February 21, 2006

More Rate Hikes May Be Neccesary: FOMC

The FOMC minutes came out today. “Federal Reserve policy makers, in Chairman Alan Greenspan’s last interest-rate meeting, said more rate increases may be needed because inflation has been ’somewhat higher’ than acceptable, minutes of the session showed. ‘In the view of some members, the possibility of additional policy moves was reinforced by readings on core inflation and inflation expectations that were somewhat higher than was desirable over the long run,’ the Federal Open Market Committee said in documents released today in Washington.”

“‘The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path,’ and may put ‘further upward pressure on inflation,’ Ben Bernanke told House and Senate panels last week in his first congressional appearance since becoming chairman. ‘In these circumstances, the FOMC judged that some further firming of monetary policy may be necessary, an assessment with which I concur,’ he said.”

“While a sharp slowdown in housing would spell trouble for the economy, the Fed minutes suggested that the most likely outcome was a gradual moderation. That was also consistent with the message Bernanke delivered to lawmakers last week.”

Danielle DiMartino had this at the Dallas News. “Now that the air is coming out of the (housing) market, many are offering soothing reassurances that the landing will be ’soft’ and not spill over into the broad economy. Should we be lulled into a sense of comfort?” “I dare say our new Federal Reserve Chairman Ben Bernanke would answer no, at least for now. In last week’s congressional testimony, Mr. Bernanke hit on many of the red flags the data have raised recently, purchase activity is down, inventories are up, price gains have cooled, and it’s taking longer to sell a home. Encouragingly, he vowed to keep a close eye on the housing market.”

“The following are relevant to the direction of interest rates: Freddie Mac just released figures that showed homeowners withdrew a record $243 billion in cash from their homes in 2005, $100 billion more than the prior year. Mr. Bernanke’s advisers will point out that this money was a result of home price gains alone, not declines in interest rates, which rose throughout 2005.”

“An estimated $2.5 trillion of household debt is set to reset at higher interest rates in 2006. Given the higher level of interest rates, it is safe to say debt-service costs will easily exceed their current record 13 ¾ percent of after-tax income. Homebuilders have warned in recent weeks of declining sales, contract cancellations, falling prices and earnings misses.”

“Foreclosure activity was up nearly 16 percent in the fourth quarter in red-hot California. Dallas-area foreclosure postings were up 17 percent in the first quarter over the same quarter of 2004.”

“Housing inventories have more than doubled in such key markets as Washington, D.C., Miami, Los Angeles, Manhattan and Boston. The next two years will prove a critical test for the subprime market, which is six times bigger than it was 10 years ago, as monthly payments reset at much higher interest rates.”

“The biggest irony for Mr. Bernanke as he mulls which way to steer monetary policy is the pressure exerted on his decisions as a result of the housing boom. Builders broke ground on a record number of homes in January and consumer spending came in at three times economists’ forecasts. The resultant economic strength will all but necessitate the Fed to keep raising rates.”

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Comment by TXchick57
2006-02-21 13:15:14

IMO, the absolute lowrent morons of this housing bubble are the “investors” buying tract homes in Dallas, Houston and Austin. Talk about money going away to die. Every day I see these clowns trying to rent their stickbuilt shitboxes in Collin County (way way North of Dallas with a horrendous commute into the commerce cents). Some of them have actually had the nerve to try and cash flow these properties! LOL. Nobody rents out there. It’s all white flight, rockribbed God & Country, Chevy Suburban or Lexis SUV driving, wannabes who will end up in bankruptcy court if two paychecks are missed.

Comment by Lou Minatti
2006-02-21 14:13:07

I just want to say that your disdain for Texas is almost poetic in its anger. :-)

Comment by DeepInTheHeartOf
2006-02-21 14:32:29

Shhhsh… There are some nice things about Texas. Just don’t tell her. :)

Comment by cereal
2006-02-21 15:08:21

my daughter schools up in denton. i haven’t made up my mind if i like it or not - 2 years later

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Comment by TXchick57
2006-02-21 15:02:53

Houston isn’t that bad nor is Austin but Dallas is the absolute stinking armpit of this country and should be nuked off the planet before it can do any further harm. Sorry, I always say what I think. LOL

Comment by Lou Minatti
2006-02-21 15:13:04

Oh come on. Beaumont-Port Arthur and Wichita Falls are the official Texas armpits.

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Comment by Ben Jones
2006-02-21 15:27:58

Wow Lou,
You really do know Texas!

Comment by steinravnik
2006-02-22 05:26:20

How about El Paso? My sister used to live there, and I’ve been there to visit. Now that place sucks!

Comment by Max
2006-02-21 16:49:13

I say nuke the whole TX. And FL.

But first, evacuate all hot Texan chicks, then nuke.

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Comment by Melody
2006-02-21 17:27:41

Wow really, Dallas is that bad? You think Houston is better?

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Comment by easthawaii
2006-02-21 21:12:45

Yes, Houston is better than Dallas. And Abilene is as bad as or worse than Wichita Falls; I’ve lived in both.

Comment by Sunsetbeachguy
2006-02-21 19:29:28

You people don’t get Texas that was a love letter.

Comment by Mr. D
2006-02-21 13:18:22

“…economic strength will all but necessitate the Fed to keep raising rates.”

They got that right, and all those calling for consumer collapse this winter got it all wrong:
“Coming Soon — Big Growth, Big Effect: Kevin Hassett”
“David Malpass, chief economist with Bear Stearns Cos. in New York, wrote in his commentary last week that “first-quarter GDP growth is setting up to be a blowout.” He added that “consumption, investment, government spending and residential investment are all, at least through mid-February, looking even stronger than our 5 percent first-quarter growth forecast.”

“The median estimate for first-quarter growth in a Bloomberg News survey of 77 economists on Feb. 9 was 4.0 percent.”

Furthermore, if housing is collapsing, and the housing ATM has been shut down, obviously there’s growth coming from other sectors.

Comment by feepness
2006-02-21 15:06:44

And economists are never wrong!

I believe there is a bit of a frenzy trying to get the last bit out of the market. Thus Home Depot’s excellent 4th quarter.

Once again we are borrowing from future consumption. I do agree that when that bill comes due is anyone’s guess.

The ATM hasn’t quite been shutdown. My HELOC, for example, has a zero balance and is available for emergencies. People can still grab those CC because they are going to sell the place for a profit in the Spring!

Only time will tell, and I’ll buy you a beer if you’re right!

Comment by Mr. D.
Comment by feepness
2006-02-21 15:08:42

Oh yeah, I did forget tax refunds. My Mom is working H&R block this year and sees everybody paying the 125% annual interest to get their refund early. Little bump there too… will it continue?

Stay tuned!

Comment by goose_egg
2006-02-21 19:08:26

Maybe the guvmint is hoping that all the revenue from short term RE capital gains will balance the federal budget!

Comment by sf jack
2006-02-21 21:45:21

Mr. D -

Given your viewpoint - when do you list the house?

Or have you sold it already?

Comment by Mr. D.
2006-02-22 04:03:52

My viewpoint is optimistic that we’ll have one more bubble after the fed. eases (probably stocks) and a few more years of economic growth (after a slowdown next year). Housing soft this year, but then may rebound or flatten for a few years after that and not crash until the next tightening. I

I’m still a fence sitter holding off for the chance that we may have one more upleg in my area (Chesapeake/Virginia Beach). Very few rentals in the area so I assume little speculation.

I’m looking for a market with two tops (just like we had two tops in 86/87 and then 89). I think CA, NV, FL, and condo market topped last summer. However, I think the speculation will continue to spill to the rest of the country for a few more years and they may not top till the next fed. tightening around say 2010/2011.

Comment by VaBeyatch
2006-02-22 10:53:02

Dunno, they are trying to increase the rent in my hirise to me, and I did a quick look and there appeared to be a good amount of rental property availible and cheap.

RealtyTimes is saying slowdown for our region, and HousingTracker is still showing huge increases in inventory.

Hampton Roads can burn :-)

I just bought some equipment from someone off of craigslist. He mentioned he had a 2nd place, unoccupied that he bought with equity loan from his paid off first place. He is really worried and said the payments are hurting. He plans to sell both and leave the region.

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Comment by sf jack
2006-02-22 13:33:56

Mr. D -

So what makes the slowdown next year and the second top possible?

A strong or strengthening economy (presently) on into later this year?

Or will a possible Fed easing “sooner” (later ‘06, early ‘07) provide a second leg to housing, another equities bubble and a shallower recession in ‘07/’08 (than otherwise, if recession)?

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Comment by Mr. D.
2006-02-22 15:19:17

Your second scenario is exactly what I’m looking for.

Comment by SB BubbleBeliever
2006-02-21 13:22:31

Slightly Off Topic… repeated on another post, BUT

There are alot of PROFESSIONALS that are looking at this market and saying “Are you Nuts!”

Fortune Magazine (Oct. 31 2005 issue) had a great cover story article about Tom Barrack “Worlds Best Real Estate Investor”… a California Billionaire that recently pulled all his money out of USA real estate and is now investing overseas.

One of his quotes in the article suggested that the writing is on the wall… and the fact that there are so many amatuers in the market now- “you would be crazy to invest now”.

As many on this blog has suggested over the last few months…
When EVERYONE thinks they can get rich on real estate, just by signing up for easy loans- that’s about the time that the GAME IS OVER.

I personally have (recently) pulled out of the market, and will continue to rent while this thing SHAKES OUT!!

Comment by arizonadude
2006-02-21 13:28:05

We are definitely in the denial phase of this whole thing. The data is right in front of peoples faces and they refuse to think the bubble will pop. I am so surprised a lot of people didn’t learn a dam thing in 2000, simply amazing.

Comment by Surffroggy
2006-02-21 21:57:31

true Dat. So many people have no concept of any kind of financial bubble. I talk to people at my job(I do loans) that do not even know what a web blog is(mostly older people that are not internet savy, but a large % of people in 20s-30s also) so they get most of their real estate marker info from newspapers and word-of-mouth.

