There’s Plenty Of Ways To Bring Down The Deficit
Readers suggested a topic on government budgets. “The ‘budget’ discussions are completely useless. There is no ‘budget.’ Budgets are for working families that don’t rely on government support for food and housing. The government hasn’t had any budget in a long time. To say ‘deficits don’t matter,’ or that we will ‘grow our way’ out of the problem of deficit spending is ludicrous. We are far to indebted and the national economy is more a of dog and pony show in terms of ‘growth.’ It’s government statistical lies with smoke and mirrors.”
“But, the democrats will never stop spending and based on the last election, the 50/50 line has been passed on people wanting their free cheese. We are the New Japan, but much bigger and a lot dumber. The endgame seems to be endless deficits and continual ‘money printing’ by the FED. It will result either in the destruction of the currency or a collapse by exhaustion. No one knows what will happen. We can only speculate. World events will play a role. Politics will play in, too. But as far as I can see, if the Republicans cannot hold a line and say NO MORE SPENDING, the game will go on, till it can no longer sustain itself.”
“Many people will siphon off fortunes from the money printing, if they are in a position to stick a straw into the trough of the Banksters honey-pot. The majority of Americans will be poorer.”
One said, “Re expiration of the tax cuts: the *ahem* liberal websites have reached a general consensus: they believe that Obama has been allowing the R’s to hold the middle class hostage for far too long. In their view, it’s time to run out the clock and let the cuts expire on everyone. Then Obama can tell the R’s to either free the hostage or kill the hostage, but either way, he is done with giving in to demands. The moral victory is satisfying enough that many libs are willing to give up those tax cuts, to pay a little more in taxes as long as the rich pay a lot more in taxes. Many more welcome cutting the war machine. [just reporting the lib perspective]”
Another noted, “Sequestration calls for a 10% across the board cut in the military budget — which sounds like a good start until you realize it’s a 10% cut in budget INCREASES, which haven’t even been requested yet.”
And finally, “Will Realtor™ propaganda or economic reality carry the day in the decision whether to include the mortgage interest deduction among fiscal cliff spending reductions?”
The Daily Journal. “As Congress shifts its focus to reducing the budget deficit, a big loophole appears to be on the table: yours. The mortgage interest tax deduction, an advantage to thousands of homeowners in South Jersey, is up for debate, lumping them in with corporate jet owners and 1 percenters.”
“‘First-time home buyers really like the (tax break),’ said Elizabeth Giordano, a real estate agent with RE/MAX Gateway in Ocean Township. ‘They know instead of paying rent and not seeing any (immediate) financial benefit, they have a huge tax benefit buying a home. I don’t think they should touch it. I’m sure there’s plenty of other ways we can bring down the deficit.’”
“After all, who wouldn’t want to make life a little easier for Robert and Allison Harper? The Ocean Township couple has a 2-year-old daughter. They both work full time — Robert is an account executive for an electrical contractor in New York, Allison works for a pharmaceutical company. And their cost of living only seems to rise.”
“They are selling their house and buying another one a few miles away, trying to take advantage of the low interest rates. And they have come to depend on the mortgage interest deduction, which can amount to a couple thousand dollars a year, depending on their income. ‘That’s going to hurt me, for sure,’ Robert Harper, 41, said of the possibility of losing the deduction. ‘I turn around and go spend it on a local business, or I’ll hire a guy to put in air conditioning, or we’ll go to Florida to see the in-laws.’”
‘That’s going to hurt me, for sure,’ Robert Harper, 41, said of the possibility of losing the deduction. ‘I turn around and go spend it on a local business, or I’ll hire a guy to put in air conditioning, or we’ll go to Florida to see the in-laws’
Wow, Rob that’s a compelling argument; don’t take my tax break away cuz I spend it!
Of course the UHS can’t resist using the renter angle:
‘They know instead of paying rent and not seeing any (immediate) financial benefit, they have a huge tax benefit buying a home’
What sort of ‘benefit’ am I to expect when paying rent? I get the use of the house and grounds. How foolish of me to not think that the government should drop some bucks down my chimney!
If the government doesn’t take it from me to give to Rob, I’ll spend it too. Just not on what Rob would.
“Wow, Rob that’s a compelling argument; don’t take my tax break away cuz I spend it!”
Well, what’s the alternative? If they take it away with taxes they will spend it too, and, IMHO, do so in a far less efficient manner. Now, you could argue that’s a good thing (spread it around) or a bad thing, but, one way or another, the money is going to be spent.
The real problem is people who are saving the money. Those are the ones that, in the eyes of the government, really need to be taxed. Saving the money removes it from the “game” and slows down the economy; if the government has that money and “spreads it around”, the thinking goes, it will be more stimulative. I think that’s what good ol’Rob was trying to get across, the government doesn’t need to p*ss the money away for me, I’ll be happy to do it all on my own.
I’m a big beneficiary of the MID, our RE taxes down here in FL just about get me over the STD deduction, so, pretty much every dollar of mortgage interest that I have is deductible. My deductible interest this year is about 22K, so, for me, that’s a very significant number (it’s worth about 7K to me a year).
That said, it’s horrible policy. And not, IMHO, because it “benefits the well off”. It benefits the well off, because, in case nobody noticed, it’s really only the well off that have much/any federal income tax liability. So, of course it concentrates the benefits in the 60K+ range, that’s about when you start to really pay some significant income tax.
It’s horrible policy because it encourages silly/stupid behavior. So, if I use my HELOC to buy a car it’s deductible, but if I actually take a car loan, it’s not? Ugh.. And, I could pay more on my mortgage every month, but I don’t, because, right now, I’m borrowing at what’s (in my eyes) an insane rate (effective rate, after the deduction, of about 2.5%). So, borrow against your house and don’t pay it back. This is the kind of financial behavior we want to encourage?
Frankly, what they should do, every dollar over your required MTG payment each month that you send in should be deductible (yes, I realize this won’t work, but take it at face value as a talking point). We want people to get out of debt, not into it!
‘it encourages silly/stupid behavior’
The tax code is full of this sort of thing. Like you said, use a HELOC to pay for a vacation and you can deduct the interest. I can remember when one could deduct credit card interest, any interest I think. In the 80’s the laws were changed on all kinds of real estate deductions, like passive losses. Man, there were a bunch of doctors that got burned by that. I saw some of the tax records; buy an apartment complex (usually with a group of doctors), accelerate the depreciation and write it off against personal income.
What was the result? Way too many apartment complexes. It took decades for that to settle out.
The NJ article mentioned the MID tops out at $1,000,000. Jeebus, no wonder the Facebook guy took out a loan for his house.
‘the government doesn’t need to p*ss the money away for me, I’ll be happy to do it all on my own’
I’m not for more taxes on anyone. With the federal government building a police state here and killing people all over the globe, the less funds they have the better. But there’s this print/borrowing thing going on. Is it true that deficits don’t matter? I’d bet we’re gonna find out.
“Way too many apartment complexes. It took decades for that to settle out.”
Good thing the Housing Bubble era financial innovators came up with the condo conversion concept!
U-T SPECIAL REPORT | CONDO CONVERSIONS
Condo conversion craze grinds to halt
Oversupply of units hurts prices, leaves investors in limbo
By Lori Weisberg and Mike Freeman
STAFF WRITERS
September 24, 2006
Financial picture gloomy for those holding properties
As recently as last year, the business of transforming aging apartments into stylish condos and selling them to first-time home buyers was seen as an instant pot of gold.
No property in San Diego County was too old, too derelict, too small to be snatched up by the condo converters.
But no longer. Once one of the nation’s leading conversion markets, the county now has a glut of gussied-up apartments for sale with too few buyers.
LAURA EMBRY / Union-Tribune
The Villa Vicenza in La Jolla Village is one of several condo-conversion complexes renting some unsold units to keep a steady flow of income.
By the end of June, the number of converted units ready for occupancy or earmarked for sale later had grown to 6,922 in 111 projects, according to the Sullivan Group Real Estate Advisors. There was little change in July, and statistics for August have not been tallied.
The June numbers were higher than those in any major metropolitan area on the West Coast, according to Sullivan. Phoenix, another hot conversion market, was second with 6,024 unsold units in 44 actively selling projects. Los Angeles County, with a population more than three times that of San Diego County, had 22 conversion projects with just 1,326 units.
The conversion slowdown comes at a time when sales in the overall real estate market are also slumping and once-sizzling price gains have vanished.
Making matters worse for converters has been the record number of new condos being built in downtown San Diego and elsewhere in the county, also vying for buyers. In June, there were 5,800 unsold condos in new projects, said Michael Carney, a real estate economist with the Real Estate Research Council at California State Polytechnic University Pomona.
This is the first of a two-day series on the slumping condo conversion market.
Today: Conversion rush gluts market and puts owners in financial spot.
Tomorrow: El Cajon sought civic makeover by embracing conversions, which can leave renters uncertain.
Couple that with a 36 percent decline in sales during the first half of 2006 compared with a year earlier and it’s no wonder few converters are taking on new projects.
