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Greenspan Suggested Cutting Taxes on the Wealthy to Increase Debt so the Fed Wouldn't "Lose Control of Monetary Policy"
MOST ECONOMISTS DON'T PAY ANY ATTENTION TO DEBT
As I noted in 2009:
Paul Krugman [believes] that debt is a “phantom menace”. But this is not because Krugman is a liberal. Government economists in the Reagan, Bush and Obama administrations have all believed pretty much the same thing: deficits don’t matter.
Indeed, as Steve Keen documents in his must-read book, Debunking Economics: The Naked Emperor Dethroned, mainstream (i.e. neo-classical) economists don't even take debt into consideration in their models of what makes for healthy economies.
As Keen noted in September:
The vast majority of economists were taken completely by surprise by this crisis—including not just ... the ubiquitous “market economists” that pepper the evening news, but the big fish of academic, professional and regulatory economics as well.
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Why did conventional economists not see this crisis coming, while I and a handful of non-orthodox economists did [?] Because we focus upon the role of private debt, while they, for three main reasons, ignore it:
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They believed that the level of private debt—and therefore also its rate of change—had no major macroeconomic significance:
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Finally, the most remarkable reason of all is that debt, money and the financial system itself play no role in conventional neoclassical economic models. Many non-economists expect economists to be experts on money, but the belief that money is merely a “veil over barter”—and that therefore the economy can be modeled without taking into account money and how it is created—is fundamental to neoclassical economics. Only economic dissidents from other schools of thought, like Post Keynesians and Austrians, take money seriously, and only a handful of them—including myself (Steve Keen, 2010; http://www.economics-ejournal.org/economics/journalarticles/2010-31)—formally model money creation in their macroeconomics.
Even the most “avant-garde” of neoclassical economists, like Paul Krugman, have only just begun to consider the role that debt might play in the economy:
Given both the prominence of debt in popular discussion of our current economic difficulties and the long tradition of invoking debt as a key factor in major economic contractions, one might have expected debt to be at the heart of most mainstream macroeconomic models—especially the analysis of monetary and fiscal policy. Perhaps somewhat surprisingly, however, it is quite common to abstract altogether from this feature of the economy. (Paul Krugman and Gauti B. Eggertsson, 2010, p. 2)
Even when he attempted to break from this mould, Krugman did so from the same point of view as Bernanke above—that the level of debt doesn’t matter, only its distribution, and that one can abstract completely from how money is created:
Ignoring the foreign component, or looking at the world as a whole, the overall level of debt makes no difference to aggregate net worth — one person’s liability is another person’s asset ....
So most economists think that debt - and our money system - don't matter. DEBT IS THE ESSENCE OF OUR MONEY SYSTEM But as the following two quotes show, debt is the very essence of our current money system:
That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.
- Chairman of the Federal Reserve Mariner S. Eccles, September 30, 1941 hearing before the House Committee on Banking and Currency
If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.
-Robert H. Hemphill, FORMER Credit Manager of the Federal Reserve Bank of Atlanta
(This must-see 47 minute video provides details). GREENSPAN WORRIED THAT WE'D PAY OFF DEBT ... SO HE SUGGESTED CUTTING TAXES ON THE WEALTHY, TO INCREASE THE DEBT Indeed, despite the harms that too much debt can cause, some in government have worried that paying off our debt would be harmful for our country.
As NPR reported last month:
[NPR] has obtained a secret government report outlining what once looked like a potential crisis: The possibility that the U.S. government might pay off its entire debt.
It sounds ridiculous today. But not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system.
We recently obtained the report through a Freedom of Information Act Request. You can read the whole thing here. (It's a PDF.)
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If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.
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The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds. But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy. Banks buy hundreds of billions of dollars' worth, because they're a safe place to park money. Mortgage rates are tied to the interest rate on U.S. treasury bonds. The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track. If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?
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What do you do with the money that comes out of people's paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?
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The danger that we would pay off our debt by 2012 has clearly passed. There are plenty of Treasury bonds around these days. U.S. debt held by the public is now over $10 trillion.
And in talk last a week and a half ago before the United Nations, Nobel prize winning economist Joseph Stiglitz said that -10 years ago, when the U.S. had a surplus - Federal Reserve chairman Alan Greenspan was worried that if we didn't do something, we would end up paying down all of our debt, and then the Fed "wouldn't be able to conduct monetary policy". So Greenspan pushed for a tax break for the wealthy, to increase the debt.
DEBT IN THE REAL WORLD
In the real world - and not even taking into account the debt downgrades to the U.S. - economists have shown that too much debt creates a drag on the economy which stifles growth.
