Weekend Reading: It's The Debt, Stupid

Tyler Durden's picture

Authored by Lance Roberts via RealInvestmentAdvice.com,

As I noted last Friday, the recently approved budget was an anathema to any fiscally conservative policy. As the Committee for a Responsible Federal Budget stated:

“Republicans in Congress laid out two visions in two budgets for our fiscal future, and today, they choose the path of gimmicks, debt, and absolutely zero fiscal restraint over the one of responsibility and balance.


Passing fiscally irresponsible budgets just for the sake of passing “tax cuts,” is, well, irresponsible. Once again, elected leaders have not listened to, or learned, what their constituents are asking for which is simply adherence to the Constitution and fiscal restraint.”

I then followed this up this past Monday with “3 Myths Of Tax Cuts” stating:

“Tax cuts do not pay for themselves; they can create growth, but in the amount of tenths of percentage points, not whole percentage points. And they certainly cannot fill in trillions in lost revenue. Relying on growth projections that no independent forecaster says will happen isn’t the way to do tax reform.


As the chart below shows there is ZERO evidence that tax cuts lead to stronger sustained rates of economic growth. The chart compares the highest tax rate levels to 5-year average GDP growth. Since Reagan passed tax reform, average economic growth rates have only gone in one direction.”

On Thursday, Fitch confirmed the same in their dismal report on the reality of what the effect of the “tax cut”

“Such reform would deliver a modest and temporary spur to growth, already reflected in growth forecasts of 2.5% for 2018. However, it will lead to wider fiscal deficits and add significantly to US government debt. As such, Fitch has revised up its medium-term debt forecast. US federal debt was 77% of GDP for this fiscal year. Fitch believes the tax package will be revenue negative, even under generous assumptions about its growth impact. Under a realistic scenario of tax cuts and macro conditions, the federal deficit will reach 4% of GDP by next year, and the US debt/GDP ratio would rise to 120% of GDP by 2027.


Tax cuts may lead to a short-lived boost to output, but Fitch believes that they will not pay for themselves or lead to a permanently higher growth rate. The cost of capital is already low and corporate profits are elevated. In addition, the effective tax rate paid by large corporations is well below the existing statutory rate.


Fitch expects US economic growth to peak at 2.5% in 2018 before falling back to 2.2% in 2019. The US will enter the next downturn with a general government “structural deficit” (subtracting the impact of the economic cycle) larger than any other ‘AAA’ sovereign, leaving the US more exposed to a downturn than other similarly rated sovereigns. The US is the most indebted ‘AAA’ country and it is running the loosest fiscal stance. Long-term debt dynamics are also more negative than those of peers, with health and social security spending commitments set to rise over the next decade. “

There is nothing “good” in any of the statements above,  and drive to the same conclusions I discussed last Monday.

You can’t solve a debt problem, by issuing more debt. 

While Congressional members continue campaigning that the “tax plan” would give an $1182 tax cut to most Americans, and boost wages by $4000, such has never been the case. A recent study by the Economic Policy Institute suggested the same in a recent study:

“Cutting corporate tax rate cuts would do very little to boost employment generation. In fact, cutting corporate tax rates ranks as the least effective form of fiscal support for employment generation, since corporate tax cuts primarily benefit rich households—who are less likely to increase their consumption than low- or middle-income households when they receive tax cuts.”

This is a point I have made previously. Corporate tax rate cuts will unambiguously redistribute post-tax income regressively. The corporate income tax is a progressive tax, with the top 1% of households accounting for 47% of the corporate income tax.

Don’t be bamboozled by the idea that tax cuts and reforms will lead to sustained economic growth. There is simply NO evidence that such is the case over the long-term.

However, there is plenty of evidence to suggest that further costly reforms and run-away budgets will lead to an increase of the current national debt and the ongoing low-growth economy that has plagued the U.S. since the turn of the century.

In other words….“it’s the debt, stupid.”

In the meantime, here is your weekend reading list.