While the conversion craze was embraced by national developers, it proved especially enticing to neophyte investors. In some cases, they overpaid for older apartment buildings, banking on robust sales to deliver healthy profits. And many chose less-desirable inner-city locations in areas that have been overwhelmed with conversion projects.
“Here’s the problem: A number of people bought these apartment buildings at prices higher than what they should have paid,” San Diego real estate consultant Gary London said. “They purchased knowing they could sell them at a higher price for the converted units, and now they’re stuck in a marketplace that will not allow them to do that, which is why you’re going to see financial distress.
“A lot of these guys are still in denial, and as we get into 2007, I think you’ll see a lot of these projects introduced back into the apartment inventory.”
Newspaper ads hint at developers’ hunger to boost sales. “Bottom-line prices.” “Zero excuses not to buy.” “Last chance, summer release incentives.”
…
“What was the result? Way too many apartment complexes. It took decades for that to settle out.”
I remember that time in the late 80s well. It’s the only time in 30 years I had a serious vacancy problem*. No relationship between supply and demand. Under ordinary circumstances all I’d need to do is lower (or un-raise) the rent or undertake an improvement project and a place would be rented within a month.
* the exception would be the property affectionately known as “the crack alley house”. But I only needed 2 of the 4 units to be rented for it to be a good investment.
‘Saving the money removes it from the “game” and slows down the economy; if the government has that money and “spreads it around”, the thinking goes, it will be more stimulative.’
My recollection of undergraduate macroeconomics is rusty, but I thought the standard assumption about savings was that they were used to fund investments — things that contribute to the general long-term wealth of individual households and society as a whole.
Robert Harper’s pissing away money on an extra trip to Florida to see his in-laws is not investment.
CIBT, the emphasis now is consumer spending, not savings. Savings really aren’t linked to investment anymore. You need to invest? Borrow the money. There used to be restrictions on how much a bank could loan out, based on the reserve %, but that had fallen to 2.5% before being effectively eliminated. I’m sure a bank today can make as many loans as it can, using some other mechanism that links to the Federal Reserve, which now has an infinite amount of money to create.
The point I’m poorly making here is that savings are no longer required to run our economy. Only borrowing is required. And what drives borrowing? CONSUMER SPENDING.
The silly thing is, consumers are still expected to pay back debts. Even under the most favorable (hence absurd) terms, there must be a string of payments. Consumers just can’t do it anymore. Hence the current great depression.
“Savings really aren’t linked to investment anymore.”
They really are linked in my household.
We own three cars free and clear and pay off our credit cards each month (i.e. no interest payment stream going to Megabank, Inc), have a one-year supply of food, have money socked away in savings which I assume fund investment somewhere else, and have a large personal investment in musical instruments — all part of the linkage.
Only borrowing is required. And what drives borrowing? CONSUMER SPENDING.
only savings can be lent. if not yours, then someone else’s savings.
“only savings can be lent. if not yours, then someone else’s savings.”
WRONG. FED PRINTS MONEY… & LENDS IT. NO SAVINGS REQUIRED.
i’m not talking about what the FED does with fantasy ones and zeros. i’m talking about the real world.
FED dollars spend just the same as all the others already out there. There is no line between fantasy and reality dollars.
“…only savings can be lent. if not yours, then someone else’s savings.”
Where does the $40 bn a month in Fed-funded MBS purchases fit into your classification of loanable funds?
Where does the $40 bn a month in Fed-funded MBS purchases fit into your classification of loanable funds?
i can’t argue about the FED. i’ve told you that before. but i know someone that understands the FED better than ANYONE. i’ll take his word for it when he says that that money isn’t getting into the system.
then we should be all for FOOD Stamps, think of the trickle down effect. farmers to check out clerks!
The real beneficiary of food stamps is the manufacturers. Farmers and store clerks only recieve a tiny portion.
And I say manufacturers just like an assemply plant. If we limited food stamps to real food it would be much better for the country but that will never happen.
“The real beneficiary of food stamps is the manufacturers.”
Economic stimulus for potato chip manufacturers?!
“So, if I use my HELOC to buy a car it’s deductible, but if I actually take a car loan, it’s not? Ugh…”
I’m hoping somebody who really knows can corroborate, but I vaguely recall an era when HELOCs were underwritten to require the monies to be spent on something related to home construction or maintenance — i.e. “investment” related to maintaining the value of one’s property.
Allowing HELOC monies to be spent on consumption of cars, toys and vacations is a great recipe for a future underwater mortgage situation and the need for either a short sale or a ‘Save Our Homes’ personal bailout from Uncle Sam.
to require the monies to be spent on something related to home construction or maintenance — i.e. “investment” related to maintaining the value of one’s property ??
Its called the IRC “tracking rules” Pbear…
[PDF]
IRS Tracing Rules for Interest Deductions
http://www.borelassociates.com/…/…File Format: PDF/Adobe Acrobat - Quick View
IRS Tracing Rules for Interest Deductions … complex rules, the tax treatment of interest for an individual taxpayer can range from fully … IRC Section 163(h). 2 …
Depends on whether it was a Home Equity Line Of Credit or a Cash Out Refinance. We shouldn’t use them interchangeably, but we do anyway. Cash-outs are free money, but I don’t know about HELOCs.
It seems like the underwater problem could be solved going forward by making it illegal to borrow against one’s home to fund consumption expenditures.
You and what Congress. Also, who will enforce it and how much are you going to pay them, because you can’t really leave that sort of thing to the banks.
“The real problem is people who are saving the money. Those are the ones that, in the eyes of the government, really need to be taxed.”
I don’t believe you understand.
I’m earning <2% on a half million in loose cash. I’m already being taxed by the federal reserve moneychangers so you spendthrifts can continue borrowing inflated amounts on your depreciating assets. I’m already being taxed by a corrupt system to float a bunch of lowlife debtors.
‘They know instead of paying rent and not seeing any (immediate) financial benefit,
Funny—I feel like I get an immediate financial benefit every month when I pay my rent: I get to stay in the house for another month.
Clear benefit.
Not only that, but I’m guessing you are paying less per month than if you owned a comparable home — another “benefit” of renting.
True…
And I should also mention the capital-loss that I’m avoiding every month—except oh wait, the prices don’t appear to be going down in my area any more due to all of the Fed’s pumping, in spite of what the fundamentals still suggest should be occuring.
Right. We bought ourselves an extra six-and-a-half years of rentership off the capital losses we avoided by not owning our landlord’s “investment property.” And this is calculated at our current rental rate*, not the 2005 rate.
* BTW, our rent next year will be the same as it was since 2007. So much for the theory that rents always go up…
You got lucky with your LL and you know it. Hope you don’t have to move anytime soon.
“You got lucky with your LL and you know it.”
We met our LLs in person before signing the lease, and made a rational decision that they were solid people, not deadbeats. We have maintained cordial, mutually-considerate relations through the years. We do routine home maintenance tasks ourselves, and only bother them on the major items. We even send them a Christmas gift every year. They appreciate that we send them our rent check on time every month, and we appreciate that they don’t try to jack up our rent out of line with the rest of the local housing market.
Luck has nothing to do with it.
Luck has nothing to do with it.
Luck has a little bit to do with it. We had the same kind of deal going for a while from 2005-2009. But eventually she decided to sell the place. So it doesn’t always last forever no matter how careful you are or how much you put into it.
But other than that, yes…you CAN find good rental situations.
“But eventually she decided to sell the place.”
Let’s agree that luck always has something to do with it, whether you rent or own, especially when the Fed is busy behind the curtain trying to financially engineer redistributive schemes that reward home ownership.
That said, I’m guessing your landlady was not $150,000 underwater when she sold. I’m trying to imagine under what circumstances an investor would rationally sell from that deep under the water.
Nah, she did fine. She just wanted cash to pay for her kids’ tuition. She offered us a very good deal on the place. No regrets about not taking it even though in theory we could have flipped it for a decent chunk of change. But instead we’d be living in it and riding it down, I’m sure. My wife always chooses to avoid moving whenever possible.
CIBT, how long have your LLs owned the place? Did they buy pre-bubble? Did they buy the place as an investment or become accidental landlords when they decided to upgrade or move for a job?
“Did they buy pre-bubble?”
They bought about the same time we sold — late 2004, right near the bubble peak. The “high” eppraisal estimate has the value right where it was when they bought, so maybe they are no longer underwater, thanks to Fed price support measures.
In many areas of CA, buying with 20% down is cheaper than renting.
just need that 20% down to avoid PMI. oh…. and a job.
…and 120k of income, on which you’ll pay a vicious amount of tax.
“How foolish of me to not think that the government should drop some bucks down my chimney!”
Have you lost faith in Bernanke Claus? Say it ain’t so!
“And they have come to depend on the mortgage interest deduction, which can amount to a couple thousand dollars a year, depending on their income.”
The standard deduction for a married couple household filing jointly was $11,600 in 2011. So assuming $2000 in deductible mortgage interest a year, the Harper family would need to have claimed at least an additional $9,600 in itemized deductions in order for the mortgage interest deduction to have saved them $1 in federal taxes beyond what they would have paid by taking the standard deduction.
Is this example too hard for Realtors™ to understand? I realize they aren’t exactly the sharpest tools in the shed, but this is not exactly rocket science.