Comment by AL
2006-02-21 15:19:44

“When EVERYONE thinks they can get rich on anything, like the day traders in 99 and 00″
I think that is the clear sign for any bubble and thats when i get out when everyone is talking you can’t loose.

Comment by boulderbo
2006-02-21 15:30:01

i recall that barrack called it spot on that the construction costs were going to doom most of these condo projects. smart man, imho. i’ll be following his lead.

Comment by bottomfisherman
2006-02-21 17:16:14

So where is Barrack investing these days?

Comment by SB BubbleBeliever
2006-02-21 18:20:16


Don’t really know… just had picked up this Fortune magazine back in October ‘05 when things in the RE market started to smell fishy. (Sorry to use part of your name here). I no longer have the copy, otherwise I might peruse the article and find out.

Comment by bottomfisherman
2006-02-21 19:33:44

If you can find out, kindly post it.

I sold back in April and things were smelling mighty fishy then too. ;-)

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Comment by SB BubbleBeliever
2006-02-21 21:11:26

GEE, with the anonymity of our stage names on this blog…

MAYBE BOTTOMFISHMAN IS TOM BARRACK. seems like a likely nickname he could make for himself.

Wouldnt that be a hoot! ;) Anywho….

As of this post- I am logging off the blog for about a week… won’t be near my computer. But if I find anything else out, I’ll let you know. Talk at ya all when I get back from my TRIP. SB BB

Comment by TheLingus
2006-02-21 13:24:23

It might have meant something if it weren’t for the fact that it’s a mere commentary. What is worse is that he’s a carnival barker from one of the most untrustworthy special interest groups, the American Enterprise Institute.

Comment by Robert Cote
2006-02-21 13:31:41

I bet the Fed is scared to death at the prospect of $6 trillion in leveraged asset valuation evaporating and pushing the general economy into a defaultionary [default and deflation conflated] cycle that no printing press could ever correct.

Comment by Mr. D
2006-02-21 13:33:53


Comment by HARM
2006-02-21 13:43:29

And…therefore… will cut rates to the bone and rapidly expand M3 at the first hint of slowing inflation.

Comment by Robert Cote
2006-02-21 14:08:46

Yep, the only two tools in their belt. Thus the reason behind M3 no longer reported as of next month. Unfortunately there is no discount rate below zero. Normally the response to the last line is “but there is, we call it inflation.” Not this time. People are too smart these days. Is there anyone with any measurable assests not in housing not capable of Buying Canadian Oil or EUD CDs in an hour or less? More money (real money in the theoretical sense not green slips of paper) will pour out of the country than the Fed can try printing. Result; deflation. And gee, what is an example of deflation? Why yes, very good class, being able to buy a house for $200k that once cost $400k.

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Comment by Mr. D.
2006-02-21 15:38:19

So let’s see, Dr. Bernanke, (PHD from M.I.T.) who has spent his life studying the issue and believes deflation can be defeated, is wrong, and you Mr. Blogger are right.

He spelled out his reasoning in several books and recent speeches, and your reasoning is what? Rates can’t go below zero, and investors will sell $US. Oh no, I bet Dr. Bernanke forgot to think about those obstacles.

Try reading his most recent speech and maye you’ll realize that he knows at least a little bit more on this subject than you or I do:

Add Dr. Milton Friedman to the list that thinks you are wrong. And, add the fact that every deflation has been defeated by reflating.

Comment by Mr. D.
2006-02-21 15:40:48

BTW: M3 will no longer be reported because it’s costly to gather the info and doesn’t provide useful info to the fed. They will continue to report M2, however, which does include the monetary base. So reflating will show up there.

Or, maybe you’re right, it’s just another government plot to cheat the little guy and make republicans rich.

Comment by tj & the bear
2006-02-21 15:51:25

The French studied WWI in excruciating detail, too. The result was the Maginot Line. Bernanke’s all set to fight the last depression, not the next one.

Comment by Mr. D.
2006-02-21 16:10:36

They’ve updated their frame of reference to include Japan’s recent failures. Has that much changed from one asset bubble to the next? Perhaps, but I’m sure they are aware of new developments and will factor them in as best they can.

BTW, what alternative do they have?
Be scared to death, as advised by some of our fellow bloggers.

Comment by hickiwawa
2006-02-21 19:04:10

I agree with both parties in this line of thinking. The Fed will do whatever possible to keep deflation from taking hold. Also, I am fully aware that “whatever possible” is far beyond my knowledgle of the Federal Reserve. That being said, the housing issue, to be specific, (again, in my humble opinion) is way out of reach of the Fed’s powers. They may be able to stop the OVERALL economy from kicking in the reverse thrusters, but they can’t make people fall in love with housing again.

Comment by Sunsetbeachguy
2006-02-21 19:34:17

Come Robert Cote I was looking forward to a flame war between Mr. D and you with whom I have crossed swords.

You gotta fight back!

Comment by Out at the Peak
2006-02-21 19:56:44

Mr. D, do you also hold Greenspan in high regard as well? Some people would blame him for the dire situations we face now. Sure, it was a fun ride, and I’m somewhat wealthy from it, but the upcoming recession is going to hurt everyone.

M3 was not even a fraction of the budget. It did fail to give the Fed and analysts traditional indications, but there is good reason to believe they are trying to hiding the printing press now.

Please read Randy’s thoughts on the Fed.

Comment by Robert Cote
2006-02-21 20:27:53

[Sunsetbeachguy] “Come Robert Cote I was looking forward to a flame war between Mr. D and you with whom I have crossed swords.”

My 2×4 of certitude is in the shop due to recent overuse. I’m also a little busy in a back and forth discussion with a really nice guy over the applicability and adaptability of qualitative measures incorporated in the CPI/PPI statistics. He is pretty smart but keeps reminding us that his opinions are his and not those of the rest of the Board of Governors. Mr. D is one of those who aren’t going to back down just because of silly things like facts and reasoning. He’s already gone where I just won’t follow; “not only are you wrong but because you disagree with me you must also be stupid.” Bernanke is indeed fully prepared to fight the last war. I am generally familiar with his line of reasoning and I don’t buy it. (The helicopter comment is/was a minor distraction.) His problem is he cannot print different colors of money. Any attempt to reflate with the one color at his disposal is going to pour into all the wrong places and send the wrong messages overseas.

Comment by jdd
2006-02-21 20:40:41

There is too a discount rate below zero - in fact, Paul Krugman advocated Japan going to it a few years ago (I believe the BOJ was at or very close to a 0.0% discount rate) - you pay people to borrow money. There is literally no distinction between that scenario and one where nominal rates are below real rates, as they were when the fed rate was at 1%. Judging by the continued increase in the price of gold and other commodities, I’d say real rates are probably still higher than the fed rate.

Maybe the silliness of the policy is a little bit more blatant with a negative nominal interest rate, but, not unsurprisingly, at least one “prominant” “economist” with a ph.D and a bunch of books thought it was a good idea to “fight deflation.”

Comment by Mr. D
2006-02-22 06:17:35

Robert Cote: I don’t resort to name calling, sorry if it appeared that I was. My point was that you seemed to imply that you knew the shortcomings of future fed. policy, and that Dr. Bernanke had somehow overlooked them. I simply disagree.

I look forward to discussing any facts you might present. So far you seem to be relying solely on your opinion that reflation attempts would cause the $US to drop sharply (indeed it probably would), and would lead to deflation. In fact, a weaker currency would be inflationary, and help the fed’s cause in fighting deflation.

Comment by auger-inn
2006-02-22 06:52:06

It’s not that Bernanke overlooked any facts, it’s that he can’t do anything about the current facts he is going to have to deal with.
If you believe that the reason the Fed (who operates off budget and prints their own money) is discontinuing M3 because it costs 1.5M/yr to calculate, I’ve got a bridge to sell you.
In addition to that, there is another whole school of economic theory (Austrian) that raises the bullshit flag on
Keynesian economic theory so readily accepted as the gospel by this government. You might at least accept the possibility that this government has us in over our heads with this debt and that there is an alternative outcome that isn’t so optimistic as you believe.

Comment by Robert Cote
2006-02-22 08:47:24

…you seemed to imply that you knew the shortcomings of future fed. policy, and that Dr. Bernanke had somehow overlooked them. I simply disagree.

Bernanke hasn’t overlooked the shortcomings he openly admits the limitations of the Fed powers. People often forget that the Fed is charged with a stable money supply roughly reflecting the underlying economy, it isn’t responsible for the economy. What we have is an extensive and pervasive lending practices fiasco over which the Fed has insufficient control.

I guess if we aren’t going to get into a pissing contest Sunsetbeachguy will have to go elsewhere for a good fight.

Comment by Nick
2006-02-21 13:36:46

I am so sick and tired about this soft landing bullsh*t. Out here in So CA especially, there never was or will be a soft landing. So Cal RE market since the 50’s has been like a roller coaster ride, goes way way up, the sharply down. This soft landing crap is never intended for markets such as So Cal or most of CA for that fact. Therefore, all these exotic loan HB with hopes of moderate appreciation then a flat market for a few years to come are in for a real dissappointment.


Comment by waiting_in_la
2006-02-21 14:21:31

amen. soft train wreck.

Comment by feepness
2006-02-21 15:10:48

Those terms are entirely meaningless and just used to confuse people. It’s as meaningful as discussing how many Angels can dance on the head of a pin.

Make them give you numbers.

Comment by investwith6s
2006-02-21 13:37:40

I guess it’s getting hard for the FED to hide their dilution of our US dollars by offsetting it with low priced foreign goods and labor(deflation via globalization to offset dollar dilution– i.e., cheap goods from China and cheap labor from India to hide the fact that your dollar really is more worthless).

Comment by KirkH
2006-02-21 14:33:40

If deflation is natural and accelerating (think computer prices) then is the Fed simply trying to inflate just enough to keep deflation at bay?

Comment by Mr. D.
2006-02-21 15:47:52

Now that’s a very good question.

Deflation, might not be natural, but it is a strong force today because of globalization, deregulation, and low marginal tax rates. So the fed. has to keep liquidity growing to offset the excess worldwide supply of goods and services.

