Boom

[Ajax]

.  The depression started, revenues dropped, people were unemployed so what did Harding do?

Cut taxes and cut spending.

Harding raised taxes

[muldoon]

We're going on credit watch not because of stimulus,  but because Congress has indicated that it may choose to default on our debts.  The whole debt limit fiasco is a totally manufactured crisis.  Completely unnecessary.

archimedes, your thinking this is about politics - it's not.  It's about money. 

How necessaray is this? 
Jamie Dimon, CEO of JP Morgan, board member and director of the New York Federal reserve bank. 

http://www.thestreet.com/story/11185157/1/dimon-warns-of-us-default-catastrophe.html?cm_ven=GOOGLEN

"NEW YORK (TheStreet) -- A credit downgrade to the U.S. could benefit JPMorgan Chase(JPM_), bank CEO and Chairman Jamie Dimon acknowledged Thursday during a conference call with analysts. "

...
"In a follow-up email exchange Cassidy explained that a one notch credit downgrade to the U.S. could lead to increased sales activity since triple-A treasuries are used as collateral for certain transactions and/or contracts.

"If they were downgraded to AA+, some of those contracts that require triple-A investments as collateral would need to be sold leading to increased sales activity," Cassidy explained.

Earlier on the same call, Dimon said a U.S. default would force some owners of U.S. Treasuries to sell their holdings, and possibly lead to a multi-notch downgrade of the U.S. credit rating. "

--

[archimedes]

Yes,  but the whole "deadline" situation is an entirely manufactured crisis.

Bond yields,  even in the face of imminent default,  are still at historic lows.  Congress,  not the markets,  is creating this crisis  -  for political gain.

[OlJarhead]

Wow this is getting heated 

I think making a blanket statement of "spending cuts and tax cuts work/don't work" is wrong in and of itself.  There are alot of variables to consider, including:

     1.  Where the cuts are (Welfare? Education? The Poor? The Rich?)
     2.  Who benefits and who loses from the cuts
     3.  How many people are directly affected (# of government employees come to mind)
     4.  How the money gets re-invested

What worked in the 20's may not necessarily work now.

So much of this debt crises lies within the problem of FUD (Fear, Uncertainty, Doubt), Faith, and plain ol' bad balance sheets all around (Government, Corporate, Individual).  No one has any money because they used it 5 years ago.

It is perfectly correct to say "raising taxes can raise revenue", after all when income tax was 1% and raised above it I'm certain revenues went up.  Art Laffer did a fair job of showing this in the 'Laffer Curve'.

It is also perfectly legitimate to make the statement that not all spending cuts work -- after all, cutting spending to a small portion of the budget while ignoring the big items won't make nearly the difference that cutting the big items will.  And let's not forget this years fiasco of 'cutting $38 billion' in spending!  After all, that 38 billion dollar haircut netted a gain of 200 billion in spending....so it's clear that 'cut' didn't work.

But looking closer at that 'cut' one sees it was no cut at all but a lowering of proposed spending to a rate still higher then previous years.

However, who can argue that cutting spending will not work when our government is so bloated that a $500 toilet no longer even raises eybrows?  When it has more law enforcement agencies then you or I can probably mention in a first attempt?  When it's employees make something like twice the average private worker etc etc  etc....I think there is so much room for cuts it's pretty much insane not to do so.  Heck, I think we worked just fine as a nation back in 2000 and we only spent $1.9 TRILLION that year.....seems to me a cut of $1.8 TRILLION is in fact doable and would prevent any need to raise any debt limit.

[cbc58]

Yes,  but the whole "deadline" situation is an entirely manufactured crisis.

Huh?  You don't think there's a crisis?  Pehaps you mean to say that issue is being used by both parties to promote agendas... sure... but there is a crisis.   We're spending trillions and getting no where and when rates jump (and they will), they'll start throwing the "austurity" burden on you and me and our kids and their kids.