Oxide — consider the above example as representative of why I claim the MID offers $0 benefit to many low-to-middle income homeowner households. Now for a scenario at the other end of the wealth distribution:
Mortgage principle: $1,000,000
Interest rate: 5%
Mortgage term: 30 years
Income assumed for example: $10,000,000
Other deductions besides MID assumed for example: 10% of income
($1,000,000)
Deductible interest in first year of mortgage will be nearly*
5% of $1,000,000, or $50,000.
With either $1,000,000 or $1,050,000 in deductions, the standard deduction is out of the question, so the full $50,000 in mortgage interest is deductible. In the 35% tax bracket, the mortgage interest deduction saves 35% of $50,000, or $17,500.
I realize that $17,500 may be chump change to someone making $10,000,000 a year, even though this is a significant fraction of the U.S. median household income, which may be yet another reason it is a good idea to eliminate the MID.
*I’m ignoring the negligible amount of principle amortization that occurs in the first year of a 30-year mortgage for this example. Including this complication would slightly reduce the interest paid in the first year.
P.S. Here is a nice tax calculator, in case you want to check the $17,500 figure I came up with. (For entertainment, I worked the math in my head, but then checked it on this calculator.)
Here is a thought experiment regarding the hypothetical $17,500 in tax savings that a rich guy might realize by borrowing $1,000,000 to buy a home: What percentage of all taxpayers pay upwards of $17,500 in federal taxes?
My guess: The amount of taxes my hypothetical 1%er friend avoids by taking the MID exceeds the full federal tax payment of more than 99% of all American households.
If anyone has the U.S. household distribution of federal tax payments in hand, please post.
I found this CBO publication which includes the distribution of federal taxes paid by income group. Based on 2009 data, it looks like roughly 80 percent of U.S. households face less than $17,500 in tax liability. The $17,500 federal tax threshold is crossed at some percentile in the top 20 percent.
We must be doing something right, as we are above the 80th percentile yet (honestly) pay far below $17,500 in federal taxes.
The Distribution of Household Income and Federal Taxes, 2008 and 2009
July 10, 2012
read complete document (pdf, 300 kb)
Updated: On August 10, 2012, the supplemental data spreadsheet was reposted with a correction (in Table 5, to the 2009 value for market income, adjusted for household size), along with a few explanatory notes (to Tables 5, 9, and 13).
The recent recession has had a substantial impact on income, the amount of taxes owed, and average tax rates. Changes in households’ before-tax income and average tax rates in 2008 and 2009 were substantial and differed markedly across the income distribution. Average after-tax income fell notably, owing to a drop in market income caused by the recession that began in December 2007 that was only partially offset by increases in government transfers and decreases in federal taxes.
In this report CBO extends its estimates of the distribution of household income and federal taxes through 2008 and 2009, the latest year for which comprehensive data are available, and compares those estimates with estimates for 2007 and for the 1979–2009 period.
Average Before-Tax Income for All Households Fell 12 Percent from 2007 to 2009 in Real (Inflation-Adjusted) Terms
In 2009, the shares of total before-tax income (which includes government transfer payments, such as Social Security benefits) received by households in certain income quintiles were:
Lowest quintile: 5.1 percent
Middle quintile: 14.7 percent
Highest quintile: 50.8 percent
…
“But, the Repblicans will never stop spending and based on the last election, the 50/50 line has been passed on people wanting their free cheese. We are the New Japan, but much bigger and a lot dumber.
(that is better, I lived through 24yrs of Reagan, Bush and Clinton. I know who spends more)
Obama spent more than all of them. Get a clue.
Stop giving Dollars to Deadbeats. Just stop.
Catchy name.
Cash for klunkers.
Dollars for deadbeats..
Payments for profligates
HELOCS for hedonists…
Credit for cretins.
Like: Aig, Freddie, Fannie, GM, Exxon, Halliburton, Wells Fargo, BofA…. it is a long, expensive list
It will result either in the destruction of the currency or a collapse by exhaustion ??
The economy is running on high octane jet fuel right now…But, does it have sound legs…??…Will it be able to stand on its own when the fuel is withdrawn…??…Or, like the sentence above suggests, collapse or destroy the dollar…
IF you caught the weekend news, the “treasury secretary” is starting to eliminate the production of pennies and nickels and wants to convert the dollar to a coin, to supposedly save money.
The currency destruction has been on-going since 1913 when the Banksters snookered the public by a Christmas recess vote for the Bankster Act.
The news of eliminating the smaller currency units, saying they can’t make them for what they are worth should tell you where we are. WE are in Big trouble, and the only solution by BAnksters and the Obama team is “more of the same”, only a lot more.
So, what will this mean starting next year. First, that pennies will disappear from the money pool.
After that, there won’t be any 99 Cent items. Just call it a dollar. What will happen to taxes?
In Florida, we used to have a 4% sales tax that over the past couple of decades worked up locally to 6.5% or 7% depending on local.
So, I guess the tax is 5% or 10% on a dollar, most likely rounding to the next highest nickel.
This is the beginning of currency destruction. When the lowest units prove unmanageable or “worthless”, you just keep making bigger units.
The common $20 bill will be replaced by the more common $100 Bill, until having lunch cost more than $20 per person at your favorite McDonald’s.
Wages will increase, GDP will “increase”, “profits” will increase, but it is all an illusion. Savings will be decimated.
This is the outcome I fear, and news like we just got from the Creators of Debt and Destruction could care less about the working people they are robbing, so long as the are “caring for the poor”.
It’s a sham.
Keep an eye for the disappearance of the smaller money units. From the discussions I have heard, most people don’t care, say the Penny is just a headache anyway, let’s just round everything to the nearest dollar. No need for “change” at all.
That’s really great, isn’t it. Financial Innovation from the Bankster Class.
“…starting to eliminate the production of pennies and nickels and wants to convert the dollar to a coin, to supposedly save money.”
I have some financially innovative suggestions:
1) Stop minting today’s pennies, nickels, quarters and other coinage.
2) Create a new dollar coin out of copper with the same weight as today’s penny.
I heard they were just going to use really really cheap materials, not get rid of them. I can’t see a piece of bazooka going for a dollar.
They are already making pennies from zinc, not copper, and that’s not working.
The whole point is that it costs about 13 cents to make a nickel, or somesuch amount.
Our pennies and nickels are worth more than their face value in metal content.
It is economically unsustainable to keep making things that cost more than they are worth.
I know that Democrats see the government as Santa Claus with and endless bag of goodies to be passed around. Paying for it is always to come from someone else’s pocket, but this issue with the treasury should help (i say help, not fix), the idea that endless spending doesn’t have real consequences.
Party on, GArth!!
Let’s come up with some more government programs to pass around some more money.
It is economically unsustainable to keep making things that cost more than they are worth
They make it up on the Benjamins.
SS, Medicare, Medicaid, the military, and debt interest are about 70% of the federal budget. Nobody will cut those; not even one percent. So when you borrow 40% of your budget, it’s mathematically impossible to balance the budget. 100% - 40% = 60%, and 60% is much less than 70%.
We’re bankrupt. The United States federal government is BANKRUPT.
The only thing keeping it going is borrowing. And that’s forced, since one hand of the government is lending to the other hand, and the lending hand is ultimately upon the heads of each American. The pressure to raise taxes (upon the heads of the fools that keep paying) will keep growing until BOTH major parties end up agreeing to raise taxes. After all, I just demonstrated above that it’s impossible to actually make effective cuts.
Era of “spending cuts” theater: 2013-2016
Era of increasing taxes: 2017-2020
Era of tax revolt: 2021+
So the real “fiscal cliff” will come in 2021 AD or thereabouts. That’s when Americans will finally declare they’ve had enough. Of course, it will be too late by then. The public debt will be around $24 trillion, 50% higher than today. Interest on the debt will be at least 8% of the federal budget (it’s 6% today). Petroleum will be even more depleted, so gasoline and diesel in the USA will be quite a bit higher, and the taxes on them concomitantly higher. Taxes will be everywhere; special taxes will be laid on your car, your garden, even your tools. But hey, marijuana will finally be legal, since it will be TAXED.
The military is the one that I really don’t understand. And, I mean no disrespect to any vets or current members of the armed services, but, man, do we need some reform here.
We keep gearing up like we’re going to flight WW2 again. Guess what people, it’s never going to happen. If we get into a big fight with a superpower, the nukes are going to fly. And, the smaller fights, in most cases, we shouldn’t be in anyway. We need a small number of highly trained operatives, and a lot of drones to bomb people in some hell-hole out of existence if they attack us. That’s about it. We need to start to become much more insular and stop fighting the world’s wars.
I think we could cut military spending by 90% tomorrow and not be any less safe than we are today.
‘We keep gearing up like we’re going to flight WW2 again’
How many wars have we had since WW2 where we dropped more explosive tonnage in a few days? Did you hear China launched a fighter off a carrier deck recently; only 80 years after the US did!
It’s absurd that these politicians are acting like we’ve got all these “tough choices.”