The bottom line is that the fed. has learned its lesson from the 1930’s, and won’t allow deflation to swamp the global economy.

Instead, we have serial asset bubbles. The fed. concluded that they were preferrable to a deflationary depression. Anybody that disagrees either knows little history, or is recklessly naive.

Comment by tj & the bear
2006-02-21 16:17:10

I still wonder how they plan on balancing on the high-wire between assets & commodities. We’re facing stagflation, wherein the items you need to survive (food, energy, raw materials, etc.) are inflating while wages & manufactured goods are deflating. That’s the natural outcome of globalization, wherein billions of people are competing for limited resources. This wasn’t really a factor in the last century.

If the Iranians, Venezuelans, etc. all succeed in delinking oil from the dollar, that yanks the floor completely out from under the Fed, too.

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Comment by ca renter
2006-02-21 16:41:28

We’re facing stagflation, wherein the items you need to survive (food, energy, raw materials, etc.) are inflating …
Agree with you…don’t forget **healthcare***. The most important “need” right after food and water, IMHO.

Comment by Mr. D.
2006-02-21 16:58:01

Every sector with rising prices is one where either supply is constrained by government regulation (housing & oil) or demand is subsidized (college tuition and health care).

That isn’t staglation, it’s the natural result of liberals enacting wrongheaded policies.

As for oil rich nations delinking from the $US: Name a viable alternative. If there were one, they’d have delinked by now, don’t you think? Surely they aren’t using $USs because they like us.

Comment by ca renter
2006-02-21 17:08:08

Mr. D,

How would you handle healthcare? I hope my tone doesn’t come across as offensive. I am genuinely interested in hearing your ideas.

In particular, I’d like to know how we could provide healthcare to all/most who need it…OR…if we don’t, what should we do with all the sick people? Are sick people more productive than healthy ones? I think most industrialized nations understand the benefits of having a healthy workforce, and THAT is why we have subsidized care.

Comment by Mr. D.
2006-02-21 17:22:03

“How would you handle healthcare?”

My main point was that rising healthcare costs are not symptomatic of inflation, so I wouldn’t handle them by raising interest rates.

As for my solution, you have to ration demand or increase supply. In socialized countries, they ration demand by letting granny die. I don’t want to do that. Here, everybody wants the lexus of health care services, and also low prices. That’s not realistic. So we try to use HMO’s to bully doctors to lower prices, and tell patients no to services they want. Sort of a balancing act that nobody likes.

I think we all want the best of care, so we should stop complaining about prices. Rising prices beats being told no by a govenment beauracrat.

BTW, I should’ve been clearer: I didn’t mean to imply that I opposed subsidizing demand for health care, which I don’t (oh know, I’ll get kicked out of the GOP for sure).

I do oppose drilling restrictions that limit our supply of oil, irrational fear of nuclear power, and zoning restrictions that push up the cost of housing.

Comment by Mr. D.
2006-02-21 17:34:13

BTW: I also oppose gas guzzling SUVs and giant energy consuming houses. I say put the terrorist enabling oil producers in the Middle East and Venezuela out of business. Go nuclear, drill offshore and in Alaska, pass a gas tax, and burn ethanol or whatever the market can develop to compete with $3 gas.
Now, back to home prices..

Comment by mo
2006-02-21 18:54:49

if you put those countries out of business too agressively youre not giving them time to adapt their economy. The result will be more poverty and more power to terrorist recruiters. Better to let the foreign oil exporters die a slow death that they can see with both eyes. no surprises…

Comment by Danielle
2006-02-21 18:03:20

The thing is that when the Fed lowered the rate to 1%, global rates and spreads followed, stimulating the whole world economy into generating more productive capacity. And as long as the average emerging market consumer does not earn enough to consume what he/she is producing, deflation will prevail. The Fed is shooting itself in the foot.

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Comment by Mr. D.
2006-02-21 18:50:02

Your case rests on the false assumption that production isn’t being added in emerging markets. Our trade deficits feeds a lot of poor Chinese workers.

Comment by Mr. D.
2006-02-21 18:51:39

And, allows them to boost consumption. In China, consumption is actually growing faster than production, so at least in that case, you are wrong.

Comment by Kim
2006-02-21 19:50:41

“The bottom line is that the fed. has learned its lesson from the 1930’s, and won’t allow deflation to swamp the global economy.”

The belief that the Fed can stop deflation seems to be ingrained in many peoples minds, which is understandable since very few of us have experienced a severe deflation. However, the fact that it has not happened for many decades does not mean that it won’t happen. I agree that the Fed will try to stop deflation by lowering the Federal Funds, etc, but the reality is that the Fed does not control interest rates, the market controls interest rates. The Fed does not have any legal way of forcing Banks or Mortgage companies to offer low interest in times when the Banks, etc, perceive that the low interest rates are too risky and so only offer higher interest rates to homebuyers and businesses.

“Dr. Bernanke, (PHD from M.I.T.) who has spent his life studying the issue and believes deflation can be defeated”

It is interesting to see how so many people in the US think that we are just so smart here that we have control over the economy, and countries like Japan just don’t have their act together enough to avoid deflation like we have. Japan lowered interest rates down to nothing for years, and they still experienced deflation. But I guess it is different here in the USA and lowering interest rates always works. At least so far. Just because Japan had a stock market mania followed by a crash followed by a RE mania and then deflation doesn’t mean that we have to follow the same path…does it?????

My guess is that we will find out we were not as smart as we thought we were.

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Comment by Mr. D
2006-02-22 06:28:48

“My guess is that we will find out we were not as smart as we thought we were.”
I do on a regular basis, as do most people with the passage of time and an open mind.

But as for Japan: They cut rates much too slowly after their bubble popped (Greenspan cut rates in half the time). They also foolishly imposed a sales tax at the first sign of rebound (which killed their first rebound). Finally, after Milton Friedman and Dr. Bernanke had recommended it years earlier, they adopted quantitative easing (turned on their printing presses) and it has been effective, as it always has been in the past.

So we learned to cut rates quickly, and also not rely solely on low rates to reflate. I’m confident we won’t repeat those mistakes. However, I do acknowledge that we are likely to make new ones.

The main risk is that because the fed’s been so successful, risk premiums have disappeared, and speculation has run rampant.

Comment by Kim
2006-02-22 08:22:06

“I’m confident we won’t repeat those mistakes. However, I do acknowledge that we are likely to make new ones.”

The mistakes have already been made. No new ones have to be made. The piper has to be paid.

All the interest rate cuts have done is to keep the music playing a few year longer and increased the payment due. Japan chose to pay sooner rather than later. The imbalances that were in place by 2000 have to be corrected, they can’t be corrected by putting other parts of the economy even more out of balance. This stack of cards will come down. It will come down with either a deflationary crash or a hyperinflationary crash, both of which are very unfriendly experiences. I feel the deflationary crash is the most likely, at least in the beginning.

Comment by Mr. D
2006-02-22 12:30:05

You rule out a possible alternative. The housing sector stagnants or weakens moderately, while other sectors grow. Clearly that’s happening now, as housing weakens and the GDP is on track to grow 5% in the first quarter.

On a longer term basis, it happened from 1991 through 1995. Recall housing prices peaked in 1989 and did not bottom until 1995. However, after a recession in 1990, the economy did grow afterwards, while housing prices continued to fall.

Leaders: How about technology, how about energy, how about alternative energy (we sure could sell alot of hybrid cars), how about biotech or pharma, defense spending, and let’s not forget exports. Once the fed. eases, the $US should weaken and exports should rise.

Besides, what piper are you talking about? Besides speculators, and those that bought with mortgages they couldn’t afford in the last year, most homeowners are in good shape with ample equity cushion.

Comment by Mr. D
2006-02-22 12:42:40

“The imbalances that were in place by 2000 have to be corrected, they can’t be corrected by putting other parts of the economy even more out of balance.”
Why is that? The tech bubble was corrected and the economy continued to grow because other sectors picked up the slack. Why can’t the housing bubble now correct while other sectors pick up the slack?

Comment by Anachronist
2006-02-21 13:40:45

Bernanke is going to keep raising rates to cool what he sees as speculation in the real estate market. He will do this because he believes that the Fed can control the outcome by rapdily and aggressively dropping interest rates, as his research on the Great Depression has led him to believe. What he is missing, however, is that the appreciation and speculative loan activity has not been related to interest rate for the past 18 months. Lowering interest rates after the bust will therefore not reawaken the animal spirits. The Fed will be in a box a la Japan in the lost decade (which is now going on 14 years).

Comment by Mr. D
2006-02-21 13:49:17

I agree that housing is his real target, otherwise his testimony is archaic 1970’s era nonsense:
““‘The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path,’ and may put ‘further upward pressure on inflation,’ Ben Bernanke told …”

Q: Who put him in charge of determining the level of sustainable growth?
Nobody, unless you assume growth causes inflation, so…
Q: Since when has strong growth caused inflation?

A: Not since the 1970’s, but in 2000, Greenspan used the same “excess growth causes inflation” nonsense to justify rate hikes that sent the economy into recession, solely to pop the dot.com bubble.

I’m hoping he won’t repeat that same mistake.

Comment by auger-inn
2006-02-21 14:15:50

When’s the last time the Fed went on a rate hiking campaign and stopped before something broke?

Comment by Mr. D.
2006-02-21 15:14:01

Let’s see….2000…dot.com bust, 1994…no, that was OC bankruptcy….1984…no, that was the Mexico crisis..

I guess you have history and a 100% track record on your side.

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Comment by KennyBabes
2006-02-22 08:30:01

It has already been documented that the Republican administration has paid to have propoganda passed off as news and opinion.





If you dont think that the Republicans have people on the payroll surfing and comemnting on influential blogs, I have a bridge in Brooklyn that is about to go timeshare.

Mr D(avid Lerah) here keeps spouting the same crap no matter how many times, or how many ways he is proven wrong.

I call Troll on you.

