up again. So we defer it. Meanwhile, the deficit hovers around $1.5 trillion, year after year, 40% of the federal budget, 10% of GDP. Gross national debt has reached 100% of GDP—after Obama signed the debt-ceiling law, it jumped $238 billion in one day (my post about that magic event). Next year, it will flirt with 110%, and the year after with 120%. Neither Obama's proposal nor anything that has emerged from Congress addresses that fiasco. They're talking about making micro adjustments years down the road. That's a tired joke. And we've stopped laughing long ago.
Already scary: Gross National Debt 1960-2011. But it will look a heck of a lot scarier.
$15 trillion will be added to our gross national debt over the next ten years if deficits continue to pour at the current rate, doubling it to $30 trillion. Even if $3 trillion in cuts were to see the light of the day, gross national debt would still increase to $27 trillion. A catastrophic situation.
And worse: Ten-year budget forecasts are ridiculously optimistic. A little over ten years ago, a "surplus" had conveniently been forecast for the next ten years. Now, when we look back, we see that the "surplus" was ephemeral, and that a deficit rose from it like a mushroom cloud. Since then, the deficit has become structurally embedded in our economy. Like an addictive drug, red ink is now required in ever greater quantities to eke out puny rates of growth, and in the future, even $1.5 trillion of red ink may not suffice.
The solution isn't more deficit spending. The solution is to get off the drug. And to get off now. Due to the sheer magnitude of the deficit, both tax increases and spending cuts have to be on the table. For those who want to balance the budget via spending cuts alone: You'd have to cut 40% out of every government program, including defense and intelligence, congressional salaries (good luck), highways, entitlements, bridges to nowhere, bailouts, etc. Hardly possible. But a good part could be cut, and the rest will have to be dealt with through tax increases.
There will be no free lunches. Since government spending adds directly to GDP (consumption + investment + government spending + exports - imports), any cuts will lower GDP. Taxes, which are not part of the formula, have a more complex relationship to GDP. Raising taxes on those who spend their entire income will lower consumption, and thus GDP, while raising taxes on those who spend only a portion of their income may not have a measurable impact on GDP. However, if taxes are perceived as confiscatory at the upper end, it will lead to perverse effects. It's vital that our tax code be seen as fair, where everybody pays their share, and changes to it should take that into account.
One of the primary reasons we even have this huge deficit is, you guessed it, the Fed. It has been the great enabler. So that the Treasury could sell its trillions of new debt at near-zero yields, the Fed printed money and monetized the debt. In doing so, it insulated the government from the tough discipline of the capital markets. Now, there no longer is any market-based incentive to address the deficit problem because Congress knows that the Fed will print us "out of trouble."
But the economic costs of printing money have been steep. Income streams from bonds, CDs, savings accounts, etc. have been demolished, inflation in goods and services is rising, yet real wages are declining. This insidious combination is one of the forces behind the impoverishment of the American middle class, which in turn, is one of the reasons why the economy can't take off.
For a funny take on the impact of the Fed's policies, read Dear Ben, Please Print us More Money.
Wolf Richter - www.testosteronepit.com
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but but but... its the economy, stupid?
-nah'n Bill Clinton
The Esteemed POTUS cut his nut sack off,if he thinks for ONE second he can blackmail the GOP withthe either or routine,he is a political road kill now.
The grey hairs will eat his ass alive.Along with the rest of the Demoncrats.
Repeat of 2010 x's 10.
It is getting increasing difficult to tell which posts are sarcasm and which are not. I'm not rating any posts with too much ambiguity.
Let's keep it simple. The plan on The Right is "would you trust that type of guy with money...let alone your money?" Proceed to obvious answer....
Bring deficit down to % rate of GDP growth and we sail past the rocks.
It'll be more than 15 trillion in the next 10 years.
The deficits will go higher than 1.5 trillion.
Cut corruption. That will take care of everything.