‘The F-35 was conceived as the Pentagon’s silver bullet in the sky…The program nearly doubled in cost as Lockheed and the military’s own bureaucracy failed to deliver on the most basic promise of a three-in-one jet that would save taxpayers money and be served up speedily. With all the delays — full production is not expected until 2019 — the military has spent billions to extend the lives of older fighters and buy more of them to fill the gap. At the same time, the cost to build each F-35 has risen to an average of $137 million from $69 million in 2001.’
‘The jets would cost taxpayers $396 billion, including research and development, if the Pentagon sticks to its plan to build 2,443 by the late 2030s. That would be nearly four times as much as any other weapons system and two-thirds of the $589 billion the United States has spent on the war in Afghanistan. The military is also desperately trying to figure out how to reduce the long-term costs of operating the planes, now projected at $1.1 trillion.’
‘Todd Harrison, an analyst at the Center for Strategic and Budgetary Assessments, a research group in Washington, said Pentagon officials had little choice but to push ahead, especially after already spending $65 billion on the fighter. “It is simultaneously too big to fail and too big to succeed,” he said. “The bottom line here is that they’ve crammed too much into the program.’
‘Mr. Harrison, the analyst at the budget center, said the willingness to “roll the dice” reflected the peculiar incentives at the Pentagon, where rushing into production creates jobs and locks in political support, even if it allows programs to drift into trouble. Lockheed and its suppliers on the F-35 employ 35,000 workers, with some in nearly every Congressional district.’
‘Mr. Stevens, the Lockheed chief executive, said military programs bog down in many layers of auditing, a process he described as “sclerosis in the system.” In World War II, he said, “We managed to either invent or refine jet propulsion, nuclear weapons, radar, radio communication, electronics in three years and eight months.” In that time today, he said, the Pentagon cannot even finish the initial design of a system.’
“… sclerosis in the system …”
If the incentive is to draw out a project then the project will be drawn out.
Complete the project and then - what? Look for another project? Start over with bits and such? Why bother? Just milk out the current project.
“Never underestimate the power of incentives.” - Charlie Munger
bits = bids
If the incentive is to draw out a project then the project will be drawn out.
+1. If they structured these contracts so that the companies actually made LESS if they were behind schedule, or (horror) LOST money on the contract, then we’d see a lot less of these way-late and way-over-budget projects…
I reiterate what I said yesterday, which is my impression that military industrial complex expenditures are not on the Fiscal Cliff negotiating table.
Add entitlements and the mortgage interest deduction to the list of Third Rails which are “off the table,” and you don’t have much of a negotiating core left in which to find a meaningful Fiscal Cliff solution.
‘you don’t have much of a negotiating core left’
Which may explain the desire to do away with the debt ceiling.
Another aspect of entitlements is they are getting worse with time. Kicking the can down the road has a cost too.
“Another aspect of entitlements is they are getting worse with time.”
Another view: The entitlement debt bomb is finally coming to fruition as Baby Boomers start retiring in droves. This is hardly one of those ‘nobody could have seen it coming’ developments. A major focus of the standard actuarial science textbook I studied a quarter of a century ago was the difference between pay-as-you-go pension systems like Social Security and prefunded plans like corporate defined benefit programs.
In short, the overlay of a pay-as-you-go retirement program on top of the demographic bubble known as the Baby Boom is a financial catastrophe waiting to happen. And the Dies Irae is now at hand.
“Dies Irae”
It’s also worth noting that the situation is actually much worse than one might have predicted a quarter of a century ago, thanks to the effect of the Great Recession on the American employment base whose taxes provide the pay-as-you-go entitlement payments added to the existing problem of a demographic time bomb. The dependency ratio must be skyrocketing well beyond what anyone could have seen coming.
It’s pretty obvious you guys are lying. I’ve seen countless posts here that the Social Security is “Fully funded”. There’s a lockbox. They put all the money we sent them in a “lockbox” and it’s fully earmarked for each of us.
Unfortunately, most of us know this is a complete farce and the SS system is a form of Ponzi finance where new money in pays out to current retirees. There’s not enough money coming in. There won’t be, either.
Solution: PRINT MORE MONEY. Let’s start with 1.6 Trillion this year. Most will go for political favors, but, at least, there’s more money to pass around for the lucky few who can get some. Perhaps it will trickle down.
‘…Social Security is “Fully funded”.
…’
Reference, please?
And let me suggest in advance that if you can find one, its author is far more likely to be a scum-sucking bottom-dwelling attorney than an honest actuary.
SS is funded by the payroll tax.
Will it be enough to pay the benefits being promised as they are today, assuming that nothing is done to change the system? Of course not, but even a worse case scenario is that it might only pay 70 cents on the dollar. That is much better than most investment based pension plans.
Shut’em down and return my contributions.
“Shut’em down and return my contributions.”
That would be nice, wouldn’t it? Especially if we could reclaim the amounts our employers paid in for entitlements on our behalves, for a total of 15.3% of every dollar of income up to the lesser of the wage base or your annual pay for each year of work since 1983.
I wrote and extensive discussion about this problem a long time ago from the personal experience of a friend of mine who had worked for several years with one of the BIG Defense contractors.
They are thieves, nothing more.
They NEVER come in under a “budget”. They know that once the project is started, then they can run up an additional tab on “uncle sugar”. If you try to actually solve a problem that comes up with a cost-effective solution, you will be run out on a rail. Your boss may fire you.
They don’t want a solution that is cost-effective.
Their management is judged by how much “additional” money the program was able to generate in the form of incomes to the Contractor. If you the Generals that you are 80% done and you just need a couple more months and a few extra million dollars, the checks are written.
Since these companies form a MONOPOLY, the government considers them “TOO BIG TO FAIL”. How many Jet Fighter companies do we have? HUMMM?? Can’t let either of them lose money and possibly go out of business, can we??
That is why they are ALWAYS over budget and going back to the trough for MORE. It is their business model. Got it?
“We keep gearing up like we’re going to flight WW2 again. Guess what people, it’s never going to happen.”
Here’s a contrarian theory: A country which primarily allocates investment towards a never-ending buildup of the military industrial complex increases the incentives for engaging in future wars at an increasing frequency.
Why throw money away investment that will simply go to waste?
Plus getting into a war is a neat way to test out new weapons.
+1 Combo….The pentagon was foaming at the mouth to try out their new weapons systems…Bush accommodated them…Shock & Awe….
…yellow cake uranium…
It’s not so much that we’re testing new ones as using up the old ones we’ve stockpiled so we can justify the job-creating expense of building new ones to replace them. Half a trillion in freaking Afghanistan. For what?
For the want of more free government cheese…Rome fell.
And so it will be in America.
Everything will be free - but the people.
“For the want of more free government cheese…Rome fell.”
Glad to know that, in your humble and universally agreed opinion, it wasn’t because they overextended their empirical ambitions.
I was going to say, from what I read the Empire over extended and the enemies grew stronger. When the Visigoths sacked Rome, there was plenty of swag to plunder.
And I’m guessing a similar fate awaits the U.S. if we spend so much of our national wealth expanding the empire reach that we weaken ourselves at home.
From what I read, the Roman Empire so taxed and abused its own citizenry at its end that many of them went over to the ‘enemy’ side rather than put up with it.
“… so taxed and abused its own citizenry at its end that many of them went over to the ‘enemy’ side rather than put up with it.”
Isn’t this a logical consequence of an endless, unchecked expansion of the empirical reach?
And bear in mind that many of the so called “citizens” were in reality vassal states who rebelled against an overextended Rome.
“We’re bankrupt”
!!!
There is life after bankruptcy. Liquidate and get over it. Life will go on.
And while we ponder a broke government:
‘The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969. According to a recent study by New York University economics professor Edward N. Wolff, median net worth is at the decades-low figure of $57,000 (in 2010 dollars). And as the numbers in his study reflect, the situation only appears worse when all the statistics are taken as a whole.’
‘According to Wolff, between 1983 and 2010, the percentage of households with less than $10,000 in assets (using constant 1995 dollars) rose from 29.7 percent to 37.1 percent. The “less than $10,000″ figure includes the numerous households that have no assets at all, or “negative assets,” which is otherwise known as “debt.”
‘Over that same period of time, the wealthiest 1 percent of American households increased their average wealth by 71 percent.’
http://washington.cbslocal.com/2012/11/30/study-american-households-hit-43-year-low-in-net-worth/
An amazing thing about all this; we have the lowest interest rates in history. One might think a reexamination of this concept ‘otherwise known as debt’ would be in order.
“An amazing thing about all this; we have the lowest interest rates in history.”
Unless you need to borrow money; If you need to borrow money then interest rates can be quite steep.
But on the other hand: If you have money and need to loan it out to, say, a bank then the interest rate they will give to you will be low.
Hosed if you need money, hosed if you have money.
Strange times.
Everyone complains about rich getting richer and poor getting poorer but nobody wants to examine the role of the Fed on this. All they want to do is tax a little more. Like it will solve anything.
Bring on the wealth tax!
“…nobody wants to examine the role of the Fed on this.”
Nobody in power, at least…
End the Fed [Bargain Price] [Hardcover]
Ron Paul (Author)
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Book Description
Publication Date: September 16, 2009
In the post-meltdown world, it is irresponsible, ineffective, and ultimately useless to have a serious economic debate without considering and challenging the role of the Federal Reserve.
