Are we trying to come to a mutual agreement on the definition of "politician" here or are we discussing why the US is going bankrupt?

Warning: Use before the expiration date

I'm trying to assess who would not be described as a politician and thus not subject to your criticism of politicians when it comes to monetary policy. Judging by the definitions supplied by you and KWSN - MajorKong, it is a term that could be applied almost universally to the US public. Great if you want to use the term as a means to dismiss views on an a priori basis, pointless if you want to use it to describe anything other than say "adult".

MajorKong, my use of the phrase "political class" was a direct quote from Guy's earlier use of the same. It is not my assertion that Dr Bernanke is a member of that class, it is Guy's. It seems to me that both you and he would agree that General Martin Dempsey is also a member of that class, or is there a special exemption for military personnel?

Do I blame any elected official these days? no.... I blame the voter.

What for? Not leaving the country?

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I think you'll find it's a bit more complicated than that ...

I see, so during 1992 to 2006 we were in a depression -- and I didn't notice. Fair enough.

Look, I'll grant there are entitlement issues for spending. For that matter, spending surged in 2002 - 2009 (ie before Obama). The difference there regarding the underpinnings of the deficit as that those spending increases happened with a Republican President.

I think a tax rise in conjunction with cuts in entitlements (including loophole entitlements) and other government spending (such as defense) is the best and quickest path to dealing with the deficit. I think folks who are looking to cut $1T or more from the annual budget in order to balance it, without any tax increases are pretty clearly against the war on drugs....

Ok, I'll speak up. It was Bush 43 who was up against 261 House democrats (vs 178 House Republicans) and 51 Democrat Senators (vs 49 Republican Senators). Bush 43 wanted to cut spending and the Democrats wanted to raise taxes. Therefore, nothing got done.

I see, so during 1992 to 2006 we were in a depression -- and I didn't notice. Fair enough

If your in full employment then you wont so much. Recession/depression started
around 2007 but quantitative easing is having the effect of softening the
blow. But this softening can only last for so long after this then you
will see the real results of recession/depression coming through.

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The Kite Fliers

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Kite fliers: An imaginary club of solo members, those who don't yet
belong to a formal team so "fly their own kites" - as the saying goes.

I agree with this, I also agree that the seeds of the recession/depression were planted a long time prior to its eruption. Living on credit -- government and personal, along with the amplifying effect of over priced housing set forth the conditions for the economic event we are enduring.

Globalization has its effect as well, as it reduced wages for a decreasingly skilled labor force. That real rage decrease was masked by globalization -- as costs of things (clothes, tv's, phones, computers, appliances, etc.) dropped to make real wage stagnation not seem so severe. Of course that wage stagnation did not happen at all in the upper tiers of compensation. Thus the increased concentration of wealth and wages to the top.

If your in full employment then you wont so much. Recession/depression started
around 2007 but quantitative easing is having the effect of softening the
blow. But this softening can only last for so long after this then you
will see the real results of recession/depression coming through.

Guy, if instead we simply let what would be a far deeper world wide depression take place -- one which would be much deeper and and longer to recover from, then perhaps what would end up with is the a clash of totalitarians world wide -- not a desired result though some seem to prefer that.

Rather than let the big corporations fail, as part of keeping them afloat, perhaps if we punished those who profited (ie the top management of those companies) by conditioning the support with severe restrictions on compensation for those making say a half million dollars or more (combined salary and stock deals). Sadly, that didn't happen and so the lesson learned between the Kochpublican push to deregulate everything and those corporate bail outs, is that corporate greed is a protected and sustained behavior -- not the best of lessons to teach.

Well, you're right Barry in Arizona. Those in the upper tier didn't have to worry about wage stagnation because they were "too big to fail." We couldn't let them fail so the taxpayer at the lower end of the scale paid for their wreckless financing schemes. We rewarded them for what we said was wrong.

What makes sense to me is to not only allow the individual to make his/her own decisions on which bank to do business with, which auto to purchase, which bank to ask to borrow money from in order to buy a house or a car, we should hold the individual responsible for the decision to do business with a bank that files for bankruptcy. Some will never learn. However, I believe most will learn really fast.

