Well the so-called Fiscal Cliff was avoided through the mechanism that I predicted back in November:
What will happen I suspect is that the fiscal cliff will be avoided through taxes increasing on “the rich”, that will produce revenue that amounts to a rounding error in today’s federal budget, with completely illusory spending cuts. In short, the can will be kicked down the road. Unfortunately for the nation, the end of the road is almost here.
85 Republicans in the House voted for the Fiscal Cliff deal, and 151 voted against it. The Deal passed courtesy of 172 Democrat votes in the House.
The main terms of the agreement are as follows:
1. The Bush tax cuts were made permanent for single filers below 400,000 and married filers below 450,000.
2. The Alternative Minimum Tax has been permanently fixed by adjusting it for inflation.
(I would note that these portions of the deal should be considered as victories for the GOP. Permanently extending the Bush tax cuts for 98% of the population takes away from Democrats the opportunity to use this as a stick against Republicans. The Republicans have fought for a permanent inflation fix to the the Alternative Minimum Tax since it was first proposed in 1969.)
3. Yet another showdown over mandated spending cuts was set up for two months down the road.
4. The tax increases on those earning over 400,000 for single filers and 450,000 for married couple will bring in an estimated 35 billion a year.
5. Capital gains tax will go from 15-20 percent on those earning 400,000 for single filers and 450,000 for married couples.
6. The Estate Tax goes from 35%-40%. (The estate tax only applies to estates over five million dollars.)
7. Factoring in the estate tax increase and the capital gains tax increase estimated additional taxes come to 60 billion a year. For comparison purposes the deficit last year was 1.2 trillion dollars. Continue reading
The national debt is now north of sixteen trillion dollars, 5.4 trillion of the debt having been incurred under President Obama. Go here to view a real time debt clock. Our gross national product for this year is estimated to be 15.84 trillion dollars. Anyone who cannot see the financial precipice that we are at is a blithering idiot, and Obama is counting on his or her vote.
Unfortunate indeed is the country that forgets this sage piece of advice from Mr. Micawber: Continue reading
This country was blessed at its founding to have on the scene a member of the Founding Fathers, Alexander Hamilton, who was a financial genius. His idea to have the Federal government adopt the Revolutionary War debts of the states in order to establish the credit of the new Federal government was a policy of genius. At a stroke he restored the credit of the country as a whole, made certain the debt would be paid, made America attractive to foreign investors and laid the basis of future American prosperity. His ideas on the subject were set forth in his first report to Congress on public credit, 1789, and which may be read here.
The final paragraph of the report is salient for the time in which we live: Continue reading
Another fine econ 101 video from the Center for Freedom and Prosperity. The day after we learned that the Federal debt now equals the annual size of the US economy seems like an appropriate time to watch the above video. We have attained a size and cost of government in this country which threatens to severely damage the economy which pays our bills, public and private. This cannot go on and will not go on, either by our elected representatives finally taking steps necessary to curb the size and cost of government or through de facto national bankruptcy.
This is not about the current political climate or the Obama Administration and its endeavors. I’m not arguing for or against the Obama Administration or its policies because that is not the point of interest. Let me repeat: the point is not who is promoting good or bad policies (Democrats or Republicans), the effects of those policies, or any thing of the sort.
On the contrary, the interest here is fundamentally a point of history. In George Orwell’s 1984, the “Ministry of Truth” rewrote history to match whatever “the Party” declared, no matter its objective truth. In a recent article, Peter Beinart notes that a number of conservatives refuse to be outdone by Orwell’s fictional group and this is manifest in the party’s historical revisionism of the presidency of Ronald Reagan.
As Obama goes on vacation, the Administration saw fit late Friday afternoon to release the news that the projected deficit was going up over the next ten years from 7 trillion to 9 trillion. No doubt the Congressional Budget Office will have even more dire numbers, as the administration has consistently put the best face on the increasingly dire deficit numbers. As I have constantly warned on this blog, our economy is about to hit a debt wall that will lead to a horrendous economy for years to come. Fiscal lunacy, simple fiscal lunacy. Some of my prior posts on the process by which we are careening towards national bankruptcy are below. Continue reading
As regular readers of this blog know, I have been sounding the tocsin regarding government spending since the Bailout Swindle of 2008. Here is one of my posts in which I list other posts I have written on the subject.
“Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. The following chart shows our projection of federal debt relative to GDP under the two scenarios we modeled.”
His chart is at the top of this post.
Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.
He concludes on this somber note:
The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.
This is fiscal madness. We have the wealth and the ability to solve this problem by spending cuts, and minor tax increases if, and only if, combined with meaningful and deep spending cuts. What we lack is the political will. We are destroying the future prosperity of our kids because of current political cowardice, folly and inertia.
Hattip to Daniel Indiviglio at the Atlantic. USA Today is reporting that the share of the Federal debt for each American household is $546, 668 with private average debt of 121, 953. Of course these numbers do not include the average household share of liabilities incurred by states and local levels of government. Does anyone believe that we will ever climb out of this debt abyss except through the terrible remedies of hyper-inflation or debt repudiation? As I have often stated on this blog the debt that we are amassing is fiscal lunacy and our economy will soon smash into a brick wall of government debt.
Hattip to Instapundit. The Heritage Foundation supplied the above graphic which compares Obama budget “cuts” of $100,000,000.00 to the appropriations bill for fiscal 2009 of $410,000,000,000.00, the Bankrupt the Nation Act of 2009, sometimes erronously called the “stimulus” bill, which has a price tag of $787,000,000,000.00 and the estimated bill for fiscal year 2010 of $3,600,000,000,000.00. How ludicrous is all this? Ludicrous enough that the Obama supportive Associated Press makes fun of it. Ludicrous enough that even Paul Krugman is chuckling.
A look at the federal budget since 2000, with projections, for what little they are worth, by the White House and the Congressional Budget Office to 2019. By CBO estimates last week, the budget deficits between now and 2019 would total $9, 300, 000, 000, 000.00. The entire cost of WW2 for the US in 2008 dollars was 3.6 trillion. This year the budget deficit will total 13% of our gross domestic product. This isn’t economic policy, it is lunacy. These type of deficits are completely unsustainable, and we are running towards national bankruptcy. It is impossible to borrow these type of funds from abroad. We will simply create the funds out of thin air. The long term impact on our children and their children can be easily imagined. As the Heritage Foundation points out, this is a completely bi-partisan disaster. Politicians have acted like teen-agers with stolen credit cards for far too long. However, this will stop. It will stop either by voters throwing out of office the fiscally irresponsible, or, much more likely in my estimation, the economy will simply hit a brick wall. This will not, cannot, go on. How it is stopped is up to us.
Update I: The President of the EU slams current US economic policy as a road to hell. I never thought I would live to see the day when a President of the EU would have more economic sense than a President of the US.
“Bond prices fell after the auction of $34 billion in 5-year Treasury notes. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.77 percent from 2.71 percent late Tuesday. The yield on the three-month T-bill rose to 0.19 percent from 0.17 percent Tuesday.
Investors gave an unexpectedly cool response to the note sale just a day after a $40 billion auction of 2-year notes suggested strong demand. The government is running up huge deficits in order to fund an array of plans to provide stimulus to the economy and support to the ailing financial system. Any suggestion that demand for U.S. government debt is weakening is a negative for stocks, simply because Wall Street has been relying so heavily on the government’s rescue plans.
The surge of worry over the debt auction wiped out the market’s early optimism in response to durable goods and home sales data.”