I used to be in the mortgage industry (pre-scam) and I can tell you from taking applications that most people (over 75%) had virtually nothing in savings... while the other 25% had their act together.  We are witnessing the great delveraging and they are just trying to kick the can down the road until there is no road left.  A trillion here, a trillion there and pretty soon you're talking about real money.

[OlJarhead]

OlJarhead,
Your the one with the clear idealogical agenda.

For you to make a statement that history "proves unequivocally that spending cuts and tax cuts work".
Is a false statement.

Sometimes they do, sometimes they don't.  It depends on the need at the time.  

Your one size fits all solution to every situation is based on your idealogical beliefs grounded in your lack of willingness to look beyond any evidence that supports your beliefs.

There are plenty of historical examples where tax/spending cuts have not worked,  and plenty of examples where spending increases have worked,  you just choose not to look at those because it doesn't validate your idealogy.

In the appropriate situation,  tax and spending cuts are the right solution,  and can be very effective.  In others they are not.  And history and economic theory show that over and over again.

If by this you mean that I am vehemently opposed to Keynesian Economics, Marxism, Socialism, Communism and the like then thank you sir!   I'll proudly wear that label.  However, if you mean to say that I am blindly Libertarian I would have to disagree as I do see valid points in other political philosophies and I am no anarchist.

What I am sir, is someone who believes that spending is way out of control, that social programs will bankrupt the nation, that both Republicans and Democrats are the problem, that socialists and their like are utopian fools and that the useful idiots who actually think we have to spend our way into prosperity are just that, fools.  That may seem harsh but Liberty cannot be attained or maintained by harnessing citizens with debt in order to redistribute wealth in the name of creating prosperity in some pie in the sky fashion dreamt up by those who don't believe in freedom in the first place must less a free market which, sir, is exactly what will give us prosperity and liberty.

Sir, you may believe that you are more educated then I (you may be), you may believe that you know more about economics (you may well), you might even believe that you have more intellect (perhaps) but from your posts what I see is arrogance, rudeness and elitism.  So I would propose, that your statements alone make you the very picture of what you accuse me of.

Am I wrong about money, the economy, history?  Perhaps and I'm willing to admit I'm no PHD in American history, much less economics.  However, I've read dozens of books on the subjects in question in the last few years and studied history in college and I assure you, I'm no dummy and my points are worth merit at least.  My opinions are my own, however.  

I do not believe either party has the answer and I pray that men like those who founded this great nation will step up to the plate and steer us back on course to Liberty and Prosperity where the laws of Nature and Natures God are the law of the land and where men respect that the unalienable rights to Life, Liberty and Property cannot be legislated away by partisan ideologues.

[Ajax]

Harding raised taxes

I'm retracting this statement.  I found it in an otherwise pretty solid paper, however, when I did more research, I don't think it is exactly true.  I actually sent the author an email.  His response was that the point he was trying to make was that the tax cuts that Harding made were minimal and did not contribute to the recovery.

[OlJarhead]

Let me share this with you:
the first Bush budget was 2002 and was: $2.0 TRILLION Dollars.
The Senate was controlled by Democrats but Republicans controlled the House and spending had risen from $2.0 TRILLION under Clinton's last budget of $1.9 TRILLION in 2001.
2003 was $2.2 TRILLION Republicans controlled both houses.  Spending up 10%
2004 -- $2.3 TRILLION Republicans controlled both houses.  Spending up ~5%
2005 -- $2.4 TRILLION Republicans controlled both houses.  Spending up ~4.5%
2006 -- $2.7 TRILLION Republicans controlled both houses.  Spending up ~12.5%
2007 -- $2.8 TRILLION Democrats control both houses.  Spending up ~4%
2008 -- $2.9 TRILLION Democrats control both houses.  Spending up ~4%
2009 -- $3.1 TRILLION Democrats control both houses.  Spending up ~7%
The first Obama Budget was 2010 and was $3.6 TRILLION
Democrats controlled both houses AND the Presidency.  Spending is up ~16.5%
2011 IS $3.8 TRILLION Republicans control House, Dems control Senate.  Spending is up ~5.5%
2012 submitted by Obama is $3.7 TRILLION – Budget not debated or passed at this time.