Yes, we need no banking regulations at all. Not even regulations against embezzlement because after all people should be free to bank with an embezzler; it is their choice and they should learn really fast.

Guy, I suspect you won't be happy until you have to stand in a bread line for 12 hours and need a wheelbarrow of cash to buy your loaf for the month if they even have any.

Personally I don't want a repeat of the Great Depression. We should learn from our mistakes, but it seems as if you want to repeat them.

Repeal the Community Reinvestment Act and put the Glass–Steagall Act back the way it was.

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Guy, you are assuming a level of competence for individuals you might meet -- that would explain why you are a multi-millionaire.

The crash that happened in 2008 would have taken out even more millions of those individuals you seem to be sympathetic about.

I can understand the approach -- it too is kind of elitist -- screw the corporations and the millions, since *I* am smart enough to avoid all those mistakes and all those corporations that make mistakes. When the stupid multitudes go up in smoke along with the corporations, it won't matter to me since I avoided all the mistakes.

Pure flat out individualism has its own penalties in a world as interconnected as we are...

So, I'm confused. You're saying in order to prevent the clash of the totalitarian governments on this planet; we need to become more totalitarian?

That doesn't make sense to me.

people who expect everything to be handed to them

People who expect everything to be Not Stolen From Them by Thieving Financial Miscreants.

it is their choice and they should learn really fast.

What Choice? Between which Thieving Financial Miscreants?

I avoided all the mistakes

Leaving All Others to The Thieving Financial Miscreants.

Pure flat out individualism has its own penalties

To be An Individual is to be At The Lack of Mercy of The Thieving Financial Miscreants

a level of competence for individuals

People just Looking For And Expecting Fairness and Truth and Not Deception from The Thieving Financial Miscreants.

DroolingDullnando

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May we All have a METAMORPHOSIS. REASON. GOoD JUDGEMENT and LOVE and ORDER!!!!!

So, I'm confused. You're saying in order to prevent the clash of the totalitarian governments on this planet; we need to become more totalitarian?

That doesn't make sense to me.

What makes sense to me is to not only allow the individual to make his/her own decisions on which bank to do business with, which auto to purchase, which bank to ask to borrow money from in order to buy a house or a car, we should hold the individual responsible for the decision to do business with a bank that files for bankruptcy. Some will never learn. However, I believe most will learn really fast.

Allowing the individual to make their own decisions in a free market leads towards a stronger nation. A chain is only as strong as its weakest link. A strong group of individuals makes a strong nation.

But we've been breeding several generations of people who expect everything to be handed to them. They expect *any* bank that holds their money will not fail. They expect any bank to lend them money to buy a house and a car. They expect nothing bad to happen. And when they are taken advantage of by people who deal in money, they expect someone else to pay for thier decision. This is not good in the long run.

I'm that someone else.

Yes, insurance is socialism. I don't have any for my car, if I'm involved in an accident, I'll ensure that the person at fault pays, and if they don't have enough money, well that's my bad luck for driving on roads with people that are not as prepared as me. Fabulous.

Back in the real world, insurance has it's place and has been around for thousands of years. FDIC helps ensure there's no minimum income bar to depositing one's funds in a bank, which allows that bank to lend the money to, for example, an entrepreneur. Thus, in a sense, the entrepreneur is a beneficiary of FDIC as well as the depositor and all of society can benefit. Without FDIC, sensible folks that cannot afford private insurance for their funds will not deposit them, and society can only benefit from the decisions of idiots and the wealthy.

I believe Adam Smith thought that banks had a special place in a market based economy, and that their activities were rightly the subject of government regulation.

No doubt some will argue that Smith was a politician (he was elected as a Fellow of the Royal Society), and thus his views on economics are worthless, especially when they find out what he had to say on taxation:

Adam Smith wrote:

Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty. It denotes that he is subject to government, indeed; but that, as he has some property, he cannot himself be the property of a master.

(from page 704 of The Wealth of Nations).

While this may give some comfort to those that advocate a flat tax, Smith would not include himself amongst their number, again from the Wealth of Nations (page 691):

Adam Smith wrote:

It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

and if the rich should contribute more, does it not follow that the poor should contribute less?

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I think you'll find it's a bit more complicated than that ...