Most people think of the Fed as an indispensable institution without which the country’s economy could not properly function. But in END THE FED, Ron Paul draws on American history, economics, and fascinating stories from his own long political life to argue that the Fed is both corrupt and unconstitutional. It is inflating currency today at nearly a Weimar or Zimbabwe level, a practice that threatens to put us into an inflationary depression where $100 bills are worthless. What most people don’t realize is that the Fed — created by the Morgans and Rockefellers at a private club off the coast of Georgia — is actually working against their own personal interests. Congressman Paul’s urgent appeal to all citizens and officials tells us where we went wrong and what we need to do fix America’s economic policy for future generations.
‘rich getting richer and poor getting poorer’
Yes, it’s easy to fall into class warfare mode on this stuff. What if we took all the rich peoples money and distributed it? (with the government to decide who gets what, of course).
Even discounting the several implications of such a policy, how much would that amount to? I’d bet we couldn’t run even the Pentagon for a month of two.
So, how are people getting further behind? It costs more to go to college, more for a house, more for a car and for gasoline. At the same time incomes are stagnant.
IMO, we are barking up the wrong tree about this situation. I was very disappointed that the words globalism or World Trade Organization were never mentioned in any of the presidential debates. Talk about off the table.
“What if we took all the rich peoples money and distributed it?”
For the record, I disagree with this approach. Rather, I believe in finding ways to extend opportunity to individual American households to support themselves and to develop financial independence.
Miring them down with unrepayable debt burdens in order to indenture them to Wall Street’s Megabank, Inc banking cartel is not the path to a strong, free America.
‘The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969.’
In light of that information, I understand why the Fed is working so hard to increase the value of all American homeowners’ houses. What faster way is there to increase the net worth of all American homeowners than to financially engineer a home equity wealth effect?
What faster way is there to increase the net worth of all American homeowners than to financially engineer a home equity wealth effect?
Well yes, that was the Greenspan/Bernanke dream……..They both had a dream!
And all that wealth will go to RE-fi loans and Cash-out Home equity lines and it will get spent and the “Economy” will grow by passing around lots more money for “consumption”, and stocks will rise and incomes will grow.
We just did that.
It ended in 2008.
We are still trying to recover.
You want to Do it again?
Are YOU NUTS????
As a follow-up to the thinking here, i found this on=line from Bloomberg, cited in another stinging expose (ex-pos-zay) of the Money-creation machine:
Bloomberg reports:
“After six years of declines, lending for so-called HELOCs will rise 30%, to $79.6 billion, in 2012, the highest level since the start of the financial crisis in 2008, according to the economics research unit of Moody’s Corp. Originations next year will jump another 31%, to $104 billion, it projected.”
This borrowing will spur consumer spending, which, according to Bloomberg, is the largest party of the economy. The Mortgage Bankers Association’s crystal ball predicts home prices will gain 8% this year, and, in turn, Bloomberg reports, “The amount of equity homeowners had in the second quarter rose by $406 billion, to $7.3 trillion, the highest level since 2007.”
End of quoted section.
So, there, you are right. The Banksters have “fixed” the economy with inflationary practices to boost home prices.
Everyone’s rich again, and the spending can continue………..hooray!!
Let the HELOC’s run made!! We’re all gonna get some liposuction!! HooWeee!!
“We’re all gonna get some liposuction!!”
Boob jobs for everyone’s girlfriends!!!
‘Over that same period of time, the wealthiest 1 percent of American households increased their average wealth by 71 percent.’
And this is one reason I am happy for Mitt Romney that he does not have to assume the burden of the presidency. Just think of all the fun he will have sharing those huge personal wealth gains with his grandchildren over the next few years!
The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969.
This will likely be an unpopular question:
On this blog, it has been stated many times that the post-WWII era of a strong middle-class with growing prosperity has been a historical statistical anomaly.
Was it always fundamentally unsustainable, and are we just observing the unavoidable regression to the mean over the past thirty years?
‘unavoidable regression to the mean’
Good question, and I can’t say. But let’s consider a few anecdotes. I have a friend who got approved for a big VA loan to buy a house. From that minute on he was like a house buying zombie. He finally landed one and is underwater. Makes good money, so he’s looking at cars. Looks into used Escalades, the pimped out ones. He’s telling me about heated and cooled seats, 8 or 10 video screens in one. These Cadillacs have lost 60-70% of value in around 7 years. And they cost as much as a house in parts of Arizona.
I don’t know about you guys but when I was growing up, we handed cars down. My first vehicle was my grandfathers 1969 Ford pickup. (It was the worst color green you could imagine).
The cell or smart phone is ubiquitous now. How much is that costing the typical family a month?
When I went to college the books were more than tuition. And I lived at my parents home the first three years, still driving that old Ford. I’m not saying I walked in the snow barefoot, yadda yadda, but I hope you get my drift.
“The cell or smart phone is ubiquitous now. How much is that costing the typical family a month?”
My wife, who is self-appointed CFO of our household, is in charge of blowing money on that kind of stuff (cable subscription, cell phones for everybody, annual Disney passes, etc).
I take my savings off the top of my paycheck, then let her spend the rest as she wants. So long as the kids are fed, clothed, and happy, who cares?
“we handed cars down. My first vehicle was my grandfathers 1969 Ford pickup.”
My older brother got Gramps. A ‘71 putrid green Ford F100 with facked up shift linkage.
‘A ‘71 putrid green Ford’
Yeah, it’s hard to describe the color of the truck I got. I think some phlegm I’ve experienced was closest. It was a three on the tree shifter, four cylinder that was so light it had no traction on ice or mud. The AC didn’t work so high school outings in the summer were kinda sweaty. But I was very happy to not be walking or begging rides.
You guys are rekindling fond memories of my beat-up repainted ‘67 VW beetle. How I survived freeway driving in that contraption remains a mystery to me today.
“The cell or smart phone is ubiquitous now. How much is that costing the typical family a month?”
Yes, you hear very little talk of the tremendous technology tax on our instant electronic lifestyles.
In 1960 (when a new Rolls Royce cost $10,000) Merrill, Lynch, Pierce, Fenner and Bean (later Smith) Estate Planning Services ran a print ad featuring a well-dressed if bewildered-looking widow in her late fifties under the the caption:
“I thought $10,000 was a lot of money.”
So while the median net worth may have dropped, it still has a looooong way to go to get to upper-middle-class 1960’s.
The U.S. has gone through bankruptcy several times in the past and survived to tell about it. Here is a book title that recently caught my eye which might delve into this discussion — available at a deeply-discounted (aka deflated) price:
White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You [Hardcover]
Simon Johnson (Author), James Kwak (Author)
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Only 16 left in stock (more on the way).
Book Description
Release Date: April 3, 2012
America is mired in debt—more than $30,000 for every man, woman, and child. Bitter fighting over deficits, taxes, and spending bedevils Washington, D.C., even as partisan gridlock has brought the government to the brink of default. Yet the more politicians on both sides of the aisle rant and the citizenry fumes, the more things seem to remain the same.
In White House Burning, Simon Johnson and James Kwak—authors of the national best seller 13 Bankers and cofounders of The Baseline Scenario, a widely cited blog on economics and public policy—demystify the national debt, explaining whence it came and, even more important, what it means to you and to future generations. They tell the story of the Founding Fathers’ divisive struggles over taxes and spending. They chart the rise of the almighty dollar, which makes it easy for the United States to borrow money. They account for the debasement of our political system in the 1980s and 1990s, which produced today’s dysfunctional and impotent Congress. And they show how, if we persist on our current course, the national debt will harm ordinary Americans by reducing the number of jobs, lowering living standards, increasing inequality, and forcing a sudden and drastic reduction in the government services we now take for granted.
But Johnson and Kwak also provide a clear and compelling vision for how our debt crisis can be solved while strengthening our economy and preserving the essential functions of government. They debunk the myth that such crucial programs as Social Security and Medicare must be slashed to the bone. White House Burning looks squarely at the burgeoning national debt and proposes to defuse its threat to our well-being without forcing struggling middle-class families and the elderly into poverty.
Carefully researched and informed by the same compelling storytelling and lucid analysis as 13 Bankers, White House Burning is an invaluable guide to the central political and economic issue of our time. It is certain to provoke vigorous debate.
P.S. Here are the “Comments Guidelines” from The Baseline Scenario blog:
Comment Guidelines
We are proud to have one of the richest, most intelligent comments sections of any economics and policy blog. As our readership gets larger and new people join the discussion, however, we have to have a few rules:
1. No profanity.
2. No attacks or insults aimed at other commenters. Calling a public official an idiot is one thing; calling someone who just wrote a comment an idiot is another.
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4. No using multiple identities to agree with yourself and attack other people.
5. Comments must be relevant to the discussion and must be in English so that other people reading the blog can read them.
If I see comments falling into these categories, I will delete them. If the same person persists in violating these policies, I will do what I can to block him or her. I am also adding filters on a few words to flag comments for moderation.
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The U.S. has gone through bankruptcy several times in the past and survived to tell about it.