Comment by SB BubbleBeliever
2006-02-21 13:50:47

Points well said…

and not to mention that SHEOPLE tend to have short term memories. Some still think there is MONEY TO BE MADE in real estate.

Fast forward a few years when MR. B tries to get it going again, and the sheople will all believe that real estate investing is “for crazy people!”.

Once the media shifts to stories about people losing their shirts and SHORTS… it will take a long, long, long time before the HERD will believe that real estate is a good investment.

Example??: Stock Market. Everyone and their brother thought they could make it rich in it- then the Dot.Bomb hit and it has never really recovered (at least from a “get rich quick scheme” point of view.) Lots of skeptics out there when someone brags about riding the TECH future!

Comment by Robert Campbell
2006-02-21 21:06:44

The Fed can lower rates and make credit available, but if the consumer doesn’t borrow (like Japan), the downward spiral in asset prices continues uninterrupted.

Comment by Melody
Comment by Robert Cote
2006-02-21 14:11:52

It was already a crappy calculator the last time you referenced it. -55% in real terms return buy for my area regardless of any other input.

Comment by sf jack
2006-02-21 15:09:56

For SF City/San Mateo SMSA it says -51% - no matter the time period entered due to the simplicity described in this paragraph under “House Appreciation (real)”:

“The calculator assumes that house prices will drop by the amount that they have risen in excess of inflation. For simplicity, this is assumed to take place during the time that a home buyer is holding the house. It may take longer than that, but there is no way of predicting how long it will take for the bubble to deflate. Since house prices have not, over the long term, risen faster than inflation, there is every reason to believe that the bubble wealth created over the last eight years will disappear. The calculator therefore takes into account the expected losses for potential home buyers at present, assuming that the bubble-inflated prices return to normal while they are still holding the house.”

Comment by BeachBubble
2006-02-21 14:52:09

LMAO - it expects 39% decline in my area. Which is probably true.

Thanks for the link, Melody!

Comment by also renting in ma
2006-02-21 13:47:28

I don’t understand why they just don’t let the tax cuts expire and soak up some of the cash to pay the debt. Or if it was remotely possible for Congress, spend less. Seems stupid for one branch of the government to inject money into the system and the other to try to remove it. Next the dollar will rise and everyone complain that tourists are not coming and US exports aren’t competitive.

Stupid cycle.

Comment by KirkH
2006-02-21 14:36:53

Because tax increases are politically deadly. Maybe 1 in 100 people understand how the government can tax through inflation so the government chooses the path of least resistance.

Comment by Mr. D.
2006-02-21 15:20:45

What stupid cycle are you referring to?

In the real world, tax rates were cut in 2003 and the government is bringing in more revenue, not less. The stock market has risen to new highs (as measured by the NYSE average), the GDP has grown in excess of 3% for 3 years, and 4 million jobs have been created. What’s stupid about that cycle?

“Tax cuts make money”
USA Today
“Ever since the Senate approved the last major tax relief bill, in 2003, revenues have increased every year. In 2004, they went up 5.5%. Last year, they rose 14.5%, the largest increase in nearly 25 years.

Total government collections, in fact, increased more after President Bush’s 2003 tax cuts than they did after President Clinton’s 1994 tax hike.”

Comment by Betamax
2006-02-21 15:54:00

post hoc, ergo proctor hoc

Comment by Mr. D.
2006-02-21 16:13:13

I suppose it was a coincidence? Just like every other time tax rates were cut and revenue increased. You might hang on to that belief rather than change your politically driven viewpoint, but at least I’d expect those weighing in to stop complaining that tax rate cuts cause deficits, when they clearly haven’t.

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Comment by ca renter
2006-02-21 16:48:37

Mr. D,

I am not at all an economist, and appreciate your insight here.

While taxes were cut in 2003, wasn’t the govt also increasing money supply? Would that have an effect on tax revenues? Could more spending have also contributed to greater tax revenues (war spending)?

Comment by Betamax
2006-02-21 16:58:17

as ca renter suggests, cause and effect aren’t always that simple. With a booming economy fueled by cheap credit and deficit spending, I’m not convinced that revenues are up solely, primarily, or even partially because of tax cuts.

Comment by Mr. D.
2006-02-21 17:06:30

government spending can boost the economy, and probably did.

However, tax cut opponents factored in government spending increases and still wrongly concluded that cuts wouldn’t pay for themselves.

Clearly they were wrong, because revenue grew even faster than spending and the deficits fell in F.Y. 2005 and so far this year.

Comment by Mr. D.
2006-02-21 17:13:45

Betamax: “I’m not convinced that revenues are up solely, primarily, or even partially because of tax cuts.”

Fine, I will concede that revenue may have risen every time taxes rates have been cut, in spite of those tax cuts, if..

Tax cut haters and partisans will at least stop saying that tax cuts cause deficits or don’t pay for themselves, when in fact, they always have.

So let them say, despite the fact that cuts in marginal tax rates have always been followed by surges in tax revenues in the past, I don’t think it will this time, because….I just can’t stand anybody paying lower taxes.

Comment by KennyBabes
2006-02-21 18:56:19

I am tired of cleaning up Mr. D’s garbage.

Do you get paid by the Heritage foundation, the RNC or are you on W’s payroll directly??

here is what the IRS says (not some micky mouse newspaper analysis)
In 2000 the us collected 2,096,916,925 in taxes
in 2001 the us collected 2,128,831,182 in taxes
in 2002 the us collected 2,016,627,269 in taxes
in 2003 the us collected 1,952,929,045 in taxes
in 2004 the us collected 2,018,502,103 in taxes

Notice anything???
yes the math is real simple, simple enough even for a republican.
we collected more in taxes in 2000 when W showed up than we did 4 years later. W never met a problem that a tax cut wouldnt solve and started cutting immediately. If Mr. D’s bogus premise were correct we should have increased revenues immediately and persistently.

and here is another link


go there and read it all, but read the summary on the front page, it basically says no matter how rosy they made the scenario for increased economic activity due to lower taxes revenues were lower.

We can debate if government not taking in enough money to pay its bills is a good thing or not , but you cant come in here and spew garbage, you sound like David Lerah, the people here are too smart for your crap take it to the yahoo message boards. I come here for a real discussion about real numbers not your neo-con fantasy land.

Comment by gorobei
2006-02-21 19:21:45

Mr. D,

Any change in tax policy will usually cause a short-time rise in revenues. Obviously, there are extreme cases (e.g. cancel income tax) that don’t, but most do, and here’s why:

Consider a 20% capital gains tax. People know tax rates aren’t constant forever, and so avoid selling an asset with substantial gains.

If you raise capital gains to 40%, revenues go up: people quickly sell and pay the govt 20%. Revenues rise!

If you lower capital gains tax to 10%, people quickly sell once the law is in effect. Revenues rise!

Pick a tax change, and the govt will generally be able to show it raises revenues in the year it was passed. Rich people (those with options) benefit over the long term from tax changes, those living hand to mouth tend to suffer more. The more rapid the tax policy changes, the more the rich benefit.

Comment by KennyBabes
2006-02-22 08:07:52

The Right Wing Noise Machine Economics Division has several themes running through their policy pronouncements and analysis. Their greatest canard is “tax cuts pay for themselves.” The underlying facts directly contravene this assertion, but that doesn’t stop various pundits from continually advancing their agenda. The primary reason is Republican economic statements are not centered around policy but instead on selling a message.

Tax Cuts Pay for Themselves is perhaps the greatest Republican canard. It’s popular because at the root of the message is an easy sell; you can get something for nothing. Compounding the degree of obfuscation is that RWNM pundits continually rewrite the history, usually “forgetting” key facts.

The editorial pages of the Wall Street Journal originally started to advance this idea in the mid to late 1970s. The idea is based on a graph drawn by Arthur Laffer (reportedly on a cocktail napkin) and is usually represented by a simple semi-circle. The horizontal line represents tax rates and the vertical line represents tax revenue. The curve’s central idea is there is an optimal level of taxation, represented by the semicircle’s apex. It the level of taxation is above or below the apex, tax revenue will be lower than the theoretical optimal level.

There are several problems with this idea and its implementation.

There is no way to derive this model from any set of existing data. Supply and Demand, marginal cost equaling marginal revenue and all other bedrock economic concepts can be derived from existing data. The Laffer Curve can’t be derived from existing data. Ever notice that whenever the Republicans start talking about tax cuts they never say “according to the data, a cut of this magnitude will increase revenue this much”? That’s because they can’t. Theories are nice, but if reality can’t back-up the theory, the theory probably doesn’t exist in reality. The scientific method prevents the acceptance of a theory which reality cannot substantiate.

The underlying assumption is taxes are always too high. The assumption of all Republican ideologues is taxes are always to the right of the semicircle’s apex. Therefore, lowering taxes will increase revenue. What they forget to mention is according to the Laffer curve, if tax rates are left of the apex, lowering taxes could also decrease revenue. Because there is no way to extrapolate any “laffer” curve from any data there is no way prove or disprove the underlying assumptions of any tax increase or decrease. Because it is easier to sell tax cuts instead of tax increases, the assumption that rates are to the right of the apex fits in with a marketing plan, but has no basis in any actual evidence.

The academic version of conservative economic theory mandates that for every cut in taxes there must be a proportionate cut in government expenditures. Note this theory does not state that tax cuts pay for themselves. Instead, they argue for a 1 for 1 reduction in tax levels and government spending. In other words, if taxes are cut 10% then government spending should be cut by 10%. The problem with the actual implementation of laffer curve ideology is at the same time Republicans cut taxes, they disproportionately increase spending creating deficits.

Reagan and Bush II have implemented laffer curve theory. The actual results from both President’s terms is available from the Congressional Budget Office http://www.cbo.gov/, the Bureau for the Public Debt http://www.publicdebt.treas.gov/opd/opdhisto4.htm and the Bureau of Economic Analysis http://www.bea.gov/beahome.html. The actual evidence from the historical record directly contravenes RWNM assertions.