What happened in 1929 can't happen again because of rules designed to prevent that from happening again (buying/selling before closing the buying deal).

Just because one specific method of a crash happening has been closed doesn't mean another way isn't available. You are incredibly naive to believe otherwise. Since Glass-Steagall was repealed commercial banks have been free to gamble their depositor's money, and are. Naked shorts were just fine until 2008 [and are not illegal today] and what do you think helped drive the market down in 2007? It is only through dumb luck and coordinated action that we aren't worse off than 1929. Learn about systemic risk and prisoner's dilemma.

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I believe Adam Smith thought that banks had a special place in a market based economy, and that their activities were rightly the subject of government regulation.

No doubt some will argue that Smith was a politician (he was elected as a Fellow of the Royal Society), and thus his views on economics are worthless, especially when they find out what he had to say on taxation:

Adam Smith wrote:

Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty. It denotes that he is subject to government, indeed; but that, as he has some property, he cannot himself be the property of a master.

(from page 704 of The Wealth of Nations).

While this may give some comfort to those that advocate a flat tax, Smith would not include himself amongst their number, again from the Wealth of Nations (page 691):

Adam Smith wrote:

It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

and if the rich should contribute more, does it not follow that the poor should contribute less?

Of course banks should be subject to government regulation. They function, essentially, as an agent of the government, and when they misbehave (like, for instance, the 2007-present crash) it can screw up the economy and government fiscal budgeting to no end.

In regards to the Adam Smith/Wealth of Nations quotes...

The first one is discussing what was called a poll tax (or head tax) on people. If you were a slave, your master paid the poll tax on you. If you were free, you paid the tax. That is the meaning of that quote.

On the second one...

Robin wrote:

Holy out-of-context, Batman!

That quote (from page 691) was discussing a tax on house-rent, which is essentially a consumption tax.

If one takes the per-capita rent on housing (among renters) over an area (total rent paid / number of renters), the rich will be paying over that amount for house rent, and the poor will be paying under that amount. Furthermore, at least up to a certain point, house rent paid increases at a faster rate than does income. To the poor, housing is something of a necessity. To the rich, it becomes more and more about luxury.

Thus, even with the same house-rent tax *rate*, the rich will pay more in proportion to their revenue on a house-rent tax. And, by extention, the poor will pay less. Note, this is at the same tax rate.

Here is the complete paragraph from which you only quoted the last line:

Adam Smith wrote:

The inequality with which a tax of this kind might fall upon the
owners of different ground-rents, would arise altogether from the
accidental inequality of this division. But the inequality with which
it might fall upon the inhabitants of different houses, would arise,
not only from this, but from another cause. The proportion of the
expense of house-rent to the whole expense of living, is different
in the different degrees of fortune. It is, perhaps, highest in the
highest degree, and it diminishes gradually through the inferior
degrees, so as in general to be lowest in the lowest degree. The
necessaries of life occasion the great expense of the poor. They
find it difficult to get food, and the greater part of their little revenue
is spent in getting it. The luxuries and vanities of life occasion
the principal expense of the rich; and a magnificent house
embellishes and sets off to the best advantage all the other luxuries
and vanities which they possess. A tax upon house-rents, therefore,
would in general fall heaviest upon the rich; and in this sort
of inequality there would not, perhaps, be any thing very unreasonable
It is not very unreasonable that the rich should contribute
to the public expense, not only in proportion to their revenue, but
something more than in that proportion.

But... back on the subject of the thread...

The US is in financial trouble (some might say bankruptcy) due to excessive government spending and the resulting deficits and national debt. A related issue is over taxation and over regulation, which is slowing economic growth. But, let us concentrate on the direct problem(s) for now.

Interest on the national debt for fiscal year 2011 was $454 billion. Estimates I have heard for FY 2012 are around $520 billion. This is over $1 billion per day, and soon to hit $10 billion a week! This expense *must* be paid first, per both the Constitution and statue law (upheld, incidently, by the Supreme Court). We can't default out of it until the interest owed is greater than ALL revenue. It MUST be paid first, off the top.

This interest is dangerous on at least 2 fronts. First, each year we are adding to the total debt through the deficit. Each year, as long as we run deficits, we will owe more on interest than the year before (all else remaining the same). Second, interest rates are at (or very near) historic lows.