Nouriel Roubini points out:
Ultimately, deleveraging requires the writing down of debt as reflationary policies are not a free lunch and won’t solve the debt overhang problem (Dr. Roubini). Important case study: Japan back into deflationary territory despite huge public debt and QE (Chinn).
Steve Keen says:
[We’ll have] a never-ending depression unless we repudiate the debt, which never should have been extended in the first place.
As I noted in July:
PhD economist Michael Hudson says (starting around 4:00 into video):
If the problem that is grinding the economy to a halt is too much debt, and if no one in the government – in either party – is looking at solving the debt problem, then … we’re going to go into a depression as far as the eye can see.
Yet the U.S. hasn’t reined in its profligate spending. While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter.
As PhD economist Dean Baker points out, the IMF is cracking down on the once-proud America like a naughty third world developing country. (As I’ve repeatedly noted, the IMF performed a complete audit of the whole US financial system during Bush’s last term in office – something which they have only previously done to broke third world nations.)
Indeed, economics professor and former Senior Economist for the President’s Council of Economic Advisers Laurence Kotlikoff wrote yesterday:
Let’s get real. The U.S. is bankrupt.
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Last month, the International Monetary Fund released its annual review of U.S. economic policy…. The IMF has effectively pronounced the U.S. bankrupt.
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Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt.
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This is what happens when you run a massive Ponzi scheme for six decades straight….
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Bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
On the other hand, as I also pointed out last month, the government isn’t even stimulating in an effective way:
“Deficit doves” – i.e. Keynesians like Paul Krugman – say that unless we spend much more on stimulus, we’ll slide into a depression. And yet the government isn’t spending money on the types of stimulus that will have the most bang for the buck: like giving money to the states, extending unemployment benefits or buying more food stamps – let alone rebuilding America’s manufacturing base. See this, this and this.
(Yes, Congress has just thrown twenty billion dollars at jobs and the states, but it is a tiny drop in the bucket compared to the many tens of trillions of dollars in handouts to the giant banks.)
Keynes implemented his policies in an era of much less debt than we have today. We’re now bankrupt, with debt levels so high that they are dragging down the economy.
Even if Keynesian stimulus could help in our climate of all-pervading debt, Washington has already shot America’s wad in propping up the big banks and other oligarchs.
More important still, Keynes implemented his New Deal stimulus at the same time that Glass-Steagall and many other measures were implemented to plug the holes in a corrupt financial system. The gaming of the financial system was decreased somewhat, the amount of funny business which the powers-that-be could engage in was reined in to some extent.
As such, the economy had a chance to recover (even with the massive stimulus of World War II, unless some basic level of trust had been restored in the economy, the economy would not have recovered). Today, however, [politicians] haven’t fixed any of the major structural defects in the economy [update].
So even if Keynesianism were the answer, it cannot work without the implementation of structural reforms to the financial system.
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sociopathic preditors mixed in with sheep- perhaps the popularity of vampires and zombies in modern cinema and books - is the public sheep almost knowing that they really are being bled to death..once again the movie that was allowed to be shown (a grade b hokey production) "THEY LIVE"..is an effective tool to open minds to the alien leadership of the modern world..put on your "dark glasses" and you will see them for what they are. We have been trained to not see them or ignore them when they act in direct conflict with stated public policy: "Libya" "TARP" the
assination of Leahman and Bear..a dead lawyer in a public park..the The HLS and TSA,do you see them? Be a good citizen look away ,you can't think it might be..
a one eyed man in the land of the blind
Regulatory capture, legislative capture. Ah, sweet for the money masters, until the marketplace is saturated with more corruption, self-dealing, and systemic risk than the global matrix can stand, at which point we experience criticality -- that last grain of sand detaches from the slope, and...
Is there a Wiley Coyote moment in the offing, or just more crisis fatigue?
All honest, ethical people NEED that Wiley Coyote moment. Absent escape from planet earth or self-sufficient community beneath the ocean, absolute, complete, utter destruction of the current system and all its mechanisms and all its predator-controllers is the only way the vast majority of folks have a chance to escape permanent destitution and slavery.
not agreeing or disagreeing .... this is one more 'learned ' (said respectfully here) man's opinion ..... there is lots to this debate ... the more I read the more I learn ... try Schumpeter, an Austrian, not of the Austrain school but a close cousin of it ...
It is time to end the neoliberal BS and go back to sound fincial concepts.
You are all so stupid. You actually believe that Greenspan is to blame for current problems. You are all dumb and your mom’s dress you all funny. And you smell.