Reagan cut taxes in 1981. For the years 1981-1984, tax revenue from individual taxpayers (in billions) was 286, 298, 289 and 298. In other words, there was a total of 12 billion dollars of difference between the lowest total revenue collection and the highest point of revenue collection. It is just as easy to argue the rate from which the cuts occurred weas already to the left of the apex, indicating a tax decrease would lower revenue. After all, revenue didn’t increase, did it?

In fairness, part of the reason for the decrease in revenue was a slow economy. The US economy grew 2.5% in 1981 and -1.9% in 1982. But, the US economy grew 4.5% in 1983 (the income taxes for 1983 were collected in 1984). Yet, tax revenue increased a measly 3.1%. This bolsters the argument that tax rates were already to the left of the laffer curve’s apex, largely because there was no dramatic increase in tax revenue as the laffer curve would stipulate despite a growing economy.

For the years 1985-1988 tax revenues increased in each year. The respective total amounts were (in billions) 335, 349, 392 and 401. While it looks like the tax cuts eventually increased revenue, that isn’t the case. While the RWNM continually touts Reagan’s 1981 tax cut, they forget several ofReagan’s tax increases:

The following year, Reagan signed another big tax increase in the Deficit Reduction Act of 1984. This raised taxes by $18 billion per year or 0.4 percent of GDP. A similar sized tax increase today would be about $44 billion.

The Consolidated Omnibus Budget Reconciliation Act of 1985 raised taxes yet again. Even the Tax Reform Act of 1986, which was designed to be revenue-neutral, contained a net tax increase in its first two years. And the Omnibus Budget Reconciliation Act of 1987 raised taxes still more.

The year 1988 appears to be the only year of the Reagan presidency, other than the first, in which taxes were not raised legislatively. Of course, previous tax increases remained in effect. According to a table in the 1990 budget, the net effect of all these tax increases was to raise taxes by $164 billion in 1992, or 2.6 percent of GDP. This is equivalent to almost $300 billion in today’s economy.

(The previous section is from Townhall.com.)

For each year between 1985 and 1988, tax revenue increased from 334.5 billion to 401.2 billion - an increase of 20%. But for each of those years when tax revenue increased, there was also a legislative tax increase of one kind or another.

The total overall increase in tax revenue under Regan was 40.70%. Compare Reagan’s increase to the Clinton administration’s increase of 97% (from 509.7 billion in 1993 to 1.004 trillion in 2000) which raised taxes on upper-income taxpayers. Again, this bolsters the argument US tax rates are to the left of the laffer curve apex because a tax increase increased tax revenue.

Compounding Reagan’s fiscal problems were his massive increases in discretionary spending. Discretionary spending was 307.9 billion in 1981 and 488.8 billion in 1989 - a 58% increase. So, while government revenue increased 40% during Reagan’s presidency, discretionary government spending increased 68%. Reagan never balanced a budget. To pay for the difference, Reagan increased total US debt from 1.028 trillion in 1981 to 2.8 trillion in 1989. The debt/GDP ratio of debt under Reagan increased in every year of his presidency from 32.8% in 1981 to 51% in 1989.

The RWNM often advances the argument the US needed that spending to win the cold war. The problem is we have never paid that debt back. We are still paying for the cold war - 15 years later. Basically, the US is paying the interest on its national charge card.

Bush II implemented Reagan’s concept to a T. Bush II has also achieved the exact same result.

Bush II cut taxes twice - once in 2001 and once in 2003 (the RWNM has started to only talk about Bush 2003 cuts, conveniently forgetting the first). Tax revenue from individual tax payers was 994 trillion in 2001 and 927 billion in 2005 - a 6.7% decrease. Some of this stagnation is from weak economic growth. US GDP grew 1.6% in 2002. However, the economy grew 2.7% in 2002, 4.2% in 2003 and 3.5% in 2005. Starting in the second quarter of 2004, the economy grew at better than 3% for 10 quarters. Yet, from 2003 - 2004, tax revenue from individual taxpayers increased from 797 billion to 809 billion.

Even comparing the growth in tax revenue from individual taxpayers over a longer time frame does not help Bush’s overall figure. Going back 9 years (1 longer than Bush’s two terms) gives Bush a 41% increase in individual taxpayer revenue (from 656 billion to 927 billion). Again, Clinton’s tax increase on the rich which led to a 97% increase in revenue from individual taxpayers provided more government revenue (while still growing the economy at a healthy clip and eventually balancing his last three budgets).

Bush has also declined to use the other side of standard conservative economic thinking - a proportionate cut in government spending - coinciding with his tax cuts. Bush’s discretionary spending increased from 649 billion to 967 billion - a 48% increase. Compare this increase to the “tax and spend” liberal Clinton, whose disrectionary spending increased from 539 billion in 1993 to 614 billion in 2000 — a 13% increase.

This massive increase in government spending at a time when government revenue is decreasing has once again led to an increase in total national debt. The debt/GDP ratio under Bush has increased in every year of his presidency, rising from 57% in 2001 to 63% in 2005.

Under Reagan, the tax cuts led to stagnant government revenue from individual taxpayers. It wasn’t until he started raising taxes the government revenue started to increase. However, Reagan spent like a “tax and spend” liberal, increasing the debt/GDP ratio in each year of his presidency from 33% to 51%.

Under Bush II, the tax cuts led to a 6.7% decline in revenue for the first 4 years of his presidency. Because his spending increases far outpaced the decrease in government revenue, the total national debt outstanding increased 41%.

To compare, Clinton increased taxes on the upper-income taxpayers, which led to a 97% increase in government revenue. He grew the economy at a health pace. He decreased the debt/GDP ratio starting in 1995 of his presidency.

The two attempts to prove “tax cuts pay for themselves” have failed. It is clear that if the laffer curve exists, the US tax rates are clearly to the left of the curve’s apex indicating a tax cut will in fact decrease revenue.

Now Mr. D(avid Lerah) how about you STFU about tax cuts increasing revenue.

Comment by Sunsetbeachguy
2006-02-21 20:24:17


Ouch that is going to leave a mark.

Mr. D no snappy retort?

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Comment by ca renter
2006-02-21 23:37:24

Now, now. Let’s be nice. While I am most assuredly NOT a Republican, and cringe whenever I hear Larry Kudlow speak, Mr. D does have some good insights. We can’t know that our own theories and ideas are good until we’ve debated them against people with opposing/different perspectives. They help us round-out our ideas and keep us from singing to the choir all the time.

Best regards to all here!

Comment by KennyBabes
2006-02-22 05:24:02

I am done being nice, this is the third time Mr. D has posted the same damn thing and the third time I have corrected him.

He is either ignorant (which I dont believe based on some of his other comments) or he has an agenda. He is David Lerah except we dont know who is paying him.

Comment by The Lingus
2006-02-22 06:39:43

Poof. Mr. D and it’s spewage disappears when faced with the facts. Unfortunately, Mr. D has a good economics and monetary bankground. The problem is that that knowledge is obscured by either a payroll check from the RNC or just plain ol’ misguided thinking.

Comment by Mr. D
2006-02-22 06:54:26

Here are your figures:
In 2000 the us collected 2,096,916,925 in taxes
in 2001 the us collected 2,128,831,182 in taxes
in 2002 the us collected 2,016,627,269 in taxes
in 2003 the us collected 1,952,929,045 in taxes
in 2004 the us collected 2,018,502,103 in taxes

I wrote that a tax cut passed in 2003 caused revenues to increase afterwards. Can you not see that they did indeed rise in 2004? Can you not also see that they were falling before the cut?
They may have risen coincidentally, or for other reasons, but they did rise AFTER the tax cut.

Here’s the fiscal year numbers from the CBO (I used them because they are updated for 2005)
FY ended September
2000 $2,026
2001 1,991
2002 1,853
2003 1,783 (tax cuts passed)
2004 1,880 (can you see that’s higher than in 2003?)
2005 2,154 (a 15% increase, highest in 25 years)
If you cannot see that revenue is at record levels for the fiscal year ended September, 2005, I am sure other more objective readers can.
*** note pdf file, scroll down to page 2.

BTW, revenue is up an additional 10% for the first four months of this fiscal year:

Those are the facts from the non-partisan CBO. They show that AFTER tax rates were cut, revenue rose. Show me otherwise, or I will continue to dispel the myth that cutting tax rates causes the government to bring in less money.

Comment by KennyBabes
2006-02-22 07:13:31


Bush has been in charge an cutting taxes since day one.

You dont get to pick some abitrary date and say look it works.

Take your crap number and crap analysis to the NAR they could use spinmeisters like you.


Who is paying you to come make willful misreperentations of the facts to intelligent people.

Go read the CBO report that I linked to in the previous post—the organization you love to use.

They say your premise is crap, the numbers say your premise is crap, I say you are full of crap.

Mr. D(avid Lerah) I call Bull$shite on you.

Comment by The Lingus
2006-02-22 07:17:43

Seeing as neo-cons like to use revenue as a % of GDP, lets take a closer look.

FY Revenue

2003 16.5 A 40+ year low.

2004 16.3 Another 40+ year low

2005 17.5 And another low not seen since another republiKKKan president practiced voodoo economics

Mr. D, Looking at economic data through the lens of a political ideology makes you look like…… well….. an idiot.

Comment by Mr. D
2006-02-22 07:24:47

“Bush has been in charge an cutting taxes since day one”
Read my post, I was talking about the cut in tax rates that was passed in 2003. It’s not arbitrary, that’s when top marginal tax rates and capital gains taxes were cut. There was a tax cut passed in 2001, but it was a rebate for the child tax credit. That’s not a cut in marginal rates, and obviously won’t pay for itself.

“Take your crap number and crap analysis to the NAR they could use spinmeisters like you.”
I posted facts from the CBO. BTW, why such anger?

I posted the CBO numbers below. Not only did they rise after the 2003 tax cuts, but they are at record levels. Now what do you say KennyBabes?

“….What is your agenda.”
To dispel myths and try to enlighten angry liberals. I hope to succeed at the first, but I have little hope of succeeding on the second.

