November 12, 2007
Wall St. and Bush Admin. on Defensive
The stock markets are taking a beating as a result of the sub-prime mortgage industry having violated many rules of responsible lending. The Bush Administration, having touted for years increasing homeownership is losing its claim to hoped for fame. At the heart of it, banks are reeling and investors are losing enormous sums, previously gained. GOP sanctioned unregulated lending markets are the blame.
The fact is, free markets and unregulated markets are opposed to each other fundamentally. Freedom to choose to invest or not, freedom to consume or not, was never meant to mean from an economic standpoint, 'free to rob tomorrow for today's gain', which is precisely what the sub-prime mortgage lenders did. And now the banks and investors who underwrote those large salaries and returns for investors, are paying for the unregulated greed that dominated Pres. Bush's policy to increase homeownership through unregulated lending practices. Many new homeowners now face losing them.
In August of 2004, Pres. Bush said:
Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we.
This at least appears to be one statement made by President Bush that he has made good on. A 9 trillion dollar and growing national debt, the deadliest year for American soldiers since the Iraq invasion, the undermining of our banking system, yet again, by yet another, member of the Bush family, all demonstrate this.
It was Pres. GW Bush's brother Neil who was involved in the 1980's Silverado Savings & Loan scandal that cost the taxpayers $1.3 billion in bail out, which was part of a $125 billion dollar tax payer bail out for the industry, called forth by none other than, President HW Bush. History repeats itself now, with Pres. GW Bush's 7 years of deregulation policies with unquestioning support of a Republican Congress, and an assist of a blind eye by the Federal Reserve, also chaired by Republican Alan Greenspan. America's lenders are once again seeking federal assistance to bail out the mess and losses they, themselves created.
What's the cost? As Wall Street feared, it is huge. The NY Times reports: "Wall Street already expects banks' portfolios to lose at least $20 billion in the fourth quarter, after announcements of anticipated write downs of mortgage-backed securities and other debt instruments by such financial institutions as Citigroup, Morgan Stanley, and Wachovia." That's just the short term.
We can expect that the pain of skyrocketing monthly payments on resetting adjustable rate mortgages may continue to be felt through the middle of 2010 on loans that were originated as late as this summer. For loans issued from 2004 through 2006, First American Core Logic, a mortgage risk analysis firm, projects that 12 percent of subprime loans and 7 percent of market-rate ARMs will default because of rate resets. They also projected that each 1 percent decline in national house prices would lead to an additional 70,000 foreclosures due to resets. Using a similar dataset, the Center for Responsible Lending projects nearly 20 percent of subprime loans will fail.
American Progress says "no one is seriously considering... re-establishing an entity like the Depression-era Home Owners’ Loan Corporation and giving it short-term authority to directly issue troubled borrowers fully amortizing, fixed-rate first mortgages while buying out the existing lien holders at a discount." But, that is this month. In the early part of next year and beyond, if Wall Street fears pan out, many in Congress will be forced to seriously consider such a bailout of homeowners. In addition, lobbying to shore up firms like CountryWide and CitiGroup could become intense, as the effects spread wider throughout the economy.
And the dollar loss in asset wealth by the low income and middle class could be quite high too as another Aug. 26, NY Times article writes: "The median price of American homes is expected to fall this year for the first time since federal housing agencies began keeping statistics in 1950." The further home prices fall, the more asset wealth homeowners lose, and in too many cases, the amount of homeowner's mortgages will exceed the value of their home, making sale of the home a losing venture.
The Federal Reserve is caught between a rock and a hard place. The U.S. Dollar is falling to such lows against foreign currencies that talk of a free fall is now becoming the buzz by market analysts. When the dollar free falls, imports become dramatically more expensive. Since America is a huge import nation from food to oil, a free falling dollar can have dire inflationary consequences for consumers and the economy. Hence, a free falling dollar requires shoring up.
The only way at this point to shore the dollar up against a free fall against foreign currencies, is for the Federal Reserve to raise interest rates. But, in this economic situation, raising interest rates would slow economic growth, already under pressure in some sectors like housing, financial, and some strata of retail. While the overall job numbers remain respectable, they are being maintained by an ever smaller number of industry sectors, while other sectors are seeing very weak, or stagnant job growth numbers.
PHXnews has an excellent and very easy to understand article on what Fed. Reserve interest rate changes do, how they affect you and me, the consumers, as well as the moguls and corporations in the lending industry.
The falling dollar is a very serious issue. The Bush administration via Treasury Sec'y. Paulson last month in India continued pressuring China in a speech at the G7 to restructure their currency. But as of Oct. 8, Paulson withdrew any threats to China on the issue, when he said any trade sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation". Why is the Bush administration backing off its tough talk toward China, despite intense calls from Congress to go ahead?
China fired back a warning saying it would off load U.S. currency, of which it now holds about $1 Trillion dollars worth. That could send the U.S. dollar into the very 'free fall' which the Federal Reserve absolutely does not want to see occur, forcing it to raise interest rates. As of Oct. 28, Henry Paulson now says of U.S. - China trade: [We are] "managing our disagreements". Managing the public relations of back pedaling on forcing China to comply, is more like it.
Since Republicans took greater control of government, millions of credit card borrowers too have seen their interest rates rise from 15 - 19%, to 28 - 32%. And many have excellent credit payment histories. Another example of how a lack of regulation of lenders is building another economic crisis for Americans and the economy. A few on Wall Street are talking about the potential of a credit card industry balloon bursting, complicating the already complicated sub-prime mortgage consequences.
As Smartmoney reports on credit card companies: some lenders are cutting back on unethical practices:
Earlier this year, Citibank announced it has eliminated universal default. The bank also stopped 'any time any reason' increases in rates and fees for the term of the credit card, typically two years.But you won't find any credit card lenders offering to reduce interest rates that would allow consumers to climb out of debt. And that spells trouble for the economy when it needs the consumers to buoy up the economy through increased spending, which is what made the recession of 2001 so short lived.
Politicians and lobbyists who argue that the free unregulated market place is self correcting, are absolutely right. The sub-prime mortgage debacle is a perfect example of an unregulated market self-correcting which could cost investors $20 billion this quarter alone, not to mention foreclosed homeowners in the 10's of thousands before 2011. The Savings and Loan debacle of the 1980's was self correcting. It threatened the entire economy causing politicians to bail the industry out along with investors. When free marketers talk self-correcting, they really mean unbridled greed will exceed the capacity of the market to bear it, and then a correction costing millions of people billions of dollars will occur.
It is time to turn a deaf ear to those who argue against regulation of consumer industries. The unregulated imports from China by the Commerce Dep't. has cost lives. The unregulated import of foreign grown foods have cost American lives. The unregulated back door to illegal immigration may well prove to be the portal through which the next epidemic arrives in the U.S. Regulation is mandatory. Rational and efficient regulation is a qualification for political office few voters think about when casting their votes. But, their life's earnings and savings and very lives rest upon just such considerations in the voting booth, especially when the vote tallies haven't been altered.
Posted by David R. Remer at November 12, 2007 06:04 AMAre we seeing the start of a depression that’s gonna make the one in the 30’s look like a boom?
David R: Although deregulation is a considerable problem, IMO, the major problem is that we have gone form a manufacturing economy to a service economy and as a result, we now have an economy that prays on the weakness of the people rather than benefiting from the strengths of the people. A dump and pump economy. Dump the cheap foreign crap on us and pump us for high interest inflated payments. Nearly every penny of that nine trillion dollar debt now resides in foreign bank accounts.
Posted by: jlw at November 12, 2007 12:24 PM
David - an excellent piece that ties together some disparate arguments very cogently. Thank you.
I too believe that unfettered deregulation does nothing but stimulate corporate greed, driven by shareholder expectation. How can it be otherwise? Investors demand that results improve, year-on-year, every single year. There is no leeway for stagnation, which in essence is what the market HAS to do from time to time in order to remain stable and not suffer the kind of correction it’s currently undergoing.
In a regulated marketplace, company profit maintenance (not loss, just maintenance) can be monitored and, to some extent, controlled by the regulatory agency. But in a deregulated marketplace, the corporation polices itself - and is punished by stockholders if it fails to eke an extra few dollars out of the consumer.
This is most obvious, as you say, in the financial markets - but look at cherry-picking by healthcare companies (a huge burden on the government’s expenditure when the bills come in) for example. They’ve been allowed to sacrifice consumer advocacy of any type for profit and passing the burden on to the taxpayer.
Or Big Oil. We pay them twice: through the pump, and through billions in subsidies that help them post obscene profits.
Or Big Pharma. The Republicans refuse to buy in bulk so that Merck can afford to pay off a few billion to Vioxx users. Deregulation run wild.
I could go on, but you get the picture: deregulation to stimulate competition is one thing; deregulation that crashes the economy is quite another.
Posted by: Jon R at November 12, 2007 02:00 PMDavid R. Remer wrote: The Federal Reserve is caught between a rock and a hard place.That’s what results from massive spending, borrowing, printing money, spending, borrowing, printing money. Would you believe it? The U.S. dollar is even falling against the Argentine Peso, which we used to make fun of:
- In the last five years:
- $1 U.S. Dollar fell from 0.98 EURO to 0.6825 EURO between Jan-2003 and Oct-2007
- $1 U.S. Dollar fell from 1.80 British Pound (GBP) to 1.07 GBP between Jan-2003 and Oct-2007
- $1 U.S. Dollar fell from 1.57 Canadian (CAD) to 0.926 CAD between Jan-2003 and Oct-2007
- $1 U.S. Dollar fell from 1.78 Austrailian (AUD) to 1.077 AUD between Jan-2003 and Oct-2007
- $1 U.S. Dollar fell from 1.46 Swiss Franc (CHF) to 1.13 CHF between Jan-2003 and Nov-2007
- $1 U.S. Dollar fell from 3.51 Argentine Peso (ARS) to 3.13 ARS between Jan-2003 and Nov-2007
- $1 U.S. Dollar fell from 31.8 Russian Roubles (RUB) to 24.59 RUB between Jan-2003 and Nov-2007
David R. Remer wrote: The Federal Reserve is caught between a rock and a hard place. The U.S. Dollar is falling to such lows against foreign currencies that talk of a free fall is now becoming the buzz by market analysts. When the dollar free falls, imports become dramatically more expensive. Since America is a huge import nation from food to oil, a free falling dollar can have dire inflationary consequences for consumers and the economy. Hence, a free falling dollar requires shoring up.The fiat-funny-money system was abused (like so many things) to make gains today, via excessive money creation, on the backs of others and future generations. A 1950 U.S. Dollar is now worth about 11 cents (or probably less now). Inflation right this moment is possibly as high as 10% as we are simultaneously entering a recession. That’s another issue. Who thinks inflation is being reported accurately? Still, even looking at the official inflation (CPI) since 1976, it is really ridiculous. Posted by: d.a.n at November 12, 2007 03:53 PM
David-
Just to track all of your market posts:
- June 10, 2006 (get out of the market) S&P 1,252.30
- March 13, 2007 (Market Meltdown) S&P 1,377.95
- Today the S&P is down to around 1,439.18
Posted by: George in SC at November 12, 2007 04:22 PMRon, only a very, very few, are talking about the possibility of depression, like Alan Greenspan who implied the entitlement dilemma and debt trends could lead to the end of Democratic Capitalism in the world. Certainly sounds like depression to me at some point down the road, but, Greenspan also says there are measures which can be taken to avert such dire outcomes, and he is right.