So it is clear to me that we could cut spending and cut it enough to prevent the need for a debt ceiling increase.  However, if the raising of the ceiling were truly something that HAD to be done then I'd say we ought to at least consider some real compromise, like say instead of returning to 2000 spending levels how about we just return to 2005 levels?  That's $2.4 TRILLION dollars and a REAL cut of $1.4 TRILLION off the budget....which by the way would almost entirely eliminate the deficit next near.

What would we have to cut?  Government agencies would be first on my list starting with all increases in government workers since 2006.  Then departments -- redundancy must be eliminated and would mean the end of all Federal Law Enforcement except the FBI.  Then entitlements.  First up?  Allow individuals to opt out of Social Security (I'll go first), then change it so only the most destitute could get it (sorry but if you earn enough to save for retirement then damn well you should be), then get rid of HUD, Food Stamps and the like ("I'm all for doing for the poor, I just differ in the method of doing.  I would make the poor difficult in their poverty or lead them out of it" paraphrasing Ben Franklin).  Yes I would cut those programs complete and tell Churches and NGO's it's time to step up and help the poor because Uncle Sam is broken.

I'd go after illegal aliens use of social programs, I'd institute a tax system which taxes everyone who earns a living (though I am personally opposed to individual taxes I know that no one in America would go for it in our climate today) and end all redistribution programs.  I'd end subsidies for farmers, oil companies, GE and banks alike.

I'd also create a 'United States Dollar' which would be a silver note and make it legal tender along with the FRN and then I'd use FRNs to pay on the debt until it was gone, at which time I'd eliminate the FRN all together and return the nation to a silver based monetary system in which Gold would also be legal to use but would not have a set value (exchange rates would have to be posted like foreign currency rates).

Ya, I'm an evil Libertarian and I'm proud of it

OH and I'd end the war on drugs, get rid of the DEA and tell American's that the Federal Government has no place telling them what they should or should not injest.  

[John Raabe]

I don't know if this is flawlessly researched data (and I don't really have a strong opinion on what is the best way to close the deficit), but this is interesting:

One of the most underrated presidents in American history Warren G. Harding (1921-23) cut the top rate from 73% to eventually 25% in 1926 posthumously and the "roaring 20's" were born. Calvin Coolidge (1923-29) continued Harding's economic policies of cutting taxes and spending resulting in GDP growth rate of 27% from 1921 to 1929.

In 1932 President Herbert Hoover (1929-33) raised the top rate to 63% and Roosevelt (1933-44) followed that in 1936 with an increase to 79%. It should be noted raising taxes was not Hoover's only monumental economic blunder. He passed the infamous Smoot-Hawley tariff act that raised effective rates to over 60% as well as increased federal spending 57% in his four years.

This from: http://usa-wethepeople.com/2011/05/does-raising-personal-taxes-increase-federal-revenues/

[OlJarhead]

I'm retracting this statement.  I found it in an otherwise pretty solid paper, however, when I did more research, I don't think it is exactly true.  I actually sent the author an email.  His response was that the point he was trying to make was that the tax cuts that Harding made were minimal and did not contribute to the recovery.

http://www.balloon-juice.com/wp-content/uploads/2009/03/graph.jpg

[Ajax]

http://www.balloon-juice.com/wp-content/uploads/2009/03/graph.jpg

I'm well aware of what the top rates are.   The paper I read stated the Harding lowered the top rate from 73% to 58%, but also said that he increased the number of individuals affected by the top rate.  My research brought that into question, so I emailed him about it.

There are a variety of reasons cut taxes in the early 20's.  The biggest was that the war was over.  (Remember, we used to pay for wars)

[OlJarhead]

I'm well aware of what the top rates are.   The paper I read stated the Harding lowered the top rate from 73% to 58%, but also said that he increased the number of individuals affected by the top rate.  My research brought that into question, so I emailed him about it.