Comment by The Lingus
2006-02-22 07:28:24

Sorry Mr.D,

The numbers can’t be politicized with worn out catch phrases. Let me redirect your attention to the noted post regarding revenues.

We want to hear you response.

Comment by Mr. D
2006-02-22 07:28:57

Thelingus wrote:
“Seeing as neo-cons like to use revenue as a % of GDP, lets take a closer look.

FY Revenue
2003 16.5 A 40+ year low.
2004 16.3 Another 40+ year low
2005 17.5 And another low (how is 17.5 lower than 16.3?)

The whole point of cutting marginal rates is to grow the GDP (which has happened) so that even though you collect a smaller percentage of GDP, the amount of money raised grows. And BTW, it’s dollars that pay the bills, not percentages.

Comment by The Lingus
2006-02-22 07:40:23

Mr. D, thank you for acknowledging that revenues have fallen to a 40year low since 2001. And thank God for GW’s stellar economic performance. :):):)

Comment by Mr. D
2006-02-22 07:40:38

here’s more numbers for you Mr. Lingus (BTW, I’d like a check from the RNC, could you give them a call and arrange it)

As I said, it’s dollars that pays bills:
The two year gain since the top tax rates were cut and capital gains rates were cut (sorry I wasn’t more specific earlier)
2005 vs. 2003 : Increase $371 billion
1995 vs. 1993: Increase $197 (two years after Clinton raised the top marginal rate)
So we can see that rates went up in both cases, but Bush’s tax cuts caused a greater increase in revenue than Clinton’s tax hikes.

Now, to be non-partisan:
When Clinton cut the capital gains rate in 1997, it also caused revenue to grow:
Two year gain afterwards: $249. Not as large as the Bush tax cut, but still a strong gain. So even though RATES were cut, tax revenue rose.

That’s something some people can’t accept, but it has happened every time.

Concession point to be clear:
Except when you just send out rebate checks to everybody who has kids, they don’t pay for themselves.

Comment by Mr. D
2006-02-22 07:43:48

“Mr. D, thank you for acknowledging that revenues have fallen to a 40year low since 2001″
Now you’re twisting facts there, as I’m sure everybody else can see. Now you see why President Bush rarely conceeds anything. Liberals would just twist it around:)

Comment by KennyBabes
2006-02-22 07:53:18

“Now you’re twisting facts there, as I’m sure everybody else can see. ”

Hello pot, yes the is the kettle, you are black. Project much?

“To dispel myths and try to enlighten angry liberals. I hope to succeed at the first, but I have little hope of succeeding on te second.”

Your damn right I am angry, which has nothing to do with my political philosophy. My father had a great quote one I internalized “I can’t stand a liar or a thief” the republicans in power have demonstrated they are both.

Stop pissing on my leg and telling me it is raining. War is peace, black is white, by taking in less revenue we are taking in more revenue….you tool.

You arent trying to enlighten anybody, you are here to muddy the waters.

Mr. D(avid Lerah) I call Bull$hit on you.

Comment by Mr. D
2006-02-22 08:02:48

Do you have any facts to show that the cuts in the top marginal tax rate and capital gains rates in 2003 did not boost revenue dollars?

So far, all that you’ve shown is the following:
1) Revenue fell during the recession and early in the recovery
2) Tax rebates didn’t help boost the economy
3) We can all see that the cuts in rates in 2003 did work to spark a rebound in the economy and tax revenue
4) Revenue as a percentage of GDP is still low, but rising. However, we pay our bills with revenue dollars, and they are now at record highs
5) You are angry and have resorted to ad hominem attacks
*** I did call you a liberal, but I don’t consider that an attack. If you do, then I am sorry.

Comment by The Lingus
2006-02-22 08:08:25

And there you go again. When I state the facts that revenues are at an all time historic low for years 2001-2004, you attack the messenger.

Going from a 1.5 grade point average to a 1.8 isn’t saying much for GW.

Comment by KennyBabes
2006-02-22 08:17:18

Mr D(avid Lerah) does not look objectively at the data and try to extraoplate from it. He takes his premise and then tries to cherry pick peices of data that support it. And no matter how often or how hard you rub his nose in his mess, he keeps making it.

He doesn’t sound stupid so the only plausible explation is that he is here carrying Water for the republican party or one of their pet (un)think tanks.

I call Bull$hit.

Comment by botttomfisherman
2006-02-21 16:59:11

Because it an election year. Politicians are only interested in keeping their jobs.

Tax cuts=polticians’ job security, tax increases=you’re fired.

Comment by SidneyPrice
2006-02-22 00:05:34

Tax Cuts??? Yeah yeah. How many of you guys/gals have been bitten by the AMT? Tax cuts, my butt! Dont see Dubya trying to peel back the AMT, do you?

Comment by bottomfisherman
2006-02-22 06:44:19

They are working on retroactive AMT relief now.

It’s an election year. ;-)

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Comment by marinite
2006-02-21 14:04:25

There has been inflation and that inflation has been in housing. So if he is going to fight inflation he has to tarket housing.

Comment by Melody
Comment by Max
2006-02-21 14:16:26


Comment by arizonadude
2006-02-21 14:30:09

Maybe he will get a movie deal out of it!!!!!!!!! At least he has the kohonahs to express how he feels.

Comment by SB BubbleBeliever
2006-02-21 15:00:55

Does anyone know the correct spelling of “Kohonahs”???

Sometimes I spell it Cahones… but don’t know.

It’s better than saying BALLS :)

Comment by Max
2006-02-21 16:38:37

It’s “cojones”. It’s not really a proper Spanish word for “balls”, but a Mexican slang. The more proper way is “huevos”, that means “eggs”.

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Comment by SB BubbleBeliever
2006-02-21 18:22:39

Thanks Max, glad I had the cojones to ask… :)

Comment by hoz
2006-02-21 14:45:50

It would probably work!

Comment by hoz
2006-02-21 14:55:44

And I should try it.

Comment by Melody
Comment by ca renter
2006-02-21 14:47:38

Sorry, WAY O/T:

I’ve been meaning to mention this in the past week, but it just happened again, so… We’ve been renting in North SD County for amost 2 years. Our house is a two-story, and seems very sensitive to movement (earthquakes). The whole house makes a lot of noise with even the smallest quake. Since we’ve been here, I’ve probably felt/heard an average of one quake every two or three months. The past two weeks or so, we’ve been getting them about every/every other day. As a native Californian, I have a theory about earthquakes and dry, warm Februarys and Octobers. There seems to be a correlation. Sounds weird, but there also seems to be a bit of fidgety-anxiousness in the air. I’m going to go out on a limb and predict a fairly good-sized earthquake in CA by November.

Has anyone else been feeling anything?

Comment by BeachBubble
2006-02-21 14:58:04

Just making sure you know about this link…


Look at that 5.2 off the coast of New Orleans earlier this month! :o

Comment by ca renter
2006-02-21 15:10:41

Great site, thanks!

Comment by Jasunnyoutlook721
2006-02-21 15:33:32


This website is cooler and has the storys before they hit the mainstream. I dont know how they do it.

Comment by Markmax33
2006-02-21 15:01:38

small earthquakes are common in the San Diego area. They happen all the time. You can look at the USGS website and check it out. I don’t think the weather correlation has even been proven on way or the other. It is safe to say that SoCal is due for a larger sized quake though (6 or 7 on the reicter scale), based on historical data. I wouldn’t hold my breathe though.

Comment by feepness
2006-02-21 15:13:11

I think you’re hearing the stampede of investors for the exits…

Comment by Bubble Butt
2006-02-21 15:46:42


Comment by Max
2006-02-21 16:43:41

That was a good one!

Comment by SB BubbleBeliever
2006-02-21 15:16:04

Don’t know CA Renter…

But it is another NOVEL way to express the extreme “walking on eggshells” risk nature of this hyper-inflated bubble in SoCAL.

One moderate earthquake in the region and it could really put a damper on the now out-of-vogue “Exuberent Flipper”.

(I still am reeling from the extreme bragging that has gone on in the last couple of years).

If the BADBOY you are predicting hits, it is yet one more nail in the Coffin for this OVERDUE Bubble BURST.

I don’t know if you will be right or wrong (we DO live in Earthquake Country)…

but if it did hit- it just adds further RED TAPE for sellers and flippers trying to unload their properties. (if buyers are already nervous about signing up at the top of the market… just wait til they have to wait for those inspection reports to come through)

Comment by ca renter
2006-02-21 15:26:33

That is why I mention it. During the last downtrend, we had the ‘94 earthquake which, IMHO, caused even more people to shy away from buying. These days, most insurance companies will only cover EQ damage if you pay A LOT more for that coverage (like FL’s hurricane damage). An earthquake would put a serious dent in the RE market.

Of course, people will later say the bubble burst because of hurricanes, earthquakes and a “general recession”. I’m guessing the connection with suicide loans/market mania will be lost on most people.

Anyway…when it rains, it pours.

Comment by amoney
2006-02-21 16:36:06

We’re due for another big earthquake, but don’t forget about the
fire hazard. They can take out a few hundred homes at a time, and we’re on pace for a record low in annual rainfall, thanks to
la nina. Feels good to be a renter nowadays!

Comment by ca renter
2006-02-21 17:10:18

Feels good to be a renter nowadays!

Comment by Melody
Comment by arizonadude
2006-02-21 15:29:03

Great work again melody. Interesting to see all the date there.

Comment by KirkH
2006-02-21 16:46:57

Bahhh, Answers.com just copies stuff from Wikipedia.org verbatim.

Comment by OC Real Estate Expert
2006-02-21 18:31:34

Don’t forget the great socal hurricane which is going to hit this fall.

The last great hurricane hit San Diego in the 1800s. Most of the low lying coastal areas from San Diego to Long Beach will be flooded and destroyed.

Comment by lauravella
2006-02-21 18:33:29

SB bubble said: Once the media shifts to stories about people losing their shirts and SHORTS… it will take a long, long, long time before the HERD will believe that real estate is a good investment.