The problem is, our political system seems to have no will to take those steps with consensus that can get the job done. Perhaps, if Democrats achieve a landslide in the Congress and the White House in 2008’s elections, the consensus will exist to act preemptively.
But, and that’s a big but, there is little evidence to support the notion that the politically painful changes that need to be made will be ushered forth by Democrats.
I heard today growing numbers of American college students are going overseas for their college education, up substantially from a few years ago. Perhaps they know something about what’s coming that our politicians don’t?
Posted by: David R. Remer at November 12, 2007 04:25 PMjlw, we have been transitioning to a service economy for a couple decades now. That alone need not have altered much, but as you rightly point out, we have also been on a tear to become the most dependent nation in the world on foreign products and cheaper illegal immigration which is depressing wages, and for several years now, bit by bit consumers are being removed from the equation to save the economy during the next recession, as they did in 2001-2003.
The U.S. has run 31 consecutive years of trade deficits, and the trend line for the deficits has been rising in dollar amounts. This is what has given China the power to threaten the U.S. with our own currency. That is precisely what a trade deficit does, it transfers our dollars on net to foreign banks and governments. China now has about 1 trillion U.S. greenbacks, and the power to affect the value of our dollar by holding or selling those dollars on the open market.
Welcome to the age of commodities, of which currency is now one. There is always an upside, and the commodity traders and investors are the ones cleaning up, as the price for everything from corn and oil, to gold and soon cotton establish new record breaking high pricing.
There is no getting around it, the world’s population numbers are a huge part of this scenario. The demand for goods and services globally, I believe, is going to open the door the commodity shortages and hence, a world wide inflationary period that is going to hurt debtor nation populations like ours in substantial ways.
Posted by: David R. Remer at November 12, 2007 04:38 PMJon R, thanks for the comments, and yes, the health care issues in the U.S. are becoming a front and center economic albatross in a very bid damned hurry.
And, yes, inordinate profits today are going to come with a large cost, for the simple reason that ever greater sums of the profits are being earned by foreign investors, instead of working Americans, who face inevitable higher taxation in the future as a consequence of enormous national debt and servicing on that debt, as d.a.n alludes to.
Posted by: David R. Remer at November 12, 2007 04:43 PMd.a.n, yes, the middle and lower class workers and consumers are indeed experiencing an inflation that fails to be reflected in the government’s calculations. One does indeed have to wonder about the way the CPI is being calculated.
Posted by: David R. Remer at November 12, 2007 04:46 PMDavid:
Just a couple of points.
The stock markets are taking a beating
This is simply not true. “Taking a beating” would be a correction which is stock market down over 20% from it’s highs.
The stock market is actually doing very well in that the Dow is up roughly a 1000 points in the last 12 months.
Second point is the timing of your article.
If you will click here:
I notice that whenever the market takes a dip you write and article.
Here are some dates.
06/10/2006: Get Your Money Out of Stocks, Now!
03/13/2007: Market Meltdown
08/23/2007: ‘08’s Economic Woes to Hit Republicans Hard
11/12/2007: Wall St. and Bush Admin. on Defensive
George in SC, and if you read my entire posts, you would also recognize that I was talking about longer term trends and long term investors, as in 401K investors not day traders. The markets have lost nearly 8% in the last month. Corrections range from 10 to 20%, and the sub-prime mortgage correction, especially if followed by a credit card lender correction, will very possibly result in closer to 20% than 10% correction, which means the S&P falling to levels that wipe out the gains of the last year for the longer term investors.
I am not a short term day trading market guru and never even hinted that I was. All my articles on the subject discuss the macro-economic longer term effects and consequences. 401K investors have not on net been that enriched by the S&P numbers, as their investments, for most, are hopefully diversified amongst small cap, large cap, index, and foreign investment funds. The losses in the small caps have erased the previous gains made since my article in June 2006. You have to look at the whole and net picture. Not one index.
Here is a well written financial advisory, the average worker has to earn 10% per year on their investments to afford retirement if they are young, 15% if they invested in 401K’s later in life. The big picture, George, is what has to be taken into account.
The writing has been on the wall regarding this sub-prime mortgage meltdown at least since summer in 2006. And the full effect of it won’t be felt until 2010. But, if you are leaving all your 401K eggs in the S&P 500 basket at this time and think it is wise, by all means, go ahead. For every loser in the markets someone profits, unless and until a bottom falls out. George Soros is making out like a fat cat, he is in hedge funds. That should be reassuring to you, eh?
Posted by: David R. Remer at November 12, 2007 05:04 PM
Craig, yes, you are right, I do write an article everytime the markets poise to correct or immediately after. That is because there is a macroeconomic - political story to be told that underwrites those corrections and the long term economic health of our nation. Was I wrong about the sub-prime mortgage industry correction? Obviously not.
For a more detailed reply, see my reply above to George in SC.
Truly, I hope your ever present replies to my articles that the glass is always half full and the future will take care of itself, are absolutely correct. I truly do. I just can’t get my brain and education to concert with my hope.
Posted by: David R. Remer at November 12, 2007 05:07 PMDavid:
Here is a well written financial advisory, the average worker has to earn 10% per year on their investments to afford retirement if they are young, 15% if they invested in 401K’s later in life.
I strongly disagree with this statement. I hope no one is listening as this is very poor information.
It is my understanding that the DJIA index tracks inflation of the U.S. dollar. While the trend line over decades is upward for the DJIA, so is dollar inflation, as you well know.
Posted by: David R. Remer at November 12, 2007 05:24 PMCraig, if you disagree, you must be assuming Soc. Sec. and Medicare will be there for working Americans. Tell me, if they aren’t, what annual rate of ROI do you think workers need to provide for 20 years of retirement?
Like I said, there are many financial advisories out there that support that 10% ROI requirement to compensate for losses due to inflation, increasing taxation (can’t forget the growing national debt), and the absence of any political measures to save SS and Medicare.
I could care less what you hope others listen to. I hope readers will do their own research and discover for themselves what the truth is. If they are relying on you and me for retirement planning, they are fools with a capital F.
Posted by: David R. Remer at November 12, 2007 05:34 PMDavid:
The S&P 500 composite has averaged 11.96% since inception. That means that a person late in life would have to margin (borrow money) and invest that in the market to average 15%. To have expectations that are higher than the market’s long term average is wrong.
I think what you are refering to is not what a worker earns but what an earner should invest as a percentage of their earnings. Now that I would believe. If one is young they should invest 10% of their earnings, and if they get started later 15%. I think you are just mistaken.
Posted by: Craig Holmes at November 12, 2007 05:50 PMThe problem has been everyone (but especially our president) borrowing money like it’s out of style. On average, Americans borrow 10% more than they earn. On top of that, joblessness and homelessness are on the rise. The upshot is - this is a bad time to upset the applecart, and unfortunately the four horses of the recession are upon us: falling housing prices, rising oil prices, the falling value of the dollar, and, in my opinion the worst beast of all, a complete shattering of our reputation for being credit-worthy abroad.
David’s articles about impending economic doom always seem to be a shot in the arm for the economy. This might be a good week to invest.
Posted by: Mark at November 12, 2007 09:55 PMDavid:
Craig, yes, you are right, I do write an article everytime the markets poise to correct or immediately after. That is because there is a macroeconomic - political story to be told that underwrites those corrections and the long term economic health of our nation. Was I wrong about the sub-prime mortgage industry correction? Obviously not.
No that is something you and I have agreed on. What we disagree on is the implications. This is a normal occurance not something strange. It is a natural result of globalization.
Here are some of the steps:
1. Overbuildling fiberoptics around the world.
2. Globaliztion of financial markets.
3. Money flows into developed counties creating an investment glut. This drives down interest rates.
4. Access to cheap labor. This drives down inflation.
5. Due to low interest rates, Real estate prices increase worldwide.
6. Momentum of asset prices takes on a life of it’s own causing speculation.
7. Improper loans written.
8. Real estate prices stablize and retreat.
9. Defaults increase.
There are two more steps:
1. “Cockroaches leaving the ship”. Watch for some people to be led away in handcuffs. Although some are in default because is unwise lending, others must have broken existing law.
2. Increased Legislation. After the horses are out of the barn Congress will attempt to shut the door.
Finally we should reach equilibium in real estate, and then we will start working on the next crisis.
Just as life in the history of the united states has been crisis to crisis, so it will be for the rest of our lives. This is normal. It’s simply called capitalizm.
It’s the best system in the world.
Posted by: Craig Holmes at November 12, 2007 11:10 PMCraig,
Sure, a cyclical economy is part and parcel of capitalism. The federal government tries to mitigate the booms and busts through regulation and fiscal policy. The Federal Reserve attempts the same through monetary policy.
But David has a point. We are going from a boom to a bust due to a systemic failure, and it could be the worse most of us has ever seen.
It may be very bad because the recovery period was so weak. Bush administration policies made sure the wealthiest among us and the multinationals did very well indeed, while the vast majority of people treaded water.