The bean counters probably can't grasp a quadrillion dollars worth of debt in 10 years, which is where this plan seems to be headed. It's going to be like exponential growth but the base is constantly increasing as everyone with a working braincell realizes what a sham this government has become, I guess the term is factorial growth.
“You'd have to cut 40% out of every government program."
It worked for Harding and Coolidge.
http://libertycavalier.wordpress.com/2011/01/10/calvin-coolidge-on-liberty-taxes-and-the-role-of-government/
Maybe we could all hold hands and sing Kumbayah.
Well, if we do, I just loooovvvveee this versionby Sir Ivan:
http://www.youtube.com/watch?v=RpdOiq-2DFU
Squeeky Fromm, Girl Reporter
Oil at $220 which is what Nomura predicts...that will catch everyone's attention...but not until that time.
The real punchline is that we intend to pay off our debt. It is not possible and so apparent that anyone who honestly believes we are actually working towards this goal is saddly gulible. We must view all actions of government as incorporating this truth. So we should ask questions like: in view of the fact that we are never going to pay off the debt....why did Obama propose $1.5T in taxes? Or...in view of the fact that we are never going to pay off the debt....why....
When we view government in this light maybe we can see the real plan.
"Cutting the deficit" should never be confused with "paying down the National debt". They are two completely different activities. Unfortunately, too many people have lifetime subscriptions to "Popular Nonsense". All that cutting the deficit means is that the Federal corporation is going to use Creative Accounting to show that they are going to spend less than was originally projected. During the last half of the 20th century, the Federal corporation had spent $1.53 for each dollar it collected in taxes. That figure has surely increased in the last decade. No private business could escape bankruptcy with such a track record. How would declaring the intention to operate at a loss, indefinitely, affect a company's stock price? That company would be junk. The Federal corporation is junk. If the Federal corporation was running a casino, they would get bones broken for skimming the take. But, since they're all involved in the same crime, what's a few trillion among friends?
http://georgesblogforum.wordpress.com/2011/07/29/purpose-driven-defects-conclusion/
"It's vital that our tax code be seen as fair, where everybody pays their share, and changes to it should take that into account."
So if it's "fair" everyone will take their medicine? Forget about it. That train has long since left the station. Prepare for impact.
"For those who want to balance the budget via spending cuts alone: You'd have to cut 40% out of every government program, including defense and intelligence, congressional salaries (good luck), highways, entitlements, bridges to nowhere, bailouts, etc. Hardly possible."
Sorry, but I fail to see the problem doing that.
GDP is a politically-set fudge factor, a cosmological constant for Keynesians, if you will. The idea that government spending is in any sense a "product" and not a liability is ridiculous, and yet it's baked into that half-baked construction of GDP. Remove government spending from GDP. Voila. Right there better policy must necessarily follow.
Maybe the media could help us out with some good news. You know, cheer people up.
So does anyone care to guess how long the current game can continue before massive negative effects appear? (foreigners not wanting to buy U.S. bonds or hyperinflation...)
History shows that people's perception of what constitutes a "massive negative effect" can vary quite a bit. Even worse, those in power will blame the rapidly rising prices on everything but the fed's printing press. For the US it will be more complex. Much of the dollars creating the inflation will be returning from overseas. The inflation is already baked in. Even when you are not the world's reserve currency it can be hard for people to match up cause and effect. For the US it is going to be much harder for people to see how the massive expansion of the monetary base years earlier created this problem.
My prediction is that "massive negative effects" will start in 2008, and by 2011 most people will be thinking 2008 was fixed back in 2008 and was caused by something other than money printing and debt. By 2011 they'll probably be thinking debt is someone else's problem. Maybe Greece's problem or something. But certainly not our problem.
Summer-Fall 2012 should be about it. Perfect Storm convergence of economic and political meltdown. 1860--------->2012.
Golly. That's not a very optimistic outlook.