That out of the way, if you think ANYONE can centrally plan a bunch of homo sapiens, all of them with 200,000 years of cognitive evolutionary psychology worth of baggage, naturally selected to survive in tribes, you are all a bunch of ignorant peasants.
Here's a freebee: Jobs moving to China. End of story. No Greenspan, no Bush, no nothing. And why are jobs moving to China? Re: 200,000 years of human evolution.
Now stop whining like a bunch of losers and l2survive and prosper and perpetuate your gene pool, frigginidiots.. If you're not prospering though, just quit trying to perpetuate your gene pool, you are pond scum and thus your offspring will also be pond scum and the "safety net" is full...fargenarsholes....
One flaw in your theory is... some of us have not adopted those 200,000 years of baggage. We self-consciously reject that baggage, start tabula rasa, and figure out the nature of reality, the nature of consciousness, and anything else we choose to understand.
The fact is, people are programmed by the predators-that-be and predator-class. The egregious stupidities adopted as fact by the vast majorities are whatever those predators choose to promote. It doesn't take 200,000 years, it takes one or two generations. And likewise, if a group of us gets our asses off this planet and spends our lives being self-sufficient in the asteroid belt or equivalent, those 200,000 years can't make us believe or do anything whatsoever.
To pretend that the predators-that-be and predator-class in the west have not caused the economic and political dislocations that are causing the western world to collapse is just plain self-delusion... self-delusion that you accepted and imposed on yourself.
T-Bills are purchased? LOL that's a laugh... with what? Foreign Fiat? Tha's not a sale that's an exchange of credit. A T-Bond for a FRN is a credit swap. The FED is making out because NO ONE redeems their FRNs and I mean NO ONE. Want to erase the national debt? Endorse your cash before you spend it. cancel the US Treasury's endorsement/liability.
The problem with America is that people are absolutley CLUELESS about negotiable instruments and the law related to them.
Simply endorsing your FRN's will completely erase all income tax liablity because the note becomes a liability not an asset. You are not using their credit you are standing up, being a man and using your own.
Huh? No comprendo.
Do you comprehend ...No substance to back either instruments?
Or is it the endorsement part you don't understand?
Go read http://www.law.cornell.edu/ucc/3/article3.htm
Sir Alan Greenspan. He was knighted, remember?
Triffen's Dilema, no debt in the USA no currency for the rest of the world...he understood this 50+ years ago...see also FOFOA's dilema....ya might learn supin...
Fuck Off and die Allan Greenspan,You fucking wrinkely old sack of shit.
How you are allowed to walk on this earth is beyond me.
Why r we talking about taxes? If your house is on fire you don't rearrange the furniture you put out the fire THEN worry about the furniture. Let's identify the number ONE PROBLEM and deal with it. The number one problem IS the Federal Reserve. So, get rid of it and lynch every bankster as the court system is too corrupt. Then lynch every corrupt politician starting with your local town government. Burn down the government buildings and lynch your local government, tax collectors first. The time for talking and shuffling paper and arguing over taxes and blah blah blah is coming to an end. Pick a side and get it done.
If you cut inflation you cut tax on everyone, and put the squeeze on the MFing irresponsible debtors where it belongs.
Fuck him and any president that hung a medal on him!
A Life of perpetual debt. Yea Us!
I fucking hate these cuntbags!
If this is the Feds Policy, and I dont doubt that it isnt. Hell yea the rest of America should know this bullshit. I call BS on the Fed and I have now placed a Vote of No confidence for the entire U.S Gov'T! They should all step down Immediately
If its all debt, its all right.
These guys are like the French Generals and politicians who built the Maginot fortresses as a defense strategy between the wars. They were all absolutely convinced that France was safe. Until Hitler disabused them of that notion. Collective delusions are very dangerous.
Wasn't Greenspan one of Ayn Rand's boy toys? Tells you enough of what Randians are all about, right?
Read what Greenspan wrote before going over to the dark side. It's from Greenspan that I learned the house of cards that is debt and the value of gold as money when he contributed to Ayn Rand's Capitalism: The Unknown Ideal. I read his Gold and Economic Freedom about 15 years ago and it's a huge part of the reason I have almost nothing to worry about as the West's monetary system collapses.
The fact that he chose power over sound money is a reflection on him and him alone.
Yeah and the fact that Rand accepted medicare when she got lung cancer ( "ciggies don't cause cancer, thats a communist plot" ) is a reflection on not just her, but her entire philosophy. Sounds good in theory, in reality it is a crock of shit. Ideals are meaningless to a dying or starving person, as she proved. If there is not a saftey net for people, they do not just lie down in a gutter and die, they bash your mother to death and take her shit. I would.