The stock markets have undergone a correction due to the problems with the credit markets and the housing markets. But I am guessing the stock markets will be late to recognize the full extent of what is happening, because this time the bust will come from from a different sector: housing market collapses, foreclosures, and drops in consumer confidence & spending. This is different from previous, more traditional downturns. This type of downturn takes longer to develop, lasts longer, cuts deeper, and is slower to mend.
Worse, we are entering the downturn with an enormous national debt, large federal deficits, trade imbalances, a significant portion of the manufacturing sector outsourced out of existence, and a dollar which has dropped significantly. Savings rates are negative, characteristic of an economy similar to the one during the Great Depression. Same goes for foreclosure rates.
Ok, I am playing Dr Doom here, but I do think the situation is considerably more serious than others. The Federal Reserve apparently feels the same, since they dropped the rate by 75 basis points in a very short period of time.
Maybe we’ll get lucky, & Bernanke will save everybody’s bacon. I hope so. But that is not what I think will happen.
In terms of politics, it means the economy will be the dominating topic of the 2008 elections. Polls which just came out show the economy has replaced Iraq as the greatest concern for Americans. For good reason.
Posted by: phx8 at November 13, 2007 01:23 AMPhx8
The economy has replaced Iraq also because Iraq is shaping up as a success. The vultures have moved off. Success in Iraq, however, will go a long way toward mitigating other problems, just as success in the Cold War gave the boost the the 1990s.
George in SC had given the numbers. All markets are in the timing and it look like bad news because each drop is given front page news, while the economy chugs along unnoticed.
If you invested in stocks in Jan 2001, you are much better off today as a result. If you made periodic investment and just held on, you are even better off.
I just cannot get histerical about a market dip. I have seen too much hysteria and after all the sound and fury is gone, we are once again moving ahead.
We have a serious problem with entitlements, which has been coming at us light a freight train for the last generation. The Dem solution - just raise taxes - will not work, since the problem is structural.
I know lots of people just enjoy the drama of a market correction and they like to predict the crash. Some people who deserve it lose their money. A few prudent people do too. But we should not let this distact us from the real problem which was, is and will be entitelements.
Posted by: Jack at November 13, 2007 09:09 AMMarkets adjust, yes, this is true. But it’s the combination here that concerns me. This reminds me a lot of the “stagflation” that happened in the 1970s, where the Fed had to choose between jacking up interest rates or watching the dollar freefall. The problem is that today the Fed cannot raise rates to 1970s rates because so many Americans carry so much debt and have been using their homes as piggy banks. That would make things worse, not better.
L
Posted by: leatherankh at November 13, 2007 09:59 AMDavid
Of course no one is talking about a depression. Specially our politicians. Folks don’t want to here that kind of talk and with an election coming up any politician that would even elude to one coming is risking losing that cushy job they have.
But I’m looking at the crisis with the housing market, oil prices, jobs going overseas, unrestrained government spending, a nine trillion dollar national debt, billions of dollars in credit card debt, the dollars fall in the market, and the fact that our do nothing Congress and President aint even trying to curb any of it. And I have to ask if this is the start of a depression.
We can’t keep on the course we’re on and avoid one. It’s gonna come sooner or later and all the conditions seem right to me.
The politicians in both major parties better hope it doesn’t come until after November 08. If it comes before then they’re all gonna learn about the wrath of the voters in the worst way.
As much as I’d like to see both parties out of DC, I DONOT want to see them kicked out because of a depression. Because I believe the next one is gonna be worse than the one in the 30s.
Jack said: “The economy has replaced Iraq also because Iraq is shaping up as a success.”
Jack, success is when our spending in Iraq goes down, NOT UP !
The American people don’t believe success is occurring Iraq. I don’t believe we are witnessing success in Iraq. As long as Iraq continues to claim our soldier’s lives and limbs, and our future tax payers of America are witnessing their taxes rise due to spending in Iraq, THERE IS NO SUCCESS IN IRAQ, only fluctuations in activity.
It was just a month ago or so that our national debt hit 9 trillion dollars, and today, it is 9 trillion, 100 billion. Which means our economic and fiscal system are NOT achieving success either.
The way you conservatives - Republicans continue these definitional gymnastics in order to preserve the illusions of success is abominable, dishonest, and undermining of America’s future.
Posted by: David R. Remer at November 13, 2007 12:07 PMPhx8
But David has a point. We are going from a boom to a bust due to a systemic failure, and it could be the worse most of us has ever seen.
The stock markets have undergone a correction due to the problems with the credit markets and the housing markets. But I am guessing the stock markets will be late to recognize the full extent of what is happening, because this time the bust will come from from a different sector: housing market collapses, foreclosures, and drops in consumer confidence & spending. This is different from previous, more traditional downturns. This type of downturn takes longer to develop, lasts longer, cuts deeper, and is slower to mend.
There are srong odds of a US Recession. Probably about 30 to 40% chance. This is normal due to the length of recovery. This is an old recovery. It is normal at this stage to have some things go wrong. This is the time in an expansion when the fed earns their keep.
I also believe the economy will slow but not for the reasons you state. The headline news is over the credit crunch. This is pretty much equally balance by a surge in US exports led by the much needed decline in the US dollar.
The slowdown I see is because of inventory build up. We saw a very large increase in GDP in the last quarter (3.7% I think). I would expect that number to be revised upward. This upswing was in part do to increasing inventories. That means of course that as we spend down those inventories we will likely see a slow down in the economy.
I disagree with you that the economy as a whole will be huge come november.
What will be an issue and should be is the inequality of the recovery. This is a world wide issue that will be resolved. You can’t have the haves and have nots moving further apart without a consequence.
We may see a recession. The odds generally increase as a recovery ages. Who knows what might be the trigger. I think the odds are less than 50-50. However economic inequality will still be here, and as a democrat that is what I think you should hang your hat on.
Posted by: Craig Holmes at November 13, 2007 12:38 PMDavid, Phx8:
It is easy to point to one figure like the federal debt as a proxy for pretty much all of how our economy is doing.
However I must point out to balance your repeated figure that the federal debt is $9 trillion. That is not that big of a deal. It is important but not economy threatening.
There are three reasons at least.
1. The interest rates have fallen dramatically since the 1990’s which means it is actually easier on our economy to carry this $9 trillion dollar debt than it was in the late 1990’s.
2. The percentage of GDP of the federal debt is stagnant at best and might even be declining.
3. As we accumulated this $9 trillion dollar debt, Americans have increased net worth by $17 trillion dollars (since 2001).
As a people we are far wealthier than we were in 2001. You on the left and middle never seem to acknowledge that fact. Assets are also a measure of wealth!!!!!!!!! This number does not include are national parks etc. It is HOUSEHOLD networth.
It is not the national debt as of yet that those on the left should be screaming about as we are doing fine.
What are legitimate issues are economic inequality and future entitlements. Those are real issues that should be debated.
Posted by: Craig Holmes at November 13, 2007 01:02 PMDavid-
It was just a month ago or so that our national debt hit 9 trillion dollars, and today, it is 9 trillion, 100 billion. Which means our economic and fiscal system are NOT achieving success either.
Deficit reduction is the measure economic and political success? Friedman said you would buy that one back in the 70’s.
“I would far rather have total federal spending at $200 billion with a deficit of $100 billion than a balanced budget at $500 billion.”
Since they won’t let us have any guns bigger than a .50 cal the deficit might be the best tool we have left to keep the federal government in check.
Craig, the national debt has risen 3.35 TRILLION in 7 years. It took over 200 years to go from 0 to 5.65 Trillion, the level at the end of the Clinton Administration. Do you not find this rate of growth disturbing? Our nation is facing a 44 Trillion unfunded mandate in years to come with SS and Medicare. Does your glass remain half full in the face of that?
Sorry, I find your comments absurd in their failure to grasp and hold the big picture here.
Posted by: David R. Remer at November 13, 2007 02:50 PMGeorge, did you read the article? Can you put two and two together?
China just told the Bush Administration and Congress to go screw themselves regarding tariff talk, stating they would dump the $1 Trillion in U.S. currency they now hold. It was effective. Paulson said there would be no tariffs or barriers put in place as a result of China’s refusal to restructure their currency.
Our National Debt reduces our flexibility to handle downturns, face and overcome disasters, and meet challenges of foreign nations.
That IDIOT president of ours was on TV today saying our economy is resilient in the face of 9/11, in the aftermath of Katrina, and in carrying the burden of Iraq. What the idiot FAILED to say was the 3.65 trillion he added to the national debt during his term in office, greatly reduced that resiliency, and GUARANTEED higher taxes and NO more Tax cuts for workers in the near and far future as a result of debt.
Craig says interest rates are low. History shows they won’t and can’t remain low. Which means the interest on our national debt will grow from the 406 BILLION we paid in 2006.
Hmm… What could America do with 406 billion dollars if it wasn’t paying those tax dollars out as interest payments to foreign lenders? By 2010 or 11, that amount will be 1/2 trillion dollars per year in interest.
And you say deficits and debt could be an effective check and balance on government. That’s absurd. If there were any checks and balances on government at all, we wouldn’t have this national debt and deficits and interest payments taken from taxpayers present and future in the first place.
Posted by: David R. Remer at November 13, 2007 03:01 PMDavid:
No actually the big picture is balancing a rise in federal debt with a rise in household net worth.
$17 Trillion in additional networth is relevant when discussing 3.5 Trillion in government debt.
Also it is also relevant to discuss the deference size of the economy. The economy has grown. The trend right now is that debt is growing at a pace that can be maintained FOREVER, because it is growing at the same pace as GDP.
Now that is relevant.
Of course because of the war, recession and republican congress debt grew too much for a while. That is old news. Currently debt is doing just fine.
Posted by: Craig Holmes at November 13, 2007 03:24 PMCraig said: “$17 Trillion in additional networth is relevant when discussing 3.5 Trillion in government debt.”
Only if that net personal worth is taxed to deal with the rising debt. Is that what you are advocating?
Then there is the problem of distribution. The increase in net worth has been in the upper half of the work force predominantly, while taxes on the upper half have been reduced under Republican rule. Not a prescription for dealing with the rise in national debt or service on that debt.
Big picture, Craig. Big picture.