I would like to agree with you bubble, but the stockmarket is still going strong. Agree, people did loose their shirts, but they still pour money into it. I think the same reasoning applys to the housing market. The people that are in it will bounce back and buy back into it without a second thought. I just hope they leave some houses for the rest of us sitting on the sidelines until this market shakes out. Just my opinion.

Comment by mo
2006-02-21 19:05:38

that’s not true at all. the stock market is full of hedge funds, index funds and ETFs. the lack of stock market volatility over the past 3 years and the lack of super-overvaluation or super-undervaluation has proven that clearly. Joe smith is no longer in stocks, he is in real estate.
It’s Jones Capital L.L.C. who is in the stock market. And the reason for that is the rate cuts. Sooner or later the stock market will drop too and those hedge funds will run away.

Comment by Out at the peak
2006-02-22 00:13:40

I played with the stock market in 1999, and switched to RE in 2000. I pulled out of RE Q4 2005, and now back in the stock market more than ever. I’m sure I’m not the only one. I concentrate on foreign equities and commodities so I’m seeing more good days than bad.

Comment by Mr. D
2006-02-22 07:18:41

With a record like that, I won’t argue with you. But let me ask:
Q) Wat made you think that real estate would be a good investment in 2000, when the fed. had inverted the yield curve and was on its way to sending the economy into recession (both had always been bad for real estate)?
Q) What makes you think stock will do well now, with the fed. inverting the yield curve once again (every prior inversion has been followed by recession)?

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Comment by Robin
2006-02-21 19:20:56

Is it really as simple as the US will experience globalization as deflationary while emerging markets will experience globalization as inflationary? After six or more college economics classes, I am not sure if it’s just where you are in the game.

Comment by Jack
2006-02-21 19:53:27

I actually just wrote an article on the outlook of USD vs Yen at my site. Click on my name if you are interested.

Anyhow, I think The Fed really has NO Choice but to raise rates more. Their main goal is inflation containment. One of the major incentives for foreign investors to come to the US (besides stable government) is because they believe that the Fed will keep inflation low. When they invest in another country, their gains could be eaten up by inflation in that country. Without strong inflation containment, investor confidence will be lost.

If (a Big if because the Fed won’t allow it, they will raise rates 50, 75 bps if they have to) inflation goes out of control, the demand for US sovereign debt will drop. That means the cost of borrowing for the US government via Treasury issuance will go up substantially. That is because there is the same amount of supply of debt (Treasury bonds) and if there are fewer buyers, the price at which the bonds are auctioned would be lower. For a 100 dollar par value bond, if the investors only had to pay 96 dollars as opposed to 98 dollar, their yield to maturity would be higher.

When you look at the size of the national debt, it makes sense that the US government would want to keep inflation down, keep foreign interests buying US debt, so that we can keep living the way we live (in debt). It’s an awesome gimmick, isn’t it? :)

Everything else (including the housing bubble, which by the way isn’t included in the CPI, consumer price index, used to measure inflation) is secondary. The Fed will take that into consideration but inflation is the number one enemy.

So as long as we keep seeing strong economic growth numbers, the Fed will continue to raise short term rates.

How does that affect the housing market? Well interest rates and mortgage rates will continue to rise (albeit not as fast as the Fed would like), hopefully slow down equity withdrawn from houses, which would cause demand to drop (because people will not have as much money to spend on goods and services) and slow down the economy. Now it all makes sense.

Comment by Auction Heaven in '07
2006-02-22 01:11:03

Mr. Benanke will raise rate twice more. Maybe three.

The third time, we can debate this.

The next two- done deal.

Californians, however, disagree with me.

I live in California, and am proud to say I grew up in Michigan.

People in Michigan still read, and still go to college.

In California, reading can get you a ticket.

How dumb are people in California?

They just found out, after complaining about illegal aliens…

…that creating underground tunnels which allow illegals to move into California…

…is NOT illegal.

Just might blow the top off your latte, that info.

But don’t worry, Diane Feinstein is on top of the situation.

Whether or not hot air ballooning over the border is off-limits is anyone’s best guess.

These things remain unknown.

What remains known is this:

Bernanke will raise rates twice more.

If that ain’t true, I’ll bet my helicopter on it.

Comment by Mr. D
2006-02-22 07:09:26

KennyBabes wrote:
In 2000 the us collected 2,096,916,925 in taxes
in 2001 the us collected 2,128,831,182 in taxes
in 2002 the us collected 2,016,627,269 in taxes
in 2003 the us collected 1,952,929,045 in taxes
in 2004 the us collected 2,018,502,103 in taxes (is this not higher than 2003 when taxes were cut!)

“…we collected more in taxes in 2000 when W showed up than we did 4 years later.”
I wrote that when tax rates were cut in 2003, and revenue rose AFTERWARDS. Your numbers prove my point.

Using the CBO numbers (because they are more up to date, we see the following - they don’t tie because they are for the fiscal year ended September)
2000 $2,026
2001 1,991
2002 1,853
2003 1,783 (This is when the tax cuts took effect, not in 2000)
2004 1,880 (That’s a 5% increase)
2005 2,154 (That’s a new record high - higher than 2000, and a 15% increase, the largest in 25 years)
****note pdf file, the data is on page 2
So clearly, I hope to at least the rest of you, revenue has risen since tax rates were cut in 2003. Maybe it was a coincidence, but they did rise. So I will continue to dispel the anti-tax cut myths until you show me facts to the contrary.

BTW, for the first four months of F.Y. 2006 they are up an addional 10%.

Comment by The Lingus
2006-02-22 08:02:51

And as a percent of GDP, the years 2001-2005 are historical lows.

Comment by Mr. D
2006-02-22 08:11:26

“And as a percent of GDP, the years 2001-2005 are historical lows”

Perhaps you mean historically low levels, which would be true.
But, as you can see, revenue dollars are at a record high and that’s what pays the bills.

If you don’t agree, I’ll give you 50% of $100 if you’ll give my 40% of $200.

Comment by The Lingus
2006-02-22 08:17:27

Fed expenditures rose 35% from 2001-2004. Revenues have increased less than 1% resulting in a 1.4 trillion dollar shortfall. Way to go GW!

Comment by Mr. D
2006-02-22 08:22:39

I was lauding tax cuts, with numbers to back that up, not the adminsistrations fiscal policy, of which I don’t approve.
So it looks like we agree on something. The government is spending too much money.
Good thing they lowered tax rates so that revenue has increased anyway.

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Comment by The Lingus
2006-02-22 08:27:52

Good thing they cut taxes by 500 billion so they could recapture just 60% of it.

Comment by Mr. D
2006-02-22 09:13:27

The 2003 tax bill, was called a $350 tax cut. That was the mistaken estimate of how much revenue would fall as a result of lower tax rates. As I’ve shown, revenues have risen, not fallen.

Comment by Max
2006-02-22 09:35:35

Aren’t taxes supposed to increase anyway, since the economy grows and currency inflates? What is your point then, Mr. D?

I guess the supply-side argument is that cutting taxes brings more money FASTER than if left alone. Suppose we collected $2 T in 2000, and after the first round of cuts we got only $1.8 T, but after say a few years we touched the $2 T mark again. No liberal, including myself, will argue that such scenario is possible, in fact it is the only natural thing to occur. But it in no way makes tax cuts “good” since if we just left them alone the revenue could have been $2.2 T in the same time frame. Not only that, the tax cut probably have lead to deficits, and now a portion of the $2 T revenue goes to interest and other borrowing costs, that are missing from the “no cuts” scenario.

Therefore, can you cite a precedent where the revenue after tax cuts increased so significantly as to cover all their costs, and lead to an overhelming increase in revenue compared to no-cuts scenario?

Comment by Mr. D
2006-02-22 10:06:30

“if we just left them alone the revenue could have been $2.2 T in the same time frame.”
Top tax rates and cap. gains rates were left alone in 2001 and 2002, and revenue didn’t rise. It only rose after the May, 2003 bill. Same with GDP growth and employment. All weak in 2001 and 2002, and stronger AFTER the 2003 tax cuts.

If not the tax rate cuts, then what sparked the turnaround?
Rates were already low, maybe they worked with a lag. Maybe confidence was boosted by something else, but clearly revenue fell until the 2003 bill, and rose afterwards.

As I’ve conceded, the 2001 cuts didn’t work. That included a boost in the child tax credits, but left the top rate and cap. gains rates alone.

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Comment by Max
2006-02-22 10:30:14

“If not the tax rate cuts, then what sparked the turnaround?”

Government spending (war in Iraq, Homeland Security, etc.), housing boom, energy boom. There are many areas of economic activity that experienced a boom in 2003, Mr. D, don’t get too fixated on something so tiny as tax cuts. The primary engine of economic growth started in 2003 I think is a housing boom, when the low rates finally reached the broad masses and percolated into the retail sector.

(BTW, the revenues increased every year from 1996 through 2000 without any tax cuts enacted in that time frame. So there, I claim that leaving taxes alone increases revenue and grows economy. It’s silly, but it’s similar to what you are saying.)

Comment by Mr. D
2006-02-22 11:24:10

Let’s look at each component that may have been a bigger factor than tax cuts.
*Government spending went up 7.9% in 2002, and 7.4% in 2003, and 6.2% in 2004. So growth there has been slowing, but still contributing to growth. To the point: there was no surge in spending in 2003.

Housing certainly contributed, but was strong from 2001 forward. It didn’t rebound in 2003, so how could it have been the trigger?

As for tiny tax cuts, I never read that description used by opponents at the time.

And the results sure haven’t been tiny:
Revenue gain over the two years since tax rates have been cut, has been 21%, vs. the two years prior to the cut of -10%.

As for revenue going up from 1996 through 2000 without tax cuts, let’s get a comparison:
In 1983, Reagan’s tax cuts were fully phased in
In 1993, Clinton’s tax hikes took effect
Six years later:
Revenue grew 65% over the following six years after Reagan’s tax cuts
Revenue grew 58% over the following six years afer Clinton’s tax hikes

BTW, over the two years following Clinton’s tax hike, revenue rose 15%.
Over the two years following Bush’s 2003 tax cuts, revenue grew 21%.