Reference?
I just suggested a book as a possible reference. How much free research do you expect on demand?
Here is an excellent summary and author interview from this week’s PBS Newshour:
http://www.pbs.org/newshour/bb/business/july-dec12/makingsense_11-27.html
Contains such fascinating snippets as: the reason enraged citizens threw tea into Boston Harbor was because taxes on it had been LOWERED, thus cutting into the colonial brokers’ profits.
Thanks for posting the interview, ahansen. It gives a great overview of the U.S. history of running up war debt and the aftermath.
The most interesting comment to me was the one about the difference between the North using bonds and taxation to finance the Civil War and the South using the printing press. In Johnson’s assessment, it hyperinflation of the Confederate currency was a key factor in the outcome.
This got me to wondering: What if a government issues bonds but then prints money which is used to buy them. It seems like we are playing both the North and the South hand at the same time in the present episode.
Actually, we’re not Bankrupt.
WE are “insolvent”. For all the overly zealous people here that go on a tirade for correct legal definitions.
Thinking for some pithy remark? Ugh?
Can’t find one.
Okay, i got it>
ALL HAIL GOLDMAN SACHS!!!
Technically, until we repudiate our debts were are not “bankrupt”, but the two terms are pretty much interchangeable.
Lead article in today’s WSJ:
POLITICS
November 30, 2012, 1:52 p.m. ET
GOP Takes Aim at Entitlements
Senate Minority Leader Calls for Bipartisan Support of Changes to Medicare, Social Security to Get Deal
By NAFTALI BENDAVID And JANET HOOK
Senate Minority Leader Mitch McConnell said he wanted changes to safety-net programs that focus on changing eligibility requirements, and suggested that if Democrats agreed both sides could move closer to a budget deal to avert the fiscal cliff. Matthew Rose has details on The News Hub. Photo: AP.
Senate Minority Leader Mitch McConnell outlined potential changes to Medicare and Social Security in an interview Friday, providing fresh clarity on the concessions Republicans would like to see from Democrats on cutting the costs of the federal entitlement programs.
Mr. McConnell (R., Ky.) said bipartisan agreement on higher Medicare premiums for the wealthy, an increase in the Medicare eligibility age and slowing cost-of-living increases for Social Security could move both parties closer to a budget deal that averts the so-called fiscal cliff, the combination of spending cuts and tax increases that start in early January unless Washington acts.
In return for the support of Democrats, he said, Republicans would agree to include more tax revenue in a budget deal, though not from higher rates.
“Those are the kinds of things that would get Republicans interested in new revenue,” Mr. McConnell said.
Democrats played down Mr. McConnell’s comments and framed the debate from their own point of view: If Republicans instead agreed to raise income-tax rates for high earners, a deal to avoid the fiscal cliff could be quickly reached.
House Minority Leader Nancy Pelosi (D., Calif.) said there was “nothing new” in Mr. McConnell’s comments. A senior administration official said the White House would make no new offers until Republicans changed their opposition to raising top tax rates.
Democrats said they were still awaiting a formal GOP proposal. “Republicans are still choosing not to put forward an actual offer, and we can’t respond to an interview,” said Adam Jentleson, spokesman for Senate Majority Leader Harry Reid (D., Nev.).
Mr. McConnell’s cost-saving suggestions, however, mark a clearer articulation of the compromises his side was demanding.
GOP Whip Kevin McCarthy says some Democrats and Republicans on Capitol Hill are happy to see the U.S. go over the fiscal cliff. WSJ reporters assess the state of the negotiations to avoid it and the furore over Susan Rice’s State Department bid.
Republicans have said they would agree to revenue increases if Democrats went along with proposals intended to put safety-net programs on sounder financial footing. Democrats have countered that Republicans have been vague about what they want.
Mr. McConnell on Friday resurrected suggestions that were on the table during deficit-cut talks between Mr. Obama and House Speaker John Boehner (R., Ohio) in the summer of 2011, negotiations that broke down in finger-pointing on both sides.
Talks to avoid the fiscal cliff, which government economists say could throw the U.S. economy into recession, were at “stalemate,” House Speaker John Boehner (R., Ohio) said Friday. Still, he said, talks had not collapsed and added, “I’m willing to move forward in good faith.”
Senate Finance Committee Chairman Max Baucus (D., Mont.) said it was premature to expect major compromises. “It’s too early,” he said. “It’s 31 days away.”
Tensions between the two sides increased Thursday when Republicans dismissed a White House proposal that included $1.6 trillion in new taxes and $50 billion in infrastructure spending, among other things.
Mr. McConnell reiterated his rejection of that plan in Friday’s interview, saying he laughed when Treasury Secretary Timothy Geithner presented it. “He noticed that I laughed,” Mr. McConnell said. “That pretty well summed up my view of what he was saying.”
…
See what I mean? Where are the cuts in the military? The right wing won’t allow those. Really cuts to entitlements for the elderly won’t be allowed by either party, since the elderly vote in huge numbers. And you can’t cut the interest on the debt. So we’re still looking at 70% of the budget that quite simply won’t be touched. And we’re certainly not going to be cutting 100% of the remaining 30%. We can’t even cut 10% of the remaining 30% (i.e. 3% of the total). The idea of “saving the budget” in the eyes of the mainstream politician is arguing for weeks or months over $40B in cuts from a ‘budget’ that’s uses $1000B to $1200B in borrowed money. It’s untenable.
This is all just theater. We’re bankrupt. 2013 will be a worse year; 2014 will see some relief since it’s the midterms. Then 2015 will be simply awful, compensating. The middle class is being destroyed. The wise man plans accordingly. He downsizes his lifestyle before circumstances do it for him, forcibly, brutally.
Go ahead and fall on your sword by downsizing your lifestyle.
But don’t complain to me when some Democratic politician proposes to siphon away your savings to profligates who blew all their money on toys and vacations while the good times rolled.
What is worse?
Paying for unessential wars
or
welfare real or fraud?
or
wall st bailout?
or
food stamps?
‘What is worse?’
If one is serious about the deficit, the question would focus on social security, medicare and military spending. We are told the debt is $16 trillion. Consider this:
‘9/10/2001: Rumsfeld says $2.3 TRILLION Missing from Pentagon’
http://www.youtube.com/watch?v=xU4GdHLUHwU
Interesting timing to say the least.
A couple of years ago it was reported that the total obligations of the US federal govt. amounted to over $500,000 for every man woman and child. I’m sure it’s higher now. Obviously if you look around at the people you know, they can’t pay for this. So some big changes are ahead of us regarding govt. spending. That means big changes for all of us as we’re all tied up in it.
When you say this: ‘What is worse?…wars…welfare real or fraud…wall st bailout…food stamps’
I’m guessing you mean that food stamps is a drop in the bucket compared to wars, etc. And it is. But truthfully, everything is a drop in the bucket compared to $12 million/hour in Afghanistan, for example. So IMO, it isn’t an honest evaluation of how valid a program is or whether or not the govt. should be funding it.
Remember the odd govt. projects like the Lawrence Welk museum?
‘February 17, 1992. Mr. Bush also offered a taste of his wandering syntax as he denounced Government waste. “Lawrence Welk is a wonderful man. He used to be or was, or wherever he is now, bless him. But you don’t need $700,000 for a Lawrence Welk museum when we’ve got tough times and people in New Hampshire are hurting.” (Mr. Welk is still alive.)’
http://www.nytimes.com/1992/02/17/us/the-1992-campaign-republicans-economy-shadows-bush-s-campaign.html?pagewanted=2
It all adds up, big and small. But to me the most important issue is what citizens in this country have come to expect; what baloney we fall for from the politicians spending this money, making these commitments. To hear them say it, this is the ‘American Century’, we’re the ‘indispensable nation’. And the world will collapse if we don’t send vaults full of money, soldiers and weapons to every nook and cranny of the globe. It’s madness.
It’s such a big problem now, I don’t know how you tackle it. I suspect there has to be a self examination. Some humility, admitting our limitations, our weaknesses and faults. Reassess priorities. But I’ll end my little rant with this; the dominant economic theory in Washington DC is Keynesian. And I would hope by now we can at least agree that govt. deficit spending doesn’t end recessions. Because if it did, we’d be steamrolling to prosperity by now.
“$12 million/hour in Afghanistan”
Unfathomable. Of to put the figure in another light,
365 days/year X 24 hours/day X $12 million/hour = $105K million/year = $105 billion/year
Has anyone yet told the Congress about this gaping hole in the budget?
“And the world will collapse if we don’t send vaults full of money, soldiers and weapons to every nook and cranny of the globe. It’s madness.
It’s such a big problem now, I don’t know how you tackle it.”
I’m pretty sure the way you don’t tackle it is ignoring it when discussing the budget.
Go ahead and fall on your sword by downsizing your lifestyle.
o_O Uh, what? NOT downsizing my lifestyle is what would be suicide. Much worse times are coming and I’m hardly going to survive them if I just keep spending. I’m circling the wagons and battening down the hatches. That’s what you’re supposed to do when you’re under threat and facing a storm.
“I’m circling the wagons and battening down the hatches.”