So, if you recognize that the state seizes property from some to give to others and fight against it, you should be taxed for the redistribution but never partake of it because you recognize it? Reason as a liability. Go figure.
Why should she refuse it? So that it remains better intact for others?
No safety net. Makes the circus boring. Now stfu clown.
And the idea of a free market, which is the basis for Austrian economic thought, is then what you don't accept. Not surprising, coming from someone that would murder and steal. Socialism, which is legal plunder, would be your philosphy. Just a guess.
No I accept reality, you do not. You want to worship somebody who threw her entire ideology under a bus to save her own life, fine. But a fact is a fact: people do not just lie down in a gutter and die because you think they should.
It has nothing to do with "socialism" or "capitalism", and for you to write what you did, shows that you are either a complete fool or a liar. I'm guessing you would accept medicare to save your own life too if you had to, so probably just another hypocrite.
That someone totally disagrees with the Federal gov't taking money from them illegally, at the point of an IRS gun, to fund some social program, then later in life that person decides to use that program which they helped fund, even against their wishes, there is no hyprocricy. Only someone getting something from which they paid for. And by the way, maybe I am a fool, but there was no lie in my post.
And as far as "Austrian Economics" goes, I have a first edition first print (UK) of The Road to Serfdom, which I paid good money for, and Hayek agrees with me you dumb shit. Have you even read it?
I'm australian, my ancestors got sent to this country for stealing food to feed their family, I wouldn't fucking be here if they hadn't. Now shut the fuck up you ignorant ass clown.
Hey idiot, don't procreate, the safety net is full.
Sorry, didn't know about your ancestors, so it runs in the family, huh?
What were yours, slave owners? If you truly believe it is better, both economically, and socially, to let hungry people starve to death, you are a very small part of the population. I agree the government is way to big, keynesism sux, fiat is evil blah blah blah. But point me toward a country with NO government/taxes, that you would rather live in? I hear Somalia is nice, put your money where your mouth is tough guy, go live there. No government, it should be paradise for you. Because no matter how much you bitch, moan and cry like a girl, the reason you will always have taxes is because most people are happy to pay some, and little bitches like you are too scared to live anywhere without them.
Inflation (the devaluation of the medium of exchange for labor & goods purchased with it) is once and always a monetary phenomena.
Having that medium of exchange backed by nothing but debt is monetary suicide.
Ta Dah!
Classical (and I mean this in the traditional, unpolluted, a-modern interpretation, convoluted) monetarism (a la Freidman ansd Schwartz) in its purest form consistent with the Austrian School (von Mises).
Oncle Knukcie Likie :)
ROR!!!
Tis why Heir Krugman has and always will be, a fraud.
http://www.huffingtonpost.com/2011/11/02/herman-cain-sexual-harassment_n_1072275.html
the mark of cain.
another woman come foward. i told you this nigga has bodies all over the place.............ha ha ha ha........there he is singing gospel songs at the press club and telling everyone God told him to run for pres and then his personal behavior is disgusting.......this man is a lunatic and a idiiot.........
While the sexual harassment story has salacious overtones, here's the REAL Herman Cain scandal--
Herman Cain's Enron-esque Disaster
http://motherjones.com/politics/2011/05/herman-cain-aquila-lawsuit-2012
>>>The spectacular failure of Aquila's trading venture practically wiped out the hard-earned retirement savings of veteran employees. Richard Itteilag, a plaintiff in the Aquila class action, lost 87 percent of his savings. Robert Goodson, a 20-year Aquila employee, lost 75 percent. Michael Reinhardt lost a staggering 94 percent. All told, thousands of employees saw their retirement funds eviscerated thanks to Aquila's Enron-esque activities. (In 2007, Aquila settled with the employees for $10.5 million. Not long after, Aquila merged with other Midwestern energy companies and now no longer operates as Aquila.)
Cain served on the board of directors throughout Aquila's ill-fated trading misadventure and the subsequent collapse of the company's retirement fund. In fact, he chaired the board's compensation committee, which, according to the lawsuit, had direct oversight of the push to get employees to invest more and more in Aquila stock. As chair of the compensation committee, Cain also saw fit to dole out $30 million in bonuses, not including stock options, to the top five execs at Aquila in 2002, with the company's stock plummeting. A month after the Kansas City Star reported on the hefty bonuses in July 2002, the company laid off 500 employees, and the losses to employees holding company stock had reached hundreds of millions of dollars.
As a board member, Cain would've had direct knowledge of Aquila's activities, says Fred Taylor Isquith, a New York attorney who litigated the employee class action. Asked if it was fair to place blame on Cain for the debacle at Aquila, Isquith replied, "Yes, I believe it is."<<<
If you're not rich, blame yourself because you don't steal...