Posted by: David R. Remer at November 13, 2007 03:32 PMDavid:
You are getting there!!! Now you are thinking big picture. If you expand from simply looking at the debt to the assets as well you have a much bigger picture.
Now if you will simply add one more component to your equation INCOME you will be there.
Debts, Assets and Income.
Big picture!!
The $17 Trillion in additional net worth is already being taxed through Income taxes on withdrawals from Pension plans, 401k distributions, Ira’s etc, to Property taxes and capital gains on property etc.
This networth IS much of the tax basis of the country.
That is why tax revenues have been rising is because net worth is rising!!
I think you are just starting to get there. A year ago you thought national parks were a part of household net worth. Now you have moved to understanding there is a connection between networth and taxes. Networth and Income are the tax basis of the United States.
Posted by: Craig Holmes at November 13, 2007 04:49 PMDavid:
Only if that net personal worth is taxed to deal with the rising debt. Is that what you are advocating?
I am not advocating this position because it is alreay happening. Assets have grown rapidly and are currently being taxes which is causing the dramitic decrease in the budget deficit.
The same thing happened in the 1990’s with the stock market. Asset growth is what caused the budget to move into surplus.
Posted by: Craig Holmes at November 13, 2007 05:48 PMWhat dramatic decrease in the deficit? What are you smoking, Craig.
Are you so gullible as to believe Bush when he said he would cut the deficit in half before he leaves office? IT IS NOT POSSIBLE to have dramatic decreases in the deficits when you begin with a surplus and add 3.35 Trillion dollars to the national debt in seven years, Craig.
Now you truly have walked through the Looking Glass. We’ll talk again when your commentary bears some resemblance to reality.
Posted by: David R. Remer at November 13, 2007 06:59 PMLike I tried to explain to you Craig, increasing personal wealth while reducing taxes on it, has no impact on deficit spending or accumulating national debt.
What part of 3.35 Trillion added to the national debt do you not understand. If what you say were true, that national debt increase would never have occurred. Please, try applying a little rational and logical arithmetic to this big picture.
Allowing the wealthy to get wealthier while cutting their taxes by 30 to 40% does not generate increased revenues to offset spending. Ergo, a 3.35 trillion increase in national debt in less than 7 years.
Posted by: David R. Remer at November 13, 2007 07:06 PMDavid:
What dramatic decrease in the deficit? What are you smoking, Craig
From $400 billion in 2004 to less than half of that now.
Are you so gullible as to believe Bush when he said he would cut the deficit in half before he leaves office? IT IS NOT POSSIBLE to have dramatic decreases in the deficits when you begin with a surplus and add 3.35 Trillion dollars to the national debt in seven years, Craig.
I believe he was speaking from the bottom of the recession from 9/11 and not from 2000 with the tech bubble created tex bubble.
Like I tried to explain to you Craig, increasing personal wealth while reducing taxes on it, has no impact on deficit spending or accumulating national debt.
Tax cuts have not hurt the current budget, or have they increased the deficit. Take a gander at tax revenue as a percentage of GDP. We are right on target of historical norms. Lowering tax rates did not lower tax revenues as a percent of GDP.
What caused the large spike in debt was the recession and the war. Actually debt as a percentage of gdp has been stable for several years and is beginning to decline.
What part of 3.35 Trillion added to the national debt do you not understand. If what you say were true, that national debt increase would never have occurred. Please, try applying a little rational and logical arithmetic to this big picture.
What part of $17 trillion in addition wealth don’t you understand? It is hard to make the claim that America is going down the toilet with all of this wealth being created.
Allowing the wealthy to get wealthier while cutting their taxes by 30 to 40% does not generate increased revenues to offset spending. Ergo, a 3.35 trillion increase in national debt in less than 7 years.
Again, taxes are at historical averages for the American economy as a percentage of GDP. Bush’s tax cuts did not negatively effect tax revenues from a historical perspective.
Historians will looke back and see that the debt grew as a percentage of GDP while America went into war and had a recession. Since 2004 Debt as a % of GDP has been stable and is now starting to fall.
We are currently bringing in about $600 billion ore in revenue than we did at the end of Clinton’s presidency.
It’s the spending not the tax cuts.
There is no budget deficit crisis. If there were interest rates would not be at recent historical lows. You cannot have 4% 10 year treasuries and have a crisis of confidence in the US budget. It simply cannot happen. You are wrong about that.
Where you are right is in speaking about entitlements. There is an issue that we must deal with. In addition you are correct in that there is a wide difference in the haves and have nots. This is a world wide issue do to globalization that needs to be addressed.
America as a whole has never been this rich, and it’s getting richer all the time. It’s a great time to be an American
America as a whole has never been this rich, and it’s getting richer all the time. It’s a great time to be an AmericanOn what planet?
The wealthiest 1% of the U.S. population has 40% of all wealth in the U.S. (up from 20% in year 1980; never larger since the Great Depression).
The wealthiest 5% of the U.S. population has 60% of all wealth in the U.S.
The wealthiest 10% of the U.S. population has 70% of all wealth in the U.S.
The wealthiest 20% of the U.S. population has 83% of all wealth in the U.S.
The poorest 20% of the U.S. population has negative net worth (i.e. debt)
40% of the U.S. population has (on average) essentially zero net worth.
80% of the U.S. population has a mere 17% of all wealth in the U.S.
Pay no attention to $9.1 Trillion National Debt (with over $1 Billion per day in interest alone), $12.8 Trillion borrowed and spent from Social Security (with a 77 million baby boomer bubble approaching), $450 Billion PBGC pension debt, over $20 Trillion nation-wide personal debt, rising foreclosures, inflation, Wars in Iraq and Afghanistan, Constitutional violations, Bush beating the war drum to start a war with Iran, government is FOR-SALE with 83% of all federal campaign donations come from a tiny 0.15% of all 200 million eligible voters, $3.20 per gallon gasoline, $100 per barrel oil as we head into the winter, the growing disparity trend, or any of this or that.
Never mind that the U.S. dollar is falling faster than the Argentime Peso, EURO, Australian Dollar, Swiss Franc, British Pound, Canadian Dollar, Chinese Yuan, Japanese Yen, and even the Russion Rouble.
Yeah boy! Things couldn’t be rosier!
That is, if you are the wealthiest 1 in 5 persons who own 83% of all wealth. Whooohooo !
d.a.n said: “Yeah boy! Things couldn’t be rosier!
That is, if you are the wealthiest 1 in 5 persons who own 83% of all wealth. Whooohooo ! “
BINGO!
Posted by: David R. Remer at November 14, 2007 12:04 AMCraig said: “From $400 billion in 2004 to less than half of that now.”
$163 billion. But, in case you hadn’t noticed, that is the end of the deficit reductions. Our road, dam, and bridge infrastructure, Post Katrina rebuilding, education, energy R&D, water treatment and conservation, and agricultural conservation programs have been neglected far too long, and screaming for more investment and spending. The Democrats will not neglect these intensely needed areas.
Last year saw a 1935 type dust storm wall sweep Kansas, due to the neglect of conservation investment and increased agricultural demand. History repeats itself.
One bridge failed this year, killing a few. If one of the 3 dams currently in imminent danger let’s go, the dead will be far greater.
National debt is now 9.1 Trillion and rising, and has no choice but to rise because of our broken political system. Big picture, Craig. Big picture.
Bush added 3.35 Trillion to the national debt, and he was supposed to be the conservative president. I guarantee he won’t be president come Jan. 2009. Then what? I will tell you what. Regardless of who is elected, they will inherit a huge backlog of needs required to sustain and maintain this nation into the future.
And that will require either higher taxes on those capable of paying them without being forced from their role as consumer, or, more deficit spending. And the baby boom retirement period which is now underway, will absolutely require deficit spending, growing the national debt from this 9.1 trillion beginning level.
Republicans violated every rule of fiscal responsibility. Tax cuts can be justified in emergencies and recessions, BUT ONLY if taxes are raised again when the economy is running strong, to pay down the debt. Instead Republicans adopted the rule, cut taxes in good times and bad which equals spending beyond one’s means and limiting future options for borrowing, as China taught us this last month, with their counter-threat to sell 1 trillion U.S. dollars on the international market if the U.S. imposed tariffs on Chinese goods.
Debt carries many costs beyond the principal borrowed. America is finding out the hard way these days, and even harder in years to come.
Posted by: David R. Remer at November 14, 2007 12:28 AMDavid, you’re right, you’re right, you’re right. The deficit and foreign ownership of our debt instruments are monumental problems in our economy.
Keep beating that deficit hawking drum and maybe some of our progressive friends will get the message that we can’t afford all of these new campaign promises.
George, you bet, man. The Dem’s have only one thing to their credit on deficit spending, and that was passing PayGo. But, as soon as they passed it, they began making exceptions to it. The Dem’s will be no better than Republicans when it comes to deficit spending, unless they are forced to pay a price at the polls for it, as the Republicans did in 2006.
As always, it is up to the voters to demand fiscal responsibility and punish incumbents when it is lacking. Hence, the need for Vote Out Incumbents Democracy to reach ever larger numbers of voters and convince them to vote results, not campaign promises when it comes to incumbents running for reelection.
Posted by: David R. Remer at November 14, 2007 11:45 AMGeorge in SC wrote: David- Just to track all of your market posts:Those nubmers do not take inflation into account.June 10, 2006 (get out of the market) S&P 1,252.30 March 13, 2007 (Market Meltdown) S&P 1,377.95 Today the S&P is down to around 1,439.18
Factor in inflation and those numbers aren’t as impressive.
Especially now, with the DOW falling from over 14,000 to under 13,000 a few days ago.
The stock market is only one of many indicators, and does not reflect inflation. Stock prices also rise due to inflation (not only because they increased in value). Many stocks are also severely overpriced and have more to do with psychology than real value.