There are a variety of reasons cut taxes in the early 20's.  The biggest was that the war was over.  (Remember, we used to pay for wars)

We were in a depression with unemployment in 1920 at 20% and getting worse (I thought I read somewhere that it approached 45% at one point but that sounds pretty crazy) and Harding cut spending by a large percentage (I beleive as much as 50% at one point but would have to check).

[archimedes]

Yes,  but the whole "deadline" situation is an entirely manufactured crisis.

Huh?  You don't think there's a crisis?  Pehaps you mean to say that issue is being used by both parties to promote agendas... sure... but there is a crisis.   We're spending trillions and getting no where and when rates jump (and they will), they'll start throwing the "austurity" burden on you and me and our kids and their kids.

I used to be in the mortgage industry (pre-scam) and I can tell you from taking applications that most people (over 75%) had virtually nothing in savings... while the other 25% had their act together.  We are witnessing the great delveraging and they are just trying to kick the can down the road until there is no road left.  A trillion here, a trillion there and pretty soon you're talking about real money.

No,  I meant to say exactly what I said. 

There is no immediate crisis that needs to be resolved by August 2.  That is a politically manufactured "crisis" date.  We have a long term debt problem that needs to be addressed.  It is not a "crisis".  Nor does it need to be resolved immediately.  That's not my opinion,  that's a fact.  Just look a US bond yields.  They'll tell you all you need to know about how much of a "crisis" we are in.  None.

Let me repeat we do have a long term debt problem that needs to be addressed.  But it is not an immediate "crisis".

The President has suggest a plan to cut $4 trillion off the deficit.  But that was reject by the Tea Party because it contained $1 in revenue for every $3 in spending cuts.    Political posturing at it's worst.

[cbc58]

Well that's just plain hogwash. 

I am sure there were a number of Romans that felt the same way you do way back when.  Seen any Romans lately?

[archimedes]

It's funny how some people react when the facts won't coincide with their belief system.  I know it must be frustrating,   but facts are facts - regardless of what you want to believe.

There is no "crisis" plain and simple.

BTW.  The debt to GDP ratio of the UK is 400% higher than that of the US.  Last time I looked the UK still existed.  Germany's is nearly double our's.  I think the Germans are still around,  aren't they?

[StinkerBell]

It is a recession when your neighbor is out of work but it is a depression when you are at of work. I think that is the best explanantion I ever heard.

[Native_NM]

You guys are confusing the Balance Sheet with the Statement of Cashflows.  Companies don't shut down because they run out of earnings, they shut down when they run out of cash. Accounting 101.

Your friend in accounting,

Trapper

[Native_NM]

Ps, in case you didn't figure it out, the US has a cashflow problem....

[Ajax]

Ps, in case you didn't figure it out, the US has a cashflow problem....

Only because of these nonsense over the debt ceiling.  Raise the ceiling and the government will have plenty of cash

[MountainDon]

......  Raise the ceiling and the government will have plenty of cash

Huh?    That's not cash; that's credit/debt, isn't it?

There is presently, and has been for some time, more dollars spent than dollars coming in. That is the cashflow issue Native_NM mentioned.

[Native_NM]

Huh?    That's not cash; that's credit/debt, isn't it?

There is presently, and has been for some time, more dollars spent than dollars coming in. That is the cashflow issue Native_NM mentioned.

That is correct.  At one point, I owed three times what I earned in a year, and it didn't bother me a bit.  I had sufficient cashflow to service my debt.  My balance sheet was debt-heavy, but my "cash from operations" was adequate, which allowed me to push the excess to "cash used for financing'.  

The current "boom" in my mind is not "raise or don't raise the ceiling", but rather "who is going to buy it even if we raise it to infinity?" Current yields for US Treasuries are artificially low.  The Fed knows that if they raise the rates, the additional interest needed to service the debt will add hundreds of billions to the deficit.  If they don't raise them, our securities are not attractive in the market, given the apparent risk involved.  We run out of cash.  There have been treasury auctions over the last year where there were no buyers.  When you hear about the Fed "monetizing" the debt, it simply means they create money out of nothing and buy it from themselves.  Its fake money, which devalues the existing currency.  Result: inflation.  