Will this protect you when the tax man cometh?
Will this protect you when the tax man cometh?
Oh, stop. The tax man goes after income (which I largely won’t have), capital gains (which I won’t have), spending (which I won’t do), etc. The hard fact of the matter is that whatever the tax man tries to do to me, will hit the other parts of the middle class 10 times harder. They are tapped out, since they live expensively. They are on the edge. I live cheap. I could literally get by on being paid $4/hr; or a “lucky ducky” job at $8/hr part time.
So if the tax man will “get” me, he’ll have “gotten” 90% of the middle class so hard that our society will literally collapse into civil warfare. So I’ll have bigger worries, better said to be more focused and important worries than the tax man.
… no, really CIBT, people like you are going to fall before I will. I live cheap. That’s my armor. How you think that this is my disadvantage, really boggles the mind. It’s like saying that saving money is a disadvantage.
‘I could literally get by on being paid $4/hr; or a “lucky ducky” job at $8/hr part time.’
Hats off to you if you can get by on that little…
“… no, really CIBT, people like you are going to fall before I will.”
I don’t think you know enough about me to judge. But I actually lost a good full-time career-track position early in my married life, which probably paid more on an inflation-adjusted basis than the job I have now. My wife and I had purchased our first home a year before, and there was no HARP, HAMP, SNARP, SNAP, etc to save us from the obligation to pay our mortgage without the advantage of a full-time income.
Long-story short: I did more free-lance music performance, community college mathematics teaching and private tutoring over the next year-and-a-half than over any comparable period of my life. I found students in the rich part of town whose parents had no problem compensating me out-of-pocket for helping their kids survive high school math classes.
My wife and I were able to keep paying our mortgage and maintain a semblance of a livelihood up until I was able to find another full-time job. In retrospect, I feel proud of this period of my life, though I can still vividly recall the pain I felt over losing my job and the self-doubt I had to overcome to keep seeking opportunity.
“He downsizes his lifestyle before circumstances do it for him, forcibly, brutally.”
You’re not stating this truth loudly or frequently enough.
The key word here is “before”. Most of us live on the edge and any shock leaves us without means to adjust. It takes the mind time to adjust to new circumstances and a person without reserves and alternatives in place has no time. If you have downsized your lifestyle, it is a big start, because it is easy to have more than you need if you spend less than you have.
I think your scenario is wrong. “Spending Cuts”?
Are you joking? The two parties are arguing over Cuts in the rate of increase. I would love to see a 10% across the board CUT in spending.
I don’t see it. That is why I am more convinced of the dollar destruction scenario.
The Obama supporters here think 1.6Trillion in new spending for the coming year, on top of the 5Trillion he’s already added is not anywhere near what Republican Administrations have spent.
I’ve seen a half dozen Rube Goldberg ways to define “spending” and “deficits” to contort reality into claiming Obama and the Democrats are fiscally responsible.
They are also going to “heal the earth” with green energy to power modern cities and transport systems, which will “save” us money. The truth, I am afraid is they can’t do math, aside from the claims that everything is simple arithmetic. The seem to miss the concept of NEGATIVE numbers.
If creating “wealth” was as simple as printing fiat dollars, Zimbabwe would be the richest country on the planet, since the beginning of time. The original idea of “stimulus spending” was to “prime the pump” of economic growth. Since it didn’t work, they resort to MORE stimulus. We’ve reach the point where MORE in now a negative return.
In Economics they used to call it diminishing returns. I think we’ve reach the Physical Limit, so I am thinking we have reach the point of NO Return, ran out of fuel and now we are in the NEG. Return Zone. Kiss you financial butt goodbye.
As SS isn’t a part of the budget, why is cutting considered part of “budget” cuts? I don’t get it.
All is fair in love, war and politics.
OK now, seriously:
If Social Security, Medicare and other “entitlements” are not part of the fiscal deficit, how can curtailing them possibly help avoid the Fiscal Cliff?
Because they want to spend the payroll tax money on guns and wars.
‘How about a little government economic stimulus? That may sound incongruous considering the budget deficit and the push from Republicans to cut government spending. But President Obama’s first offer to avoid going over the “fiscal cliff” holds out the hope of at least some stimulus. This would include extending the 2 percentage point Social Security payroll tax cut, boosting a tax incentive to businesses, establishing a $50 billion bank for long-term infrastructure projects, and extending unemployment benefits.”
‘The total bill: about $255 billion out of the federal government’s pocket. The largest chunk of the Obama plan is the extension of the payroll tax cut. This is the money that comes out of an individual’s paycheck as a contribution to Social Security. Two years ago, in an effort to stimulate the economy, Congress decreased the individual contribution from 6.2 percent to 4.2 percent. The employer’s contribution of 6.2 percent remained unchanged.’
‘The Obama administration estimates extending the cuts would cost the government as much as $115 billion in revenue. The argument against continuing the cut is that it is weakening the Social Security Trust Fund. In order to make up for the loss of contributions, the government taps the general tax revenues, says Pamela Tainter-Causey, a spokeswoman for the National Committee to Preserve Social Security and Medicare.’
‘It sets up Social Security to compete for funding from the general fund,’ she says. ‘It’s a perfect set up for people who are gunning for the program and claim we can’t afford it now.’
http://news.yahoo.com/why-obama-pushing-stimulus-fiscal-cliff-deal-video-033547060.html
Until somebody figures out whether it is better to spend or to save on the margin, the hopes for resolving the fiscal cliff seem pretty bleak.
They are robbing Peter to pay Paul. They just haven’t figured out that Peter doesn’t have any money.
They are robbing Peter to pay Paul.
Naturally, that way the incumbents will get half the votes!
Breakfast table discussion of The Fiscal Cliff with my loverly wife:
Me: Are you tuned into all the political wrangling over the Fiscal Cliff?
Wife: No.
And I don’t care.
(End of discussion…)
Hence you are here.
Yup!
Insight I derived from this conversation with my intelligent, typically well-informed spouse:
Any dire household-level consequences of the Fiscal Cliff negotiations will seem to many American families like a lightning bolt out of a clear blue sky.
Senator Orrin Hatch’s ancestry and my wife’s go all the way back to when California became a state.
Lindsey Boerma / CBS News/ December 1, 2012, 11:43 AM
Sen. Hatch: WH “fiscal cliff” plan a “bait and switch”
One day after House Speaker John Boehner, R-Ohio, bluntly stated that Republicans and Democrats are “almost nowhere” in their scramble to strike a deal before reaching the so-called “fiscal cliff” at year’s end, President Obama slammed the GOP for holding “middle class tax cuts hostage” and Sen. Orrin Hatch, R-Utah, charged that Mr. Obama’s proposal is “a classic bait and switch.”
Congress “can give families like yours a sense of security going into the New Year,” the president argued in his weekly address, by acting now on “what we all agree on” - extending the Bush-era tax rates for Americans making less than $250,000 a year. If that doesn’t happen, he said, “a typical middle class family of four will see their income taxes rise by $2,200.”
Treasury Secretary Timothy Geithner on Thursday presented Republicans with Mr. Obama’s “balanced approach” to dealing with the series of tax hikes and spending cuts set to go into effect Jan. 1, which he says will draw a net $1.6 trillion in revenue by allowing the current tax cuts to expire for the wealthiest two percent of Americans and overhauling the tax code.
“It’s unacceptable for some Republicans in Congress to hold middle class tax cuts hostage simply because they refuse to let tax rates go up on the wealthiest Americans,” the president said, a familiar sentiment that has framed his weekly addresses now for months. Promising to “sign this bill as soon as Congress sends it my way,” he said, “with the issue behind us, we’ll have more time to work out a plan to bring down our deficits in a balanced way - including by asking the wealthiest Americans to pay a little more, so we can still invest in the things that make our nation strong, like education and research.”
But in remarks echoing Republicans’ general consensus, Hatch argued lawmakers looking for a long-term solution to bringing down the nation’s debt will “never get there with the unserious plan the president proposed this week.” The “disastrous Thelma and Louise strategy” being promoted by the other side, Hatch said, is a “bait and switch” and “would take us over the cliff, putting millions of middle-class families, small businesses, and our already weak economy in further jeopardy.”
“The president has said he wants a so-called balanced approach to solve this crisis,” the Utah senator continued. “But what he proposed this week was a classic bait and switch on the American people - a tax increase double the size of what he campaigned on, billions of dollars in new stimulus spending and an unlimited, unchecked authority to borrow from the Chinese. Maybe I missed it, but I don’t recall him asking for any of that during the presidential campaign.”
…
Looks more like 3 Card Monte than bait & switch to me. We lose either way.
the 20 yrs olds lose.
huge college debt, no jobs, social security all gone, no medicare….
Yep. “Screw the twenty-somethings” through a combination of Fed- and federally-engineered housing price support, a crushing student loan debt burden and a dearth of entry-level employment opportunities seems to be a big part of the game plan.
And in revenge, today’s twenty-somethings aren’t forming households or having kids. This will create interesting demographic issues down the road, such as a plethora of oversized, unwanted, unneeded white elephant McMansions with no families to occupy them.