The stock market does not explain away:
- massive federal debt ($9.1 Trillion National debt, $12.8 Trillion borrowed from Social Security, $450 Billion PGBC pension debt)
- $20 Trillion massive personal debt nationwide
- entitlements spending and the approaching 77 million baby boomer bubble (over 10,000 new entitlements recipients per day)
- stagnant and/or falling household incomes for decades (despite more workers per household)
- the growing disparity trend
- ridiculously expensive and unaffordable health care
- rising energy/fuel costs
- increasing foreclosures for several years
- massive and rampant corporate welfare, waste, and pork-barrel
- government that is essentially FOR-SALE
- inflation and the U.S. dollar falling faster than the Argentime Peso, EURO, Australian Dollar, Swiss Franc, British Pound, Canadian Dollar, Chinese Yuan, Japanese Yen, and even the Russian Rouble.
- the results of irresponsible monetary policy (excessive money creation)
- irrational consumerism
- continued rampant spending and borrowing by the severely bloated federal government that continues to grow to nightmare proportions
So, when looking at the DOW, S&P, etc., a large part of the increase is inflation too.
GDP grows, but WHO is receiving most of that wealth?
Why has the 1% that own all wealth in the U.S. gone from 20% in year 1980 to 40% in year 2007?
Why have median incomes been stagnant for many decades, and have fallen for the last 7 years?
The U.S. dollar, for the first time in history, is less than the U.S. Canadian dollar.
The big picture is this:
- ALL of these increasingly regressive systems did not all come about by mere coincidence.
Again, if you are the wealthiest 1 of 5 people that own 83% (and increasing for 30+ years) of all wealth in the U.S., then things may indeed seem quite rosy.
Posted by: d.a.n at November 14, 2007 11:50 AMDavid:
$163 billion. But, in case you hadn’t noticed, that is the end of the deficit reductions. Our road, dam, and bridge infrastructure, Post Katrina rebuilding, education, energy R&D, water treatment and conservation, and agricultural conservation programs have been neglected far too long, and screaming for more investment and spending. The Democrats will not neglect these intensely needed areas.
There are always things that need to be done.
What I can tell you is that as of today, revenues are at historical levels. So assuming the democrats win, they will have revenues roughly equal to former presidents as a percentage of GDP.
In addition the interest charge on our debt is roughly equal again to previous presidents as a percentage of GDP.
Also the budget deficit is currently below average of the last 40 plus years.
In otherwords the new president will not have room to complain in terms of fiscal resourses to solve the important problems you state.
Federal debt as a percentage of GDP is roughly what it was in 1995. The next five years were pretty good!! So you will be hard pressed to make a case that because debt is 63% of GDP hard times are in front of us.
I will use 1995-1999 as a counter example.
The American Economy is strong.
I do however agree that developed countries need to address the income inequality caused by globalization. This isn’t just an american problem but rather a world issues.
I also believe we need to address entitlements. Fortunately several countries are ahead of us demographically. We can see our future in their economies and learn from them. Japan, Germany and Italy are great examples. All these ecnomies ahead of us (in that the have older populations) are doing fine. We should be able to do better if only because we can learn from them.
Posted by: Craig Holmes at November 14, 2007 02:28 PMDavid:
If you are going to use the number 3.35 Trillion in added debt, it is so important to be big picture.
The other parts of the picture are about $3 trillion/year and growing in additional GDP per year.
Also $22 trillion in additional assets that america owns. Previously I quoted networth, (That’s assets - liabilities). If I just look at additional assets it’s $22 Trillion.
So a more big picture view would be Bush has added about
$3 trillion in federal debt, GDP has grown by $3 trillion/year and Americans assets have grown by $22 Trillion.
Think Big Picture.
Also, bush will be handing off much lower interest rates to his successor than he recieved. That is a wonderful thing!!!
Posted by: Craig Holmes at November 14, 2007 02:39 PMCraig said: “The other parts of the picture are about $3 trillion/year and growing in additional GDP per year.”
Meaningless, unless the government is taxing the wealth created by that growth in GDP to eliminate deficits. And to date, government has been reducing taxes on that wealth, not even keeping it at the same rate, let alone increasing it to buy down the growing debt.
Posted by: David R. Remer at November 14, 2007 03:03 PMDavid:
Meaningless, unless the government is taxing the wealth created by that growth in GDP to eliminate deficits. And to date, government has been reducing taxes on that wealth, not even keeping it at the same rate, let alone increasing it to buy down the growing debt.
First of all there is no need to eliminate deficits. It is important to manage debt. Debt federal debt did grow as a percentage of gdp in years 2001, 2002 and 2003 but has been stable at 63% of gdp since then. It would be nice to see it decline a bit from here.
Secondly, this growth is being taxed. Taxes have grown as a percentage of gdp over the last several years. The current deficit is below our 50 year average. Obviously that begs the questiion of you in that if this level of deficit hasn’t caused financial collapse in the last many decades why now?
There is no need for a tax increase. There is a need of addressing income disparity and entitlements. We may need to reasses spending priorities.
You are very very wrong to dismis $3 Trillion in addition gdp as meaningless. Economic growth has meaning. $21 trillion in new assets has meaning. It has enormous meaning. It means wealth and income.
You must expand your picture David to include income and assets. You also must assign meaning to economic growth. You cannot stay standing on your one legged economic stool (Federal Debt) and be relevant in modern discourse.
Posted by: Craig Holmes at November 14, 2007 05:23 PMCraig, GDP does not equate with taxation. GDP can grow, but if taxes are cut, there is no net gain to reduce either deficits or debt.
Your insistence on referring to debt as a percentage of GDP continues to be illogical for this discussion because you continue to leave the intermediary step, tax policy out, which is the only connection there is between federal debt and GDP.
Posted by: David R. Remer at November 14, 2007 08:57 PMCraig said: “Secondly, this growth is being taxed. Taxes have grown as a percentage of gdp over the last several years. The current deficit is below our 50 year average.”
That’s like saying we cut the 10 times lethal dose of arsenic in our waters to 5 times the lethal dose.
Sorry, it is a flawed argument. The fact that there are deficits, which as you know fluctuate, is proof that GDP growth is insufficient to keep debt from growing to unsustainable levels.
Politicians are not going to let senior citizens, the most voting segment of our society, lose Soc. Sec. And they certainly are not going end Medicare. Therefore, debt is going to rise incredibly as years go by, and taxes will have to rise to at least mitigate some of that debt growth. Which of course, means reduced consumption and less economic growth, as a result.
You again are not taking into account the big picture. The fact that last year’s deficit dropped from the year’s before, is ABSOLUTELY no assurance that that will be the case next year. A natural disaster, an al-Queda hit, China divesting its U.S. currency, or Treasury bonds, or any number of other events will force that deficit right back up again. The sub-prime mortgage debacle almost guarantees less GDP growth in the first and second quarters of next year as well as this quarter.
But, that is all short term, spot check view and does not a long term trend make. The long term trend is rapid debt growth, rising taxes, and slowed economic growth as a result. The longer term bigger picture is what must be taken into account and dealt with. And there has been no sustained meaningful and productive movement in government in a positive direction for decades.
Posted by: David R. Remer at November 14, 2007 09:12 PMAssets, Craig, government or corporate, farm or personal, are not for sale. They are required as the foundation for our society to continue to exist. They do NOT belong in this equation.
You aren’t seriously suggesting we sell our farms to the Chinese to recover our Treasury Debt from them, are you?
Posted by: David R. Remer at November 14, 2007 09:17 PMFirst of all there is no need to eliminate deficits. It is important to manage debt.They are. Just print more money. That’s why the U.S. dollar is falling against the Argentine Peso (which we used to make fun of), EURO, Australian Dollar, the Chinese Yuan, Japanese Yen, all major currencies, and fell below the Canadian Dollar for the first time ever.
Is this OK ?
- $9.1 Trillion National debt
$12.8 Trillion Social Security debt
$450 Billion PBGC pension debt
_____________________________
$22 Trillion federal debt
That is 157% of of the $14 Trillion GDP.
And the service on only the $9.1 Trillion National Debt is over $1 Billion per day.
You must expand your picture David to include income and assets.We have. The rich are getting much richer, and most have stagnated (real median incomes 1978 to 2006 in 2004 dollars) or grown poorer.
All the talk about GDP and total assets doesn’t mean squat when a very few are getting most of through these 10 dishonest and regressive systems.
Posted by: d.a.n at November 14, 2007 09:30 PMDavid:
Your insistence on referring to debt as a percentage of GDP continues to be illogical for this discussion because you continue to leave the intermediary step, tax policy out, which is the only connection there is between federal debt and GDP.
The tax code is written to automatically increase tax revenue as a percentage of GDP over time. As inflation increases wages, tax rates increase from bracket to bracket. That is one reason why tax revenues have risen faster than GDP over time.
(Another reason is the recent surge in corporate profits).
That is why even with Bush’s tax cuts, tax revenues are solidly in normal territory for our ocuntry. They are average.
Bush’s tax cuts mearly kept federal taxes in place as a percentage of GDP. Tax revenues did slip in 2001 because of the recession but have since rebounded.
Over time if Bush’s taxcuts are not made permanent, tax revenues will rise to new records as a percentage of GDP (If one takes out WWII spending).
Sorry, it is a flawed argument. The fact that there are deficits, which as you know fluctuate, is proof that GDP growth is insufficient to keep debt from growing to unsustainable levels.
There have been deficits since the 1930’s. Nearly all major countries routinely run deficits. As long as debt is limited to growing at or near the nominal GDP no harm will come.
You again are not taking into account the big picture. The fact that last year’s deficit dropped from the year’s before, is ABSOLUTELY no assurance that that will be the case next year.
I don’t accept your premise that the deficit needs to drop further. As long as asset growth out strips debt growth we are fine.
Assets, Craig, government or corporate, farm or personal, are not for sale. They are required as the foundation for our society to continue to exist. They do NOT belong in this equation.
Of course thay are!!!! And of course we tax them. It’s called CAPITAL GAINS TAX!!!!! The more assets we have the more tax capability there is. Come on David!! Also PROPERTY TAXES for local governments. ESTATE TAXES in your latest post. Assets are most certainly for sale and we tax the transactions routinely. SALES TAXES on cars etc.
Assets mean more tax revenue. That is how the system works. More GDP means more tax revenue. More Assets mean more tax revenue. Tax revenue is doing fine in our country even with Bush’s tax cuts.
Again tax revenues always rise over time even with tax cuts because of bracket creep. Not because of what conservatives say, but rather because of inflation. Taxes need to be trimmed from time to time if we want to keep tax revenue as a certain percentage of GDP.