Trump, Economy & Fed


VIDEO – Tax Cut/Reform Discussion (Real Investment News)


Research / Interesting Reads

“In investing, what is comfortable is rarely profitable.” – Rob Arnott

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silverserfer's picture

obviously we can solve the problem with more debt.  People are stupid. Havent you noticed yet?

Silver Savior's picture

Well it's clear they want to crash the system with debt so for the time being debt is money until it isn't. 

DeadFred's picture

Why isn't the Monopoly man wearing his monocle?

francis scott falseflag's picture

Contacts are covered with Monopoly Care

BennyBoy's picture


"You can’t solve a debt problem, by issuing more debt. "

For our debt based financial system to function there must be ever increasing debt.

If all debt was paid off there would be no money. And there is never enough money to pay the interest on the ever increasing debt.

It's a hilarious financial system designed for banks.

Dwain Dibley's picture

"If all debt was paid off there would be no money."

That's not exactly true.  If the U.S.G. were to pay off its debts, there would be over $20-Trillion in new legal tender dollars injected into the global economy, with the U.S. receiving the largest share.  Of course, the Fed, banking system Wall Street, a major portion of listed corporations and most private debt would be destroyed along with the bankster's debt-based private credit system as the economy adjusted to a legal tender monetary system that would prevail.  

Payment of obligations and interest on the public debt



francis scott falseflag's picture



It occurs when lenders continue to lend borrowers funds

to build their mlitary up to a point where the borrower

refuses honor his soverign debt contact and stops making

the agreed upon interest payments  --  forget about getting

your principal paid back.

francis scott falseflag's picture


The system crashed a long time ago, Wile E Coyote.  Don't look down.



Endgame Napoleon's picture

Trump-hating MSM, ironically, say the economy is booming, the same MSM that said it was booming under Obama, Bush and Clinton, with a brief blip in their cheerleading during the housing collapse.

My state’s per capita income is $19k. The same is true for many surrounding states and states like Texas, which is booming, with its $19,617 per capita income.

Try to rent an apartment on that wage, in addition to paying all of your other bills, without the ample supply of tax code and welfare handouts for sex and reproduction that boost up the earned income of parents and see how booming you think the economy is.

This tax cut will not increase my income at all, or if it does, it will be so little that I will not even feel it as an individual who does not get the $3,337 to $6,269 womb-productivity tax credit.

If I had another very small shop, I do not see how it would help, either, unless I could label it a pass-through, probably not even then.

francis scott falseflag's picture

When you wear the Emperor's New Clothes, make sure you don't soil your undies.

Silver Savior's picture

Everything is such a mess does anyone really care anymore?

Btw why did everyone tell me that Bitcoin cash was a shitcoin? It's almost at a thousand dollars. And Bitcoin took a big fart. 

francis scott falseflag's picture

That's why people get married and have babies.  So they can pretend to care.


A Ponzi isn't a Ponzi until you try to take your money out and it's not there..  

Or the Trustee claws back your ill-gotten gains and the sheriff repos your penis enhancement. 

Batman11's picture

The tax cuts were invested in China and created jobs and growth there.

It didn't get to be a super power without Western capital and off-shoring.

Lower wages meant higher profits in China.

Batman11's picture

Unfortunately, schizophrenia has become endemic amongst the US elite.

In the US they use the left hand side of the brain to get the best return on their investments and the right hand side of the brain to worry about the new multi polar world.

The left side of my brain tells me to invest in China for higher profits.

The right hand side of my brain worries about a powerful China

Never the twain shall meet.

They have a big split personality problem.

Endgame Napoleon's picture

So true, BatMan. Put your application in to work at CNN. They need an honest superhero like you to clean up the MSM deception.

moonmac's picture

Our economic system came from a sick twisted man that would screw guys, girls and he-she’s!

Go figure it’s unsustainable?

adolphz's picture

Is that of  other moon?

francis scott falseflag's picture



FreeShitter's picture

Its the zio moneychanging jooz stoopid.

francis scott falseflag's picture

Oh, stop it.