We are at a crossroads for sure.  My opinion is the 25-year problem is not as bad as the short-term problem.  There are 75 million baby boomers, and a whole bunch of us are going to die over the next 25 years.  I'd propose that we leave SS alone for anyone born before a peg year - maybe 1993.  Those kids are just entering the workforce and have no real expectations.  Phase out the the SS tax on the those young kids over a period of time as the baby boomers die (post peg year), but leave the employer tax.  The kids will spend every dime, stimulating the economy a bit.  Start to phase out SS over the next 30 years.  We adopt a voluntary pension plan tied to US treasuries, but operate it as a true pension plan as opposed to an insurance plan.  

As the baby boomers die, they will leave trillions to their kids.  Eliminate the estate taxes, and allow the kids to use the proceeds to offset SS by means-testing those who score a big inheritance.  If dad leaves you a zillion dollars tax-free, you and your siblings give up SS.  Seems fair.  These ideas are still tax increases, but a little more palatable and the attempt is to at least be fair-minded.  In addition, we need to end refundable tax credits, and have an Alternative Minimum Minimum Tax (AMMT) of at least $500 or $1000 for anyone making over $10,000 or so.  That sounds harsh, but only when everyone has a financial incentive to vote fiscally responsible will it happen.  I can vote to spend your money all day long, because it does not affect me.  We have half the nation at that point now - they don't pay federal income tax, and they view SS as a savings and pension plan instead of an insurance plan.  If we could reach the point where we balance the annual budget, or perhaps even achieve a surplus, we could perhaps refund the tax to the poorest.  This gives them incentive to vote for candidates who are fiscally responsible.  

There is already a plan to legalize millions of illegals.  It is almost a financial necessity at this point.  I'm opposed to illegal immigration, but both sides have allowed the problem to stagnate, and we are past the point of criticality.  Our birth rate is negative net of Mexicans. That is a fact.   In a few years, the first generation of the kids of illegals (citizen children) will begin another baby boom.  This will become a new source of revenue in 25 years assuming we can educate them.    

There are no good short-term solutions.  Build a small house, live below your means, and don't worry about things you have no control over.

As always, I reserve the right to change my mind next week....



 

[muldoon]

The current "boom" in my mind is not "raise or don't raise the ceiling", but rather "who is going to buy it even if we raise it to infinity?"

..
The boom I was attempting to bring to light has nothing to do with America or American politics.  It is about credit, or debt, or however you want to consider it.  It is about trillions of dollars globally shifting and moving right now.  These moves create fundamental changes in the world.  Rantings from the democrats or the republicans is just noise.  They are reacting to a crisis in the debt markets which possibly less than 1% of their constituents will ever understand.  So they squawk about who has private jets and which people are on welfare which is what people seem to want to talk about anyway.  A nation obsessed with finding a bad guy ..  when the problem is mathematical. 

Two exponential functions running away from each other always ends the same.

[Native_NM]

..
The boom I was attempting to bring to light has nothing to do with America or American politics.  It is about credit, or debt, or however you want to consider it.  It is about trillions of dollars globally shifting and moving right now.  These moves create fundamental changes in the world.  Rantings from the democrats or the republicans is just noise.  They are reacting to a crisis in the debt markets which possibly less than 1% of their constituents will ever understand.  So they squawk about who has private jets and which people are on welfare which is what people seem to want to talk about anyway.  A nation obsessed with finding a bad guy ..  when the problem is mathematical. 

Two exponential functions running away from each other always ends the same.

Correct.  It is about certain countries and their ability to raise capital or fund the standard of living they have grown accustomed to.  I think the US has a better chance of weathering the storm long-term if we act now.  The changes don't have to be draconian, but decisions need to be made today, as they are 25 year decisions.

Europe is dead folks.  Anything happening there right now is Hospice care. 

[archimedes]

"The end is not near"     

[Native_NM]

For many people, it is the end of times as they were accustomed.  I agree the end is not near in general.  Download Reagan's innagural address. What is old is new again.