Posted by: Craig Holmes at November 14, 2007 09:52 PMDavid:
The following needs a bit of explaination:
Again tax revenues always rise over time even with tax cuts because of bracket creep.
When tax rates are cut, tax revenue as a percentage of GDP will many times go down. However over time, because tax brackets are not indexed, tax revenues increase at a faster rate than GDP. That is why today if you look at tax revenues they look very normal. 18 to 19% of GDP.
There are short periods of time where there is a boom in tax revenue due to tax cuts. An example of this was in the 1990’s when capital gains taxes where cut. Basically there is pent up demand to sell assets, but because of the relative high tax rate owners hang on. When tax rates are reduces, there is a surge of selling of assets that creates a short term blip in tax revenue.
Sorry, Craig, your logical completely fails. By your logic, eliminating all taxes will increase government revenues. I have never heard anything so illogical promoted by so many people for so long, as this concept that lowering tax rates increases tax revenues. That occurs only briefly over a short span of time when economic recession is underway or pending and the economic stimulus creates a large number of new jobs, hence new taxpayers, compensating for the reduced rate. But, only for a short period of time.
As GDP grows, and as population grows, the demands on government spending ALSO grow commensurately. Which insures that lower rates will produce deficits in the long run, compared to having left rates where their were. Of course having left rates where they were would not have averted recession. What your argument and Republicans fail to recognize is the necessity to take rates back up after the recession is over and growth has rebounded.
David:
Sorry, Craig, your logical completely fails. By your logic, eliminating all taxes will increase government revenues.
I am sorry David, you are simply not understanding what I am saying. You are assuming I am making the standard conservative argument.
Follow the bouncing ball here. When tax rates are lowered, assuming the economy is constant, tax revenues will fall.
There is a short term exception in that usually SHORT TERM there is an upward blip particulary when capital gains taxes are cut. (As in the late 1990’s).
BECAUSE OF INFLATION incomes rise which makes investors move into higher tax brackets which increases tax revenues over time as a percentage of GDP. The reason this works is that income tax brackets do not adjust with inflation.
That is why even though Bush cut taxes, tax revenues by now have returned to normal as a percentage of GDP. You can look at the 60’s, 70’s 80’s and 90’s and see for yourself that federal tax revenues have return to averge. Income tax receipts are a percentage of GDP are at historical averages.
Deal with this fact instead of theory. Income Tax receipts are right on average for the last 50 years.
If Bush’s tax cuts are allowed to end, it will be a tax increase ABOVE what is normal for the united states in tax revenues. It will mean that we are growing our government and have chosen a larger federal government that is our history.
My question to you is, are you for a larger government?
Posted by: Craig Holmes at November 15, 2007 11:28 AMDavid (2):
I am not, (to answer my own question). I am for reducing the deficit through getting rid of the pork first. I don’t fault the Bush tax cuts. I fault the Bush spending. It is the bridges to nowhere etc that must be cut. It is Congress.
I actually have hope right now. It is simply because we have two parties sharing power. Bush has found his veto pen and we will be better for it. As painful as it is probably for some to admit, we are as “close to utopia” as we get in the United States with our current government. This two year period will probably be fine from a spending point of view. Mostly because neither will be able to get much done.
Posted by: Craig Holmes at November 15, 2007 11:33 AMCraig said: “BECAUSE OF INFLATION incomes rise which makes investors move into higher tax brackets which increases tax revenues over time as a percentage of GDP.”
You seem to be assuming government spending is not affected by inflation. As inflation increases revenues it also increases government spending. It’s generally a wash. You have to frame this argument in Real dollar revenues, not inflated revenues, otherwise, you mix apples and oranges when discussing deficits, and debt.
You said: “Income tax receipts are a percentage of GDP are at historical averages.”
With the consequence of an increase of 3.35 Trillion in debt obligations and commensurate increase in service on that debt, which means tax payers receive less government service per tax dollar, because service costs are not spent on providing tax payer services.
Lowering taxes with the effect of increasing debt and service on that debt, deprives taxpayers present and future of government service per tax dollar. In the long term, tax payers pay more, and get less from each tax dollar. It is precisely the same as if I took a lower paying job and increased my credit card spending. That of course, would be irresponsible of me, and the greater the divide between lower income and increased debt, the greater the irresponsibility until bankruptcy occurs, at which point responsibility is abdicated altogether.
You cannot argue against basic arithmetic in economics and win the debate. Deficit spending in conjunction with lowering taxes or maintaining lower taxes during GDP growth periods is irresponsible. Lowering taxes cannot be a logical substitute for lowering spending if deficits are occurring. That action may be justified for a short period of time as in the case of Katrina or recession as in 2001, but, became monumentally irresponsible in 2003 when it was clear the recession was over.
The proof is the 3.35 Trillion in increased national debt in less than 7 years. And only around 2 trillion of that was accounted for by 9/11, Homeland Security, Katrina, and Iraq, recession tax cuts 2001 - 2003. Leaving 1.35 trillion added to the debt, approximating the amount of revenue loss by sustaining the tax cuts from 2003 through 2006.
There is no theory here, just simple arithmetic. The tax cuts and spending added significantly to our national debt. Tax cuts DO NOT pay for themselves in the long run, as Bernanke and Greenspan and the GAO and the CBO all now agree. That wives tale spun by Republicans had no basis in fact except over a very short period of time under very narrowly defined circumstances.
Posted by: David R. Remer at November 15, 2007 04:08 PMCraig, as for your Utopia, I don’t buy it. You have both Congress and the White House wanting to increase spending, Congress on domestic programs, and the White House on foreign policy and war. They will compromise, meaning both Congress and the White House will get increased spending, just less than what they initially demanded. The loser will be the taxpayers shouldering the ever increasing national debt and service on that debt. More taxes, less government service for those taxes.
Basic politics, and arithmetic which theory cannot alter the rules of.
Posted by: David R. Remer at November 15, 2007 04:13 PMCraig asked: “My question to you is, are you for a larger government?”
I could care less whether government is large or small. Is that government and the society it serves stable and optimal for peace, prosperity, and opportunity? That is the only question that of any importance to me.
As population grows, government will grow. No one can logically oppose larger government when population is on the rise, without delving into the realm of the absurd. Government exists to serve the needs of the people. If the number of people grows, government will grow.
That whole argument about the size of government is a ruse to deter voters from asking the important question. Are my representatives giving me the service I pay for with my tax dollars?
When I see 4006 billion tax dollars spent in one year on interest for the debt and nearly half of that to foreign investors, the unequivocal answer to my question is: Hell No!
Posted by: David R. Remer at November 15, 2007 04:19 PMDavid:
You seem to be assuming government spending is not affected by inflation.
No, I am not assuming that at all.
With the consequence of an increase of 3.35 Trillion in debt obligations and commensurate increase in service on that debt, which means tax payers receive less government service per tax dollar, because service costs are not spent on providing tax payer services.
You are absolutely backwards on this. If you check the federal budget figures net interest as a percentage of GDP was 2.0% in 2001 and in 2006 was 1.7%. T his is because interest rates have been falling since the early 1080’s old bonds are being refinanced all along. We actually have more money for other things besides service than we did in 2001. You are 180 degrees backwards.
You cannot argue against basic arithmetic in economics and win the debate. Deficit spending in conjunction with lowering taxes or maintaining lower taxes during GDP growth periods is irresponsible. Lowering taxes cannot be a logical substitute for lowering spending if deficits are occurring. That action may be justified for a short period of time as in the case of Katrina or recession as in 2001, but, became monumentally irresponsible in 2003 when it was clear the recession was over.
Your error is that since 2003 debt as a percentage of GDP has stabalized. It was only in the recession and immediately after that the deficit as a percentage of GDP was an issue. Now debt as a percentage of gdp is declining or stable depending on who does the numbers.
Craig, as for your Utopia, I don’t buy it. You have both Congress and the White House wanting to increase spending, Congress on domestic programs, and the White House on foreign policy and war.Posted by: Craig Holmes at November 16, 2007 12:29 AMyes you do. I have heard you say it many times. Split government controls spending better than when one party is in power.
As population grows, government will grow. No one can logically oppose larger government when population is on the rise, without delving into the realm of the absurd. Government exists to serve the needs of the people. If the number of people grows, government will grow.But clearly you know that isn’t at all what I am talking about. I am talking about government as a percentage of GDP. that is how size of Government is measured when discussing budget.
When I see 4006 billion tax dollars spent in one year on interest for the debt and nearly half of that to foreign investors, the unequivocal answer to my question is: Hell NoIn 1997 net interest expense in the federal budget was $244 billion, in 2006 it was $226 billion. I repeat, under Bush interest expense has decreased not increased. Low interest rates are the reason. Simple Arithmatic.
Craig Holmes wrote:More GDP means more tax revenue.Yes, most on the backs of the less wealthy, since the tax system is regressive, and the very wealthy, like Warren Buffet who made $46 Million and paid only a 17.7% income tax rate, but his secretary making $60K pays a 30% income tax rate.
All the rosy talk in the world can not explain away a myriad of increasingly unfair and regressive systems that have grown worse for 30+ years, and did not all come about by mere coincidence.
All the rosy talk is really rather ridiculous when there are so many dishonest and regressive systems that are squeezing the middle class, so many constitutional violations, and a government that is increasingly oligarchical, corrupt, arrogant, bloated, and oppressive.
So what good is a rise in GDP when most Americans are declining or stagnant; when the weatlh is going only to the wealthiest, and incomes (even with more workers per household) for the last 30 years have stagnated (see graph)?
There are major problems in the U.S., that are growing worse, that should not be trivialized.