So revenue will grow if the economy is growing, but has grown faster after tax rates were cut.

Comment by The Lingus
2006-02-22 11:35:50

Hang it up D. Playing the party shill is your weak hand. Stick with monetary policy.

Comment by Mr. D
2006-02-22 11:49:12

How’s this for bipartisan:
After the Kennedy tax cuts (actually passed in 1964) revenue grew by 86% over the next six years.
Clinton’s tax hikes grew revenue by 58% over the next six years.

Tax cuts win again, and I support tax cuts, even when passed by a democrat.

Comment by The Lingus
2006-02-22 11:56:45

Why would you support giving the feds even more money? Doesn’t that fly in the face of the neo-con mantra of less govt? (With exception of the Bushies of course0

Comment by Mr. D
2006-02-22 12:07:26

Good point. Slash the tax rate on dividends and capital gains on stock to zero, and end the unfairness of double taxation of corporate profits. End the death tax as well, which is either double taxation, or taxation of paper gains.

Comment by Mr. D
2006-02-22 12:14:52

More to your good point. If cutting tax rates causes revenue to grow, and that’s not our goal what do we do? Keep cutting them until they don’t. 35% is still a lot to fork over to the fed’s, don’t you think. Don’t you agree that taking anything more than 1/3rd of somebody elses money is greedy? If not, what top rate do you think is fair.

Comment by The Lingus
2006-02-22 12:27:52

Actually, greedy would be expecting protection from external threats, expecting well lit streets, expecting smooth as glass highways, expecting fresh tap water, expecting a toilet the flushes, expecting 911, expecting the garbage to be picked up at the curb, all the while crying about having to pay for it through taxation.

Comment by Mr. D
2006-02-22 12:38:49

Not sure who you think is greedy? And, you didn’t answer my question. What do you is a fair amount to pay for the federal government’s services?

Comment by TheLingus
2006-02-22 13:00:04

You asked what was greedy. I gave you an answer.

Comment by Mr. D
2006-02-22 13:33:40

So no level of taxation is too high if you receive services is your answer. Just pay whatever, and stop complaining.

In fact: The top 10% of wage earners pay 65.84% of all income taxes, and the only complaining I hear is from liberals whining that the rich got a tax cut. The top 50% pay 96% of all income taxes. So 1/2 the country is paying almost the entire income tax bill. Do you think that’s fair?

In comparison, in 1999 (Bill Clinton’s heyday) the top 10% paid 66.5% of all income taxes. Where are the tax cuts for the rich that liberals are complaining about?

Do you want them to pay more? I think we have representation without taxation here already. Time for the bottom half to start paying their fair share, don’t you agree?

Comment by TheLingus
2006-02-22 13:35:45

” The top 10% of wage earners pay 65.84% of all income taxes, and the only complaining I hear is from liberals whining that the rich got a tax cut. The top 50% pay 96% of all income taxes. So 1/2 the country is paying almost the entire income tax bill. Do you think that’s fair?”


Comment by Mr. D
2006-02-22 13:49:44

If the current system is fair, I guess we should keep the tax rate cuts in place.
Glad we agree on that.

Comment by sf jack
2006-02-22 14:01:41

Once again - let’s hear it for Mr. D!!

Comment by The Lingus
2006-02-22 09:30:32

500 billion tax cut=150 less in total revenue for that year does not = increase in revenue.

Comment by TheLingus
2006-02-22 14:05:01

We? Do you have some type of influence?

Comment by Max
2006-02-22 14:12:00

Mr. D, can you present figures from credible sources that support your assertions that revenues grew bigger the years following tax cuts than those years when no cuts were enacted?

Comment by Mr. D.
2006-02-22 15:23:27

that’s my calculation so maybe it’s not reliable. But, the raw data came form the same CBO link.

Comment by Max
2006-02-22 14:14:26

“Do you want them to pay more? I think we have representation without taxation here already. Time for the bottom half to start paying their fair share, don’t you agree?”

Well, the rich pay so much in taxes because they are rich, get it, Mr D. And the poor pay a little in taxes because they are simply poor, also pretty simple.

If rich are so oppressed as you try to show, then show me a bastard who wouldn’t want to be rich. For some reason I cannot find such a person.

Rich are not overtaxed, stop whining.

Comment by Mr. D.
2006-02-22 15:27:57

“Rich are not overtaxed, stop whining.”

My point was, they aren’t complaining, it’s liberals that are complaining that even though they are paying the bill for everybody already, they somehow aren’t paying enough.

Comment by Max
2006-02-22 14:35:52

Mr. D.

regarding the economic rebound of 2003, I still think that the housing boom was the major factor. This is why: the boom did not fully take off in 2001 as you say. In fact, in 2001 RE prices briefly fell in places like Silicon Valley. Housing was still very cheap as I remember. But by 2003 the appreciacion was in full force, that enabled equity extraction. Equity extraction alone amounted for some $600 billions, which was almost noexistent in 2001. This also created a lot of jobs in finance, retail, and so on. In other words, it took about 2-3 years for the cheap money to soak into the economy. It’s actually quite fascinating to see the effect of an extreme monetary policy on an economy and society. I think that your view of tax cuts (yes, their effect is tiny on the economy, since this money went nowhere, just sat in cash) immediately having a magic effect right the next second they were passed in 2003 suffers from glaring discontinuity, which makes me doubt your assertion. Macro effects cannot come that quick, because investments take time to make and extract profit from.

This is not to say that I’m some ultra-high tax person. Of course, it’s best when a good portion of resources is left to the people. It’s just that I think we shouldn’t be that much in the red, and we need national needs like highways, security, education, and social stability.

So, if we can find a way to have 10% rate and afford all that stuff, I’m all for it!

Comment by Mr. D.
2006-02-22 15:30:46

“if we can find a way to have 10% rate and afford all that stuff, I’m all for it.”
Glad we can end on something we agree on.

Comment by ca renter
2006-02-22 15:37:17

Mr. D,
You assume the rich actually EARNED their income while the poor (unproductive, according to you) deserve to be poor, live paycheck to paycheck and not have adequate healthcare.

It’s anecdotal, buy I’ve worked for conglomerates where the owners/executives (who I worked for directly) all made more than $1 million/year + bonuses. This was in the late 80s/early 90s. While some of them really did work, and deserved to be compensated well, many did not do very much that would be considered useful or productive. Meanwhile, the laborers in the warehouses were working 12+ hour days, often 7 days a week — on thier feet the entire time. They were PRODUCING things. Few had health benefits (we used a temp agency and had perma-temps to avoid paying benefits), and most were working for around $5.00/hr. They were feeding families on this.

One weekend, one of the owners jetted off to Las Vegas on a private plane, lost $180,000 on a Friday night (high-roller w/ free access to penthouse at well-known casino), then laid off over 100 people on Monday.

It’s just one story of many. This man had two Ferraris, two Range Rovers, a Beverly Hills mansion, 24-hr bodyguard, etc. The 100 he laid off were the most hard-working (all Latino) people you would ever meet. Sorry, I just don’t buy the rich=productive / poor=unproductive argument. Nor do many other people who have witnessed with thier own eyes the wealth disparity in this country (and others). It’s a matter of connections and deal-making, not productivity, that makes most men rich. Who can blame the flippers who want to join in the game?

Comment by Mr. D.
2006-02-22 17:15:05

Your examples of conspicous consumption appall me. That’s why I favor a combination of low flat tax on income, combined with a national sales tax (also at a low rate excluding groceries etc), a gas tax, and national lottery.

As for earning their money. Free enterprise rewards risk, sometimes reckless risk.

However, if you look at the Forbes 400 list, you will see people who created wealth by building a better product or providing a better service, and the economy is better for it. It’s socialist countries where you can only get ahead through political connections.

Comment by Mr. D.
2006-02-22 17:20:23

BTW, I never said, nor do I believe the poor deserve to be poor. I think it’s tragic that so many lives are wasted because too many people lack opportunity or face huge obstacles.

But, having said that, high tax rates won’t help the poor get ahead. Low tax rates have spurred investment, and on their way to building wealth, the rich have created jobs for millions. The poor, unfortunately, have created very few.

So I for one, would like to see the poor make more, not the rich make less.

Comment by TheLingus
2006-02-22 17:32:41

First you say;
“That’s why I favor a combination of low flat tax on income”

Then you say;
“I never said, nor do I believe the poor deserve to be poor,”

D, your ideas are not very well thought out or you’re just talking out your ass.

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Comment by Mr. D.
2006-02-22 17:54:53

Your are implying a contradiction, or just using the post to insult me?

But, I will assume you have good intentions and will explain. Low tax rates encourage risk taking and result in economic growth, which create jobs. The best proof is to look at the 1970’s, when tax rates were high, with the 25 years since then, when they’ve fallen worldwide. It’s no coincidence that it’s been the most properous years in history. As a result, entire nations have been lifted out of poverty.

The second point was a clear statement of fact, and I see no contradictions

Comment by TheLingus
2006-02-22 19:24:17

Feeling defensive are we? ;) And no, you don’t have to go through all the iterations of the benefits of reduced taxation. Just tell the whole truth about reduced taxation. Irrespective of that, you state you have nothing against the poor yet you favor a flat income tax on all. As most economists, (including Kudlow) agree that a flat income tax is inherently unfair, how do you reconcile these to statements?

Comment by Mr. D.
2006-02-23 04:53:59

No different than FICA. Every dollar earned taxed at the same rate, what’s fairer than that. A straight 5% income tax through witholding and nobody even has to file a return.

Comment by The Lingus
2006-02-23 05:22:06

Apparently nothing according to the Bush appointed comission on flat/fair taxes.

Comment by Mr. D
2006-02-23 06:10:52

That committee was a wasted opportunity. Their proposal(s) were such a hodgepodge that they pleased nobody and were DOA. Maybe the ‘08 campaign will offer another chance.

Comment by The Lingus
2006-02-23 06:29:14

Of course it was.

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