Regarding the article posted below, note that “since 1920″ fully includes the Great Depression. The current U.S. birth rate is even lower than it was during the Great Depression.
Bloomberg News
Recession Baby Bust Has U.S. Births Lowest Since 1920
By Frank Bass on November 30, 2012
The U.S. birth rate fell to a record low last year, driven by a decline in the number of babies born to immigrant women, who have led the growth in the nation’s population for at least two decades.
The country’s birth rate fell 8 percent from 2007 to 2010, according to a Pew Research Center report. The rate dropped 6 percent for U.S.-born women and plummeted 14 percent for foreign-born females since 2007, the onset of the worst economic downturn since the Great Depression. The decline continued last year to the lowest point since records began in 1920.
The study, released yesterday, underlines the vulnerability of Medicare and Social Security, the two largest social- insurance programs for the elderly. Both are funded by payroll taxes on working-age adults, and both are expected to fuel the U.S. budget deficit as baby boomers retire and fewer workers replace them.
“When families are small, people rely more heavily on these programs,” said Ted Fishman, author of “Shock of Gray,” a 2010 book about the world’s aging population. “A low birth rate could be a recipe for mass poverty and isolation.”
…
“A low birth rate could be a recipe for mass poverty and isolation.”
and a high birth rate the world turns into Easter Island
The ONE Worlder’s want a low birth rate in all the developed Western countries. They’ve been pushing this for decades.
This allows flocks of foreigners to come in and “take the jobs Americans won’t do”, and Germans, and Swedes, and French.
End Result: Massive “multicultural societies”.
No common societal norms both ethnically and racially, therefore MORE government rules and regulations, i.e., a POLICE STATE.
That is what the “we are the World” oligarchs want. Look at our country’s schools. Don’t they look like prison camps, with metal detectors and fences all around with “lock down” rules in the event of some problems in the classroom.
The more “diversity” the greater the loss of societal cohesion. Every country has a dominant culture. Ours is being supplanted, both here and abroad. The result will be greater tensions. Many people applaud this, but the new rules the follow will be enforced by FORCE, as is the basic reason for “government”.
You WILL accept “gay marriage” or you will go to Prison!
The problem with multiculturalism is that you can’t accommodate all cultures. How will they shove gay marriage down the Islamist throats? You can’t have Sharia law and gay marriage.
“…shove gay … down the Islamist throats…”
Lovely imagery…
snork
We stand to lose what we never really had. It seems like a lot really, but it was a fraud.
My company is doing pretty well. We are almost back to where we were in 2008. FedStim has been good to us. Management expects to extrapolate out a few years and double the business, like we did in 2003 to 2008. We’ve staffed up to do so, and are on a thin margin because of overhead. We laid off 30% in 2009. FedStim on the projects we profit from is j u s t a b o u t over.
We need this economy to take off like a rocket. Then I will make a bunch of money and finish my shop building and some boat mods with pocket money rather than savings. If it doesn’t, 2009 will look like a warmup. We are much more in debt now too. Either way it will be interesting.
My bugout bag is well packed.
Treasury Secretary Timothy Geithner on Thursday presented Republicans with Mr. Obama’s “balanced approach” ………………….
This is the same DOOFUS that went to China and told the audience of mostly adult students that the U.S. has a “strong dollar” policy.
He was laughed off the stage.
I guess he though the Chinese were still living in the age of the Ming Dynasty.
The look on Boehner’s face suggests he may have entered the anger phase of the election outcome stages of grief. This bodes poorly for a fiscal cliff compromise deal.
Optimism faded when fiscal talks resumed; 31 days remain until deadline
Published December 01, 2012
FoxNews.com
The post-election negotiations on U.S. deficit reduction that began with a surge of optimism sputtered this week with Republicans expressing political indignation over President Obama’s opening offer to keep a $500 billion mix of tax hikes and federal spending cuts from kicking in next month should no deal be reached.
“There has been no substantial progress over the past two weeks,” House Speaker John Boehner said Thursday at a press conference, adding to his daily reports that portrayed the closed-door negotiations as languishing.
A day later, the Ohio congressman and the Republicans’ chief negotiator with the White House simply acknowledged talks had reached a “stalemate.”
Both sides now have 31 days to reach a deal before the Jan. 1 deadline, with the president saying he would like one before Christmas.
“Congress can … give families like yours a sense of security going into the New Year,” he said Saturday in his pre-recorded radio address.
Amid a near-consensus call to reduce the deficit through a combination of tax increases, to generate revenue, and cuts in such entitlements as Medicare and Social Security, to reduce spending, the White House made an opening bid Thursday that called for roughly $1.6 trillion in new tax revenue over 10 years – nearly double what was previously proposed.
Senate Minority Leader Mitch McConnell said he “burst into laughter” at the offer as put forth on Capitol Hill by Treasury Secretary Tim Geithner, now helping lead negotiations.
…
And let’s do us all a favor and get honest about the fraudulent nomenclature and lexicon the bought and paid for jackwipes in the media employs to deceive the world. We face a monetary freefall. Not a “fiscal cliff.
Or is it a monetary “free for-all”?
Yeah… a free for all until one of the participants decide to bail…………….. then it isn’t.
Geithner: No Social Security talks now
The Oval
David Jackson
12:09PM EST December 2. 2012 - Treasury Secretary Timothy Geithner echoed another White House message to Republicans during a string of Sunday show interviews: no Social Security talks as part of the fiscal cliff negotiations.
“We’re prepared to, in a separate process, look at how to strengthen Social Security,” Geithner said on ABC’s This Week. “But not as part of a process to reduce the other deficits the country faces.”
White House spokesman Jay Carney and many congressional Democrats have also said that Social Security should be off the table as the fiscal cliff looms.
Republicans say the rise of entitlement spending overall — Medicare and Medicaid, as well as Social Security — should be part of any debt reduction agreement now; Senate Minority Leader Mitch McConnell, R-Ky., and other Republicans say the White House is more interested in tax hikes than meaningful spending cuts.
“Their answer to everything on the spending cut/entitlement reform side of the equation is ‘maybe later — but tax everything else now,’” McConnell spokesman Don Stewart said.
If the parties are unable to reach an agreement by Jan. 1, they face the so-called “fiscal cliff,” a series of automatic tax hikes and budget cuts that could plunge the nation back into recession.
…
Does the “finger poke in the eye” negotiating tactic normally work pretty well inside the Beltway?
Dec. 2, 2012, 12:42 p.m. EST
Geithner: Taxes will go up for wealthiest 2%
By Kate Gibson, MarketWatch
Reuters
U.S. Treasury Secretary Tim Geithner says tax increases for the wealthiest Americans must be part of any “fiscal cliff” deal. Geithner appeared Sunday on TV talk shows.
NEW YORK (MarketWatch) — Treasury Secretary Timothy Geithner said Sunday that Republicans need to present a plan to increase federal revenue and cut government spending, but also insisted that tax hikes for the wealthiest 2% must be part of any budget deal.
Republicans will ultimately agree to hike rates on the top earners to reach an accord to avoid billions of dollars in tax increases and spending cuts scheduled to start in January, Geithner predicted on NBC’s “Meet the Press.”
Geithner, who plans to retire as Treasury secretary at the end of President Barack Obama’s first term, made the rounds of Sunday talk shows to press the administration’s case in the budget debate.
The main sticking point is whether to extend all temporary tax reductions that came under former President George Bush past their Dec. 31 expiration, or just extend the cut to those making less than $250,000. Republicans support the former and Democrats the latter.
Some Republicans have signaled flexibility on tax hikes for the wealthiest on condition the increases would come along with sizable spending cuts in government entitlement programs.
The leadership in the Republican-controlled House of Representatives has so far indicated an openness to raising more revenue though moves like limiting tax deductions, but has largely held to an anti-tax hike stance.
The sole thing standing in the way of reaching agreement to avert the so-called fiscal cliff “would be a refusal by Republicans to accept that rates are going to have to go up on the wealthiest Americans. And I don’t really see them doing them,” Geithner said.
…
Are there gambling operations which take bets on the Fiscal Cliff outcome?
Where would you place your money over these possible bets:
1) Unprecedented Kumbaya-style compromise between Democrats and Republicans which saves the day
2) Hostile, reluctant compromise which extracts many pounds of flesh out of all Americans
3) Fiscal cliff dive, which results in the most dire consequences whose intended purpose was to force compromise
4) Fiscal cliff punt, which would agree to postpone any decisions until a later date, when another punt could once again postpone a decision.
5) Other?
Can, kick, road. There’s no political will to do anything about the problem, much less admit it. The “fiscal cliff” stuff is just theater. There’s no real admission of a problem. We borrow 40% of each federal dollar spent, each year, and we won’t even admit that’s a problem.
The Greece Problem keeps getting kicked, too. And it’s more severe with respect to the people it affects. Look how long they’ve delayed fixing that particular problem.
Americans won’t do anything substantive about federal insolvency until the 2020s AD.
I wonder why they don’t do the obvious cuts first? Small stuff, but a good start:
close PO on Sat
cut military 30%, have you seen how many Generals they have?
outsource prisons
increase fines on those business that hire illegals
stop making pennies and nickles and $1 bills