Craig Holmes wrote: America as a whole has never been this rich, and it’s getting richer all the time. It’s a great time to be an AmericanSure, unless you are in the bottom 80% of Americans being cheated and oppressed by 10 regressive systems that did NOT all come about by mere coincidence:
- (01) Massive Federal Debt
- (02) illegal immigration, and our politicians that despicably pit Americans and illegal aliens against each other;
- (03) a ridiculously complext, perverted, and regressive tax system;
- (04) inflation; dishonest and excessive money creation;
- (05) dozens and dozens of regressive sales taxes;
- (06) corporate taxes that are really more hidden regressive sales taxes that come out of employees incomes and get passed on to consumers as yet another regressive sales tax;
- (07) property taxes that are often REGRESSIVE, since (like all sales taxes are REGRESSIVE), as income decreases, the property tax increases (as a percentage of income); also, property taxes are double, triple, quadruple, quintuple, … , N-tuple taxation because it is repeated every year! A home owner is taxed every year on what the home owner already owns;
- (08) Caps (e.g. currently $97,500) on Social Security taxes is a REGRESSIVE tax.
- (09) Our government is FOR-SALE. An amazingly tiny, tiny 0.15% of all 200 Million eligible voters make 83% of all federal campaign donations (of $200 or more). 90% of all elections are won by the candidate that spends the most money (usually the incumbent);
- (10) Unnecessary wars; We have had 7 wars in the last 90 years (about 1 war every 13 years). A war in Afghanistan and in Iraq are ongoing as of late 2007. Some of those wars were probably unnecessary (i.e. Vietnam, and Iraq-2 which was largely based on invalid intelligence about Weapons of Mass Destruction that was never verified). What is more REGRESSIVE than that? It is not just REGRESSIVE. It is OPPRESSIVE.
The $9.1 Trillion National Debt is a MAJOR drain on tax payers and will be for a long time (possibly centuries). Also, that $9.1 Trillion National Debt is only a portion of the total Federal debt. $12.8 Trillion has been borrowed and spent from Social Security, and there is $450 Billion of PBGC pension debt.
Craig Holmes wrote: I repeat, under Bush interest expense has decreased not increased. Low interest rates are the reason. Simple Arithmatic.
- What? Are you talking about the annual deficit or the National Debt? I don’t know where you are getting your numbers, but the service (interest) on the National Debt is increasing (nominally). Even if adjusted for inflation, the interest on the National Debt is increasing.
INTEREST ON THE NATIONAL DEBT:
2007 $429,977,998,108 ($429.98 Billion in 2007 dollars)
2006 $405,872,109,316 ($420.6 Billion in 2007 dollars)
2005 $352,350,252,508 ($376.9 Billion in 2007 dollars)
2004 $321,566,323,971 ($355.6 Billion in 2007 dollars)
2003 $318,148,529,152
2002 $332,536,958,599
2001 $359,507,635,242
2000 $361,997,734,302
1999 $353,511,471,723
1998 $363,823,722,920
1997 $355,795,834,215 ($355.7 Billion in 2007 dollars)
1996 $343,955,076,695
1995 $332,413,555,031
1994 $296,277,764,246
1993 $292,502,219,484
1992 $292,361,073,071
1991 $286,021,921,181
1990 $264,852,544,616
1989 $240,863,231,536
1988 $214,145,028,848 ($378.1 Billion in 2007 dollars)
But whether it is increasing or decreasing is NOT nearly as important as the overall SIZE of the National Debt.
Craig Holmes wrote: Now debt as a percentage of gdp is declining or stable depending on who does the numbers.The miniscule rate of change isn’t very important (if at all) compared to the huge SIZE of the $9.1 Trillion National Debt, which is 65% of GDP!
All of the borrowing, spending, and excessive money printing is causing inflation.
Inflation might reduce debt slightly, but screws most Americans (especially those on fixed incomes, modest savings, etc. that don’t have wealth in forms that are less vulnerable to inflation such as gold, real estate, physical assets, etc.).
Posted by: d.a.n at November 16, 2007 10:39 AMCraig said: “You are absolutely backwards on this. If you check the federal budget figures net interest as a percentage of GDP was 2.0% in 2001 and in 2006 was 1.7%.”
Craig, what part of opportunity cost in the amount of the 2006 406 Billion dollar service cost on the debt do you not get? To hell with percentage of GDP. The Taxpayers are out 406 billion dollars of government service in ONE YEAR due to interest on the federal debt. I don’t have this backwards, at all.
Craig said: “Your error is that since 2003 debt as a percentage of GDP has stabalized.”
No, your error is in viewing this as a snapshot in time. A gratuitous error. The GDP growth rate can go up, down, or even into negative territory, but the DEBT will not go down. In fact, it will rise because we are still deficit spending and the entitlement programs ensure it will continue to do so. And as incredible as it sounds, our lenders will one day want to be paid back.
America has seen its national debt over 200 years go consistently upward as a trend. Dramatically so of late. Our days of dramatic GDP growth like the post WWII period through to the present, shows many, many signs of not being sustainable in our future. Emerging foreign competition with competitive advantages beyond ours, being chief among them. Your comment’s unwillingness to entertain that we are entering a period of steeply rising debt and service costs and a flattening of GDP growth rate, is a denial of reality that Greenspan, Bernanke, OMB, Comptroller, and CBO have all expressed serious concern over. But, obviously that will not deter your glass from being half full and increasing in content as you sip from it. So be it.
Anyway, this discussion, as is usual between us, only highlights a chasm in understanding between us. Hopefully another reader will come across it and gain some insight and broadened understanding of the macroeconomics discussed.
David:
No, your error is in viewing this as a snapshot in time. A gratuitous error. The GDP growth rate can go up, down, or even into negative territory, but the DEBT will not go down. In fact, it will rise because we are still deficit spending and the entitlement programs ensure it will continue to do so. And as incredible as it sounds, our lenders will one day want to be paid back.
Again you are wrong. I am not viewing this as a snap shot in time. You are imputing that for your own purposes.
Craig, what part of opportunity cost in the amount of the 2006 406 Billion dollar service cost on the debt do you not get? To hell with percentage of GDP. The Taxpayers are out 406 billion dollars of government service in ONE YEAR due to interest on the federal debt. I don’t have this backwards, at all.
No, not to hell with percentage of GDP. YOU MUST CONSIDER ASSETS AND INCOME. You consistently dismis the other parts of a balance sheet. You cannot “to hell with” $14 trillion dollars of GDP and over $70 trillion of total US assets.
TO HELL WITH ONLY LOOKING AT THE WORLD THROUGH ONE LENSE!!!!
You must place your figures in some sort of context otherwise all your arguments are meaningless.
No, not to hell with percentage of GDP. YOU MUST CONSIDER ASSETS AND INCOME. You consistently dismis the other parts of a balance sheet. You cannot “to hell with” $14 trillion dollars of GDP and over $70 trillion of total US assets.GDP doesn’t mean much when only a few people in our oligarchy are getting most of the wealth due to many dishonest and regressive systems that have been cheating Americans for 30+ years. Yes, voters have themselves to thank for it, since they repeatedly reward irresponsible incumbent politicians with 95% to 99% re-election rates, but that does not mean …TO HELL WITH ONLY LOOKING AT THE WORLD THROUGH ONE LENSE!!!!
You must place your figures in some sort of context otherwise all your arguments are meaningless.
Craig Holmes wrote: America as a whole has never been this rich, and it’s getting richer all the time. It’s a great time to be an American… unless you are the wealthiest 1 in 5 Americns that are benefitting from all of the numerous dishonest and regressive systems. Posted by: d.a.n at November 16, 2007 07:43 PM
Dan:
GDP doesn’t mean much when only a few people in our oligarchy are getting most of the wealth due to many dishonest and regressive systems that have been cheating Americans for 30+ years.
Except for the poors medical care, food stamps, education, tax credits, jobs, etc etc etc.
Basically the poor pay very little taxes. That means that just about anything that the poor receive from the government is paid for by the affluent.
Come on Dan, you can’t possibly believe assets and gdp have no meaning. GDP and Assets mean a tax base that pays for most of the govenment benefts for the poor!!
Please tell me how “that doesn’t mean much”. YOu can’t possibly believe that.
Look at mass transit. Who pays for that? The poor? No it is subsidized. How? By taxes on what? GDP and Assets.
You say GDP “doesn’t mean much”???? That is the same as saying government benefits do not mean much.
Ddvid/Dan:
Why is it that both of you absolutely refuse to acknowledge that assets and income have meaning in our debates?
Dan “GDP doesn’t mean much”
David: “To hell with percentage of GDP”
David: debt as a percentage of GDP is the way every credible economist discusses debt in the world not just america. Look at world data!! Why do you both marginalize yourselves to the wacko outside of economics?
Assets and GDP have meaning. Discussion so debt MUST be discused in relation to income and debt to have meaning.
WOW!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by: Craig Holmes at November 16, 2007 09:12 PMCraig Holmes wrote: Basically the poor pay very little taxes. That means that just about anything that the poor receive from the government is paid for by the affluent.Most people are not the poorest that pay NO taxes.
Income for the majority of Americans has stagnated or fallen (see graph). But, of course, the poorest Americans that receive welfare and food stampt are used to dispute the truth. The truth is still unchanged. Most Americans (mostly the middle income class) are getting squeezed.
You’ve already admitted to the wealth disparity, so it seems disingenuous to now try to use the poorest people to dispute the truth. The rise in GDP is not going to most Americans. It is going to a few at the top. But then …
Craig Holmes wrote:: ) True.
I think from a rich persons point of view …
Craig Holmes wrote: Basically the poor pay very little taxes.True. You are still forgetting the largest (but shrinking) income group: the middle income group. And most of the help for those poor is coming from the middle income class who are paying a larger percentage of income to taxes.
Craig Holmes wrote: That means that just about anything that the poor receive from the government is paid for by the affluent.FALSE !
See your quote above. That’s the problem.
NOTE:
- Definition of AFFLUENT:
Generously supplied with money, property, or possessions; prosperous or rich. See Synonyms at rich. Plentiful; abundant. Flowing freely; copious.
The middle income class is not rich and they pay most of the taxes in this REGRESSIVE tax system. Not just the affluent. Also, the affluent are a small percentage of the U.S. population. The wealthiest 20% of the U.S. population own 83% of all wealth in the U.S., but they are not paying an equal percentage of income taxes. Or do you not believe a flat income tax (above the poverty level) is fair?
Te problem is WHO is pushing the wagon, and WHO is riding in the wagon. All of these 10 Regressive systems did not come about by mere coincidence. Not when 83% of all federal campaign donations to our FOR-SALE federal government come from a tiny 0.15% of all 200 million eligible voters.