That's like blaming it on GOD.


"It's GOD, stoopid

adolphz's picture

Nice article Lance Armstrong 


Most investors here who really making money are acting in stocks. Shepwave has providing profitable signals. 

geno-econ's picture

You can't solve the debt problem by issuing more debt, but you can keep the party going a while longer for the benefit of the wealthy elite, multinational corporations and China which sucks up debt dollars in exchange for manufactured goods with high value added profits based on the cheap labor component of production    Also a good deal of debt dollars wind up in the stock market further feeding the bubble.   The weak link is the low and middle class which do not share in the bounty and in fact are  going further into debt and destroying their wealth and savings. Only a question of time before the system experiences an upheval through inflation, deflation  financial credit collapse or confiscation.  Saudi Arabia is a case study of what happens when revnues  to maintain a society are  declining.  In the case of Saudi Arabia it is declining oil revenues and they have chosen confiscation as a remedy.  In the case of U.S. it is unclear when  the ability to issue debt ad infinatum causes a crisis.  Trump unfortunatly has no meaningful plan to change course with a flimsy  tax cut which is a disguise to increase  debt even further. Tick toc, tick toc, tick toc, BOOM !

PGR88's picture

If the ONLY choice is between keeping more of MY MONEY now, and government debt going up in the future, its a shitty choice, but I want MY MONEY now.   

Fitch and similar assholes are in the camp of "we need fiscal rectitude, but governments needs should come first."

Maybe with more debt, Fed.gov will collapse faster.

JibjeResearch's picture

Thanks for the report, CTRL+P pleaseeee.... :)

Drop-Hammer's picture

Two words-  Get the f*ck out of jew debt.

moorewasthebestbond's picture

Weekend reading?


Sorry, too busy cleaning my guns.

rejected's picture

“Tax cuts do not pay for themselves; they can create growth, but in the amount of tenths of percentage points, not whole percentage points. And they certainly cannot fill in trillions in lost revenue. 

From this line it can easily be seen we are nothing but cash cows for the State.

I am nearing 70. In my life I have paid on average 16-20% of my earnings to the US government,,, 6.5% to SS Plus another 6.5% from withheld wages the employer paid,,, About 5% towards Medicare and Medicaid,,, about 5% average in State income taxes. So far that is about 33%. Add in another average 10% State/Local Sales Taxes.  We're at 43% now. Add another 10% for tarifffs and excise taxes corporations charge and don't itemize... up to 53%. Lastly for me there's property taxes which averaged 2% of earnings.  

Total = 55%.

While half of my earnings are confiscated and spent on things I DO NOT approve,,, this guy, Lance, is worried about the revenue of an out of control regime that would never have enough money even if they took 100% of our earnings.

Debt Slave's picture

I keep hearing that America is the wealthiest nation on earth. Must be true since my neighbor just pulled into his driveway tonight in a leased, brand new 2017 Chevy Silverado.

I asked myself, how long can a nation pretend it is so wealthy when it is up to its eyeballs in $20 trillion of debt?

I don’t know when this is going to blow up, but keep stacking.

Endgame Napoleon's picture

Here is another interesting question: Why do people who have money to burn appear to work far fewer hours than past generations? With US productivity on the down slide, as robots do more of the work, enabling so many family-friendly parent workers to take off a ton of time from work in excused absenteeism clubs, this might be the quiet before the storm.

The winners—those so confident that their skills are robot-proof or their crony-parenting workplace cliques so airtight—are breezily taking on a bunch of debt without bothering to wonder how their employers can afford to pay sizable salaries for unofficial, part-time workers?

How long will it be until employers realize that—even though everyone reflexively accepts that the winners are more skilled than the losers, even when the winners aren’t needed at work as much—that they are just not needed at work as much, prompting a Minsky Moment for the purchasing power of those in the excused absenteeism rings.

Walt's picture

It's the debt? By (((whose))) design was that?