In your article you wrote:
"And worse: Ten-year budget forecasts are ridiculously optimistic. A little over ten years ago, a "surplus" had conveniently been forecast for the next ten years. Now, when we look back, we see that the surplus was ephemeral, and that a deficit rose from it like a mushroom cloud. Since then, the deficit has become structurally embedded in our economy. Like an addictive drug, red ink is now required in ever greater quantities to eke out puny rates of growth, and in the future, even $1.5 trillion of red ink may not suffice."
This is VERY IMPORTANT, as the mainstream media always like to "lie" (or be a useful idiot for the lie) that during Clinton we had surplases. That is a huge lie---it was massive accounting fraud----it is when the accounting fraud really went into hyperdrive. Yes, we had the tech boom, so it made it easy for the Clintons to embed their destructive progressive "virus" into the system. What we are seeing today is not just the result of the 1990's, but most certainly that is when the widespread creativity in accounting and other economic lies went into hyper-overdrive. It is also when Robert Rubin (Goldman Sachs) completely took over all branches of our government and the media and the results are what you see today.
For you younger people out there, the next time you hear the media lying about this, do your homework. No, it won't be easy and you certainly will not get the truth from the archives of the New York Times, but if you go back and look at the major banking regulatory bills and other congressional actions such as the "houses for everyone" legislation, you can see how the ticking time bombs were planted and what we are seeing today is the cumulative effects of that. Personally, I think it was all a progressive plan to collapse the system but be able to blame it on the current administrations----we will really never know that for sure unless somebody becomes a whistle blower, but I am sure that all of the policies were born in the halls of Harvard during the 1960s to destroy capitalism and create a socialist system. Not sure that is going exactly as planned, but most certainly we have fascist one at this point!
Good Comment.
One point: I don't think the plan was to collapse the system. The plan is to grow more powerfull, control more people, resources, armies. You all know the details: Repel Glass-Steagall, make a shitload of loans, insure it all via a mile high derivative pyramid to make it all look safe, book profit now with appropriate bonuses. If the system collapses, Paulson-push the governemnts of the world in socializing bank losses, and if that doesn't work, introduce a common currrency to tighten the deathgrip on an already weakened herd of slaves. Ah yes, I almost forgot: To make sure Glass-Steagall is repelled, threaten the then president with some bogus impeachment scheme to force his hands (check the timing if you have doubts).
Profit on the way up, then on the way down, then some more afterwards. A brilliant plan executed flawlessly. It was called a FIRE economy for a reason! The money-masters have a heavy hand, they can do whatever they want since they control money, therefore lawers, police and military.
Why would they want to create a socialist system? A system where all the riches are distributed to zombie fuckalls who won't support their own asses! I don't think so. The operative word is not money, it's POWER, then MORE, then EVEN MORE! Money is just the tool.
That's how I see things anyways. Of course I could be wrong, all I have is the internet, and ZH ... and lots of Bitchezzzzzz.Good points Stewie----you are definitely right about the money masters (a.k.a. banksters a.k.a. money changers) they most definitely did not want a socialist system. BUT, they used the progressive/socialist thinkers to set the time bombs to get what they wanted. With that said, one of the hallmarks of a socialist system (the result anyway) is basically what we have now where all the money is in the top 1%, the government takes care of the population. IOW, capitalism for the rich, socialism for everyone else.
As I recall the "surpluses" were "borrowed" from Social Security.
It was "hidden" in all sorts of places, including "social security", retirement fund "conversion" schemes, and other creative accounting and unsustainable projections. They knew what they were doing though---they knew---they were laying timed viruses in the system and they are going off all over the place now.
Train approaching
Whistle squealing
Pause!
Avoid that
Rundown feeling
burma shave
You run
Then hide
But can't avoid
Obamacide
Burma Shave
You can't have these massive debts without fiat money.
Creating wealth from thin air should be left to the Great Spirit or God or Mother Nature or Zeus, not humans.
Humans suck at it and they have proved that through out history.
cut the hair
cut the fat
cut the chin
burma shave
History shows that kicking the jews out is the 1 and most important step to prosperity
(jews kicked out)