It is frightening to me that we have people running our global and national economy who view debt as a "phantom menace." It is precisely this "phantom menace" which causes psychological depression, sometimes suicide. It is this phantom menace which puts people in the streets begging for money and sustinence. Frightening, I tell you ... terrifying.
These economists are 'court' economists. Their theories please the King. They do not have to have any merit whatsoever. They write and argue to protect the King.
Thinking that debt caused by deficits do not matter, is like saying that property does not matter.
Proof: In case of fiat, it means that balancesheets - total as well as individual trades - do not matter. What balancesheets model, is capital balance. Capital in turn models wealth as well as "promises of wealth" (debt: someone else ought to give me x / someone ought to give someone else x). Wealth in turn is an abstraction of possession. So, in the most direct sense, the material goods that you control. Now, what does it mean that deficits do not matter? Right, it means that it does not matter, if a trades result in you owning less. Thus, it also does not matter what you own.... thus, we have declared not only trade, not only economy, but possession itself irrelevant.
Of course, one could argue that debt specifically is only a promise - you don't have to adhere to it. I.e. one can "default" on one's debt, or even make others pay it via taxes or inflation. However, that too does not make it irrelevant, because obviously consequences will follow: No matter if you default over and over again, or if you make others pay over and over again.... at some point no one will lend to you anymore (or only at much worse conditions), or those whom you continiously make pay for your deficits, will have so little wealth left, that their very survival is threatened, at which point they will forced to attack you. Are those morons also argueing, that it doesn't matter if one is dead or alive? Well, to me it makes one heck of a difference, if those shitheads are dead or alive.
"... this is not because Krugman is a liberal..." No, it's because he's a #uckin idiot...
This kind of shit just so pisses me off.
#41
The conundrum is unsolveable within its own context. One cannot have a viable economic system based soley on debt, no matter how tricky the system or how you dress it up.
Ergo, a debt based system will destroy itself and must be replaced with something with a bit more bones to it. Food is perishable and labor transient, what remains of value?
What thing shall we all prize sufficiently to all value and make the basis of our economic system?
Chocolate!
And, you can eat it.
http://www.nakedcapitalism.com/2011/11/michael-hudson-on-the-showdown-in-greece.html#comment-513385
Love the Keen.
FUCK GREEDSCAM. Want to fix America? Everyone that makes less than 30,000 in earned income pays NO FREAKING TAXES, via a special card. NO SALES TAX, NO FICA, NO SS/M, (no taxes taken out of pay), No Gasoline or HH oil tax, no cell phone tax, no 911 tax, no DMV 'tax' over $50/yr TOTAL (plates/registration/lisence) , Where do you get the $$$ from??? TAX THE RICH, END THE PENSIONS, END THE PROBLEM!
DOLLAR DEBASEMENT caused inflation. Inflation which is against the FED MANDATE and therefore against the law and therefore everytime you pay for something you are paying an inflation TAX. This hurts the middle and lower class the most (of course) while making the rich and 1% uber rich.
Then I guess I'd have to have my driver buy the gas and my nanny buy the food, the av gas for the jet might be a problem....
just sayin it won't work, I just scammed your system and I'm not even a scammer.
Lower taxes fewer taxes less government (fewer departments not just smaller) and for every new law an old one must die....
If you want to pass a law the IN ANY WAY economically harms anyone...they must be made whole.
No impingements of liberties that are not voted by referendum, NO exceptions to these infringements...not cops, not Congress....and the person proposing all laws must be identified in every State...no horseshit "you can't fart in a public place...feel good laws"
Hell anarchy if done nicely woud be fine...might need to bring back duels though..
No taxation without representation. We have no representatives, the representatives only represent themselves and the corporations which bankrolled their campaigns. Why can't the tax hiker types see this? We all pay more taxes, congress gives it to the banks for free, they buy bentleys-we are unemployed and worry about food, and we vote to give them more money? WHY CANT PEOPLE GET THIS THROUGH THEIR NOGGINS!?
Everyone should pay the same rate no matter what level of income. That is fair. You want everything free. Nice.. Try Europe.
We're already there, and it hasn't fixed shit. Their special card is labeled "SNAP", and the Earned Income Tax Credit pretty much makes up the difference.
Still not enough for a free ride to a fixed economy? Take your pick of the various W.I.C., SSDI, Medicaid, Fuel Assistance.... Unless you're an eighteen year old white male not going to college, and haven't knocked anyone up yet, if you only make 30K a year? You ain't paying shit anyway.