Craig Holmes wrote: Please tell me how “that doesn’t mean much”. YOu can’t possibly believe that.I do, when only a very few get it.
The tax system is regressive, among the other many regressive systems, and the rich are getting much richer. All of those things are not by mere coincidence.
Most Americans are getting fleeced, and they are learning about it. No amount of spin can change the facts. All the talk about increased GDP is a fraud, when a very few are getting most of it, and incomes for most (despite more workers per household and increased productivity) have fallen or stagnated.
Craig Holmes wrote: Look at mass transit. Who pays for that? The poor? No it is subsidized. How? By taxes on what? GDP and Assets.The poor? The poor? The poor?!
How ridiculous.
No, not the poor.
The shrinking middle class is paying the highest percentage of their income for these things. Your focus on the poor can not obscure that fact.
Craig Holmes wrote: You say GDP “doesn’t mean much”???? That is the same as saying government benefits do not mean much.Nonsense.
The fact you are trying so hard to obscure is that the middle income group pays the largest percentage of their income for everything. While GDP rose, the wealthy and our oligarchical government fleeced most Americans to pay for it. And this is how Warren Buffet pays 17.7% income tax rate, while his secretary who makes $60K per year is paying a 30% income tax rate.
Yes, things are very rosy if you are the 1 in 5 wealthiest Americans who own 83% of all wealth in the U.S.
The point is, the rich are getting richer and fleecing most Americans in the process.
Study these 10 regressive systems to see how.
Posted by: d.a.n at November 16, 2007 09:48 PMCraig Holmes wrote: Dan “GDP doesn’t mean much”Nonsense.
You took my sentence out of context, because I wrote:
- GDP doesn’t mean much when only a few people in our oligarchy are getting most of the wealth due to many dishonest and regressive systems that have been cheating Americans for 30+ years.
Notice the rest of the sentence?
How convenient that you forgot the rest of the sentence.
All the rosy spin won’t change the facts.
Don’t get upset with us.
Perhaps it’s the facts that really frustrate you?
Dan:
Perhaps it’s the facts that really frustrate you?
No. What frustrates me is that you do not comprehend that assets and income are as important in financial discussions as debts.
I did notice the rest of the sentence. I dealt with it above. I mentioned clearly that the social benefits the poor recieve are paid for by the rich.
GDP “doesn’t mean much”. No it only means transportaton for the poor, public education, health care, medicare, etc etc ect.
The wealthy pay the vast majority of taxes in this country.
Let me rewrite your sentence and then you tell me how wrong I am.
GDP is critical. It is true that much the wealth of the world is owned by a few at the top, however the rich also pay most of the taxes of the world. These taxes are used for thousands of things that are critical to all americans, such as health care, mass transit, our military, public education etc. Without a strong GDP, we would not have the tax revenue that we have in order to fund these important services.
Here is your sentence:
GDP doesn’t mean much when only a few people in our oligarchy are getting most of the wealth due to many dishonest and regressive systems that have been cheating Americans for 30+ years.
You are just flat wrong. GDP and assets create tax revenues that fund the programs for all americans. GDP is critical.
That is a fact. What frustrates me is that you don’t even know this.
Craig Holmes wrote: d.a.n … No. What frustrates me is that you do not comprehend that assets and income are as important in financial discussions as debts.Nonsense.
Taking my words out of context and twisting things all around still does not change the truth.
Yes, the wealthy pay most taxes, but our perverted tax system is REGRESSIVE, and therefore, the wealthy pay a smaller percentage of tax relative to income. Or, do you think a flat income tax is unfair?
Craig Holmes wrote: I did notice the rest of the sentence. I dealt with it above. I mentioned clearly that the social benefits the poor recieve are paid for by the rich.FALSE !
The middle income group and some poor pay taxes too!
The middle income group pays a LARGER percentage of income relative to taxes, because the perverted tax system is REGRESSIVE.
Warren Buffet made $46 million, and paid a 17.7% income tax rate.
His secretary made $60K, and paid a 30.0% income tax rate.
I have paid much higher than 17.7% of my income to taxes.
So all the talk about the rich paying most of the taxes still does not answer the question constantly avoided: Do you think the REGRESSIVE tax system is fair?
Craig Holmes wrote: GDP “doesn’t mean much”. No it only means transportaton for the poor, public education, health care, medicare, etc etc ect.See, there you go again; taking my statements out of context.
Craig Holmes wrote: The wealthy pay the vast majority of taxes in this country.
That is somewhat true, but the BIG question constantly being avoided, do they pay an equal percentage ? If not, the tax system is regressive. Just ask Warren Buffet.
For Year 2003:
- Top 1% pay 34% of taxes
Top 5% pay 54 % of taxes
Top 10% pay 66% of taxes
Top 25% pay 84% of taxes
Top 50% pay 96% of taxes
- The wealthiest 1% of the U.S. population has 40% of all wealth in the U.S. (up from 20% in year 1980; never larger since the Great Depression).
The wealthiest 5% of the U.S. population has 60% of all wealth in the U.S.
The wealthiest 10% of the U.S. population has 70% of all wealth in the U.S.
The wealthiest 20% of the U.S. population has 83% of all wealth in the U.S.
The poorest 20% of the U.S. population has negative net worth (i.e. debt)
40% of the U.S. population has (on average) essentially zero net worth.
80% of the U.S. population has a mere 17% of all wealth in the U.S.
Craig Holmes wrote:
Let me rewrite your sentence and then you tell me how wrong I am.
GDP is critical. It is true that much the wealth of the world is owned by a few at the top, however the rich also pay most of the taxes of the world.
True, but they BIG question constantly avoided is, do they pay an equal percentage ?
So, how about those 10 REGRESSIVE, dishonest, and unfair systems of the past 30+ years that are shrinking the middle class. Care to discuss each of those?
Repeatedly saying the wealthy pay more taxes isn’t the issue.
The BIG question continually avoided is: do they pay an equal percentage ? Ask Warren Buffet.
Craig Holmes wrote: These taxes are used for thousands of things that are critical to all americans, such as health care, mass transit, our military, public education etc. Without a strong GDP, we would not have the tax revenue that we have in order to fund these important services.Sure GDP growth is good, but the other BIG question is WHO is getting MOST of it as a result of those 10 REGRESSIVE systems?
Craig Holmes wrote: Here is your sentence:Yes, that is my sentence in full context. And I stand by it.d.a.n wrote: GDP doesn’t mean much when only a few people in our oligarchy are getting most of the wealth due to many dishonest and regressive systems that have been cheating Americans for 30+ years.
Craig Holmes wrote: You are just flat wrong. GDP and assets create tax revenues that fund the programs for all americans. GDP is critical. That is a fact.Nonsense.
Again, the issue isn’t GDP alone, and the statement above is yet another clever dodge to skirt and avoid the real questions.
The real questions are:
- (1) Who is getting most of that GDP?
(2) Who is paying the highest income tax rates (Warren Buffet paid 17.7% on $46 Million: His scretary paid 30.0% on $60K)?
(3) The wealthiest 1% had 20% of all wealth in year 1980. Now the wealthiest 1% have 40% of all wealth in year 2007.
(4) The perverted tax system is REGRESSIVE due to a myriad of tax loop holes and corporate welfare and subsidies.
Craig Holmes wrote: What frustrates me is that you don’t even know this.Nonsense.
Your statement …
“GDP and assets create tax revenues that fund the programs for all americans. GDP is critical.”… is merely a statement of the obvious.
Trying to twist the argument around to appear as though I think GDP is a bad thing, can not salvage a lame argument or hide the avoidance of the 10 REGRESSIVE systems, and where the majority of the GDP is going.
Perhaps that is what is truly frustrating, eh?
Ahhhh … but I can already hear the response … get ready … here it is: Life is not fair.
Other than that, everything is rosy!
America as a whole has never been this rich, and it’s getting richer all the time. It’s a great time to be an AmericanI hate to burst this rosy outlook, and it may be upsetting and frustrating to hear, but MOST Americans do not agree (including Warren Buffet), because MOST Americans are not the wealthiest 1 in 5 that own 83% of all wealth (and increasing for 30+ years due to many dishonest and regressive systems that did NOT all come about by mere coincidence).
Posted by: d.a.n at November 17, 2007 11:59 AM
Dan:
Yes, the wealthy pay most taxes, but our perverted tax system is REGRESSIVE, and therefore, the wealthy pay a smaller percentage of tax relative to income. Or, do you think a flat income tax is unfair?
Ok so we agree that the wealth pay most of the taxes. So they pay for most of our education system, or government health programs, our national defense etc etc.
In fact if you move down to the affluent and just well off, it’s the vast majority.
So they pay for most everything.
Your arguent is that is not enough. Is your argument then that they should pay for everything?
Posted by: Craig Holmes at November 19, 2007 11:49 PMCraig, the argument is, if the wealthy are paying to keep zero deficits, it is the wealthy, with the power of lobbying, who will lobby for reduced spending. Reduced spending will mean reduced taxes on the wealthy. It is a straight forward proposition tailor made to our current political system largely controlled and influenced by the wealthy.
Raise taxes on the wealthy to zero out the deficits, and watch the politicians get hammered to reduce spending so taxes on the wealthy can be cut. Very simple, actually, and powerful. Democrats are on the right track with the combination of PayGo and raising taxes on the wealthy to end deficits. It is eminently logical.
Posted by: David R. Remer at November 20, 2007 12:09 AMCraig the national debt is a taxpayer CASH obligation. The Federal Government’s ASSETS cannot be liquidated to cover that debt or service on the debt. That would be in violation of the Constitution and an enormous number of fiduciary laws regarding the federal government’s obligations.
Why do you insist on including Federal Capital Assets as a balancer of debt? It is illogical.
Just as illogical as the concept of forcing 10’s of millions of Americans to sell their homes to pay increased taxation to balance the federal debt obligation.
C’mon, man. Be logical.
Posted by: David R. Remer at November 20, 2007 12:14 AMCraig Holmes wrote: d.a.n … Ok so we agree that the wealth pay most of the taxes.Yes, the wealthiest 5% pay 54% of all taxes.
- For Year 2003:
Top 1% pay 34% of taxes
Top 5% pay 54 % of taxes
Top 10