US Treasury paper is around 2% interest... now... Historically, it has been higher, and at times, much higher. Just glancing at the data, it looks like the average over the last 55 years or so is around 6%, and it has been over 13% (at the height of the 'Carter malaise')...

The current ~ 2% rate is not sustainable for much longer. It is below inflation, and as soon as the dust settles from the Europe mess people are going to start going elsewhere than US Treasury paper (which they are doing now primarily due to its perceived 'safety'). Soon, there is going to be a LOT of upward pressure on the US Treasury paper interest rate. Just going back to its historical average is a factor of about 3x... And its all time highs is a factor of about 6x...

You want the government to have a mandatory interest payment of $1.5 trillion to $3 trillion a year, and that is just on CURRENT debt levels????

Well, there is one, and only one, way around it. We cannot default on this debt (at least not until the govt. does not even have enough money in revenue to pay it). We cannot inflate our way out... at least not without triggering an interest rate manure-storm. Both of these will produce extreme economic misery, surely a lot more than the only way out will.

The only way out? Run a respectable surplus in Washington, and use the surplus to pay down the debt over a reasonable time frame. Say about $500 billion a year over 30 years to pay down the approximate $15 trillion debt. The longer we delay doing this, the worse it is going to get.

FY 2011 total taxes $2.3 trillion.
FY 2011 total spending $3.6 trillion.

So, using the FY 2011 figures as a baseline, leaving taxes totally ALONE, we must eliminate $1.3 trillion in spending just to eliminate the 'budget' deficit. Shave another $500 billion off of spending to pay down the debt. That leaves $1.8 trillion to spend. Remember to $454 billion in interest payments? That leaves only $1.35 trillion for EVERYTHING else.

Oh, and medicare is $565 billion and social security is $599 billion (FY 2011 levels, they are only going to go higher). This leaves what... $186 billion for EVERYTHING ELSE including defense???

For reference, FY 2011 defense/military spending was $678 billion. The defense/military spending is probably too high, but even totally eliminating all of it wouldn't solve the problem. We are going to REQUIRE significant cuts in the so-called 'social programs' as well. This nation needs a national discussion on exactly what we can and can't afford for government to be doing. And we need it ASAP. The US Federal government has just promised too much for too long. And fixing this mess is NOT going to be pretty.

As you can see, there are some painful choices ahead. No matter what else, extremely significant spending cuts are going to hurt, a lot... But they are necessary.

Now some will undoubtedly call for a tax rate increase, this is understandable. However, it would be a bad idea. It would weaken our already fragile economy. Plus there isn't really enough income to go around. Don't forget state and local taxes as well. We are at (when you add it all up) at about 60% total tax rate now. To jack up Federal taxes enough to do any good would require that tax burden to go to about 90%. And yes, people do need enough of their money left to live on.

What we need is comprehensive tax reform, but it is not truly the subject of this thread. I am working on a proposal along these lines, and I will start a new thread (to see what you all think about it) on it when it is ready..

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https://youtu.be/iY57ErBkFFE

#Texit

Don't blame me, I voted for Johnson(L) in 2016.

Truth is dangerous... especially when it challenges those in power.

Actually it is a part of this thread. While we call agree that spending cuts need to be in place (including the structure and amount of entitlements), doing that without increasing revenue just won't get it done. The disinclination to increase revenues at all, let along to 2001 tax rates, by one major party undermines discussion regarding spending controls. Similarly it also undercuts discussions here regarding how to deal with the US budget problems.

Remember for a moment, that the fiscal 2000 and 2001 budgets (the last two years under Clinton) actually produced surpluses. What drove those surpluses were not only the moderately higher tax levels of those year as well as a seemingly robust economy, but also cuts passed back then to entitlement programs (welfare in particular). We also of course had significantly less military and military industrial complex welfare dollars in the mix as well.

So, on the spending side --

Cuts to the military budget

Cuts and restructuring of Medicare (perhaps in a way that incorporates more means testing and fixes the procedure based system which encourages bad health care practice, also an approach to deal with excessive heroic intervention costs at end of life). Also, as in Social Security below, define end runs to provide income with out calling it income, as being subject to the 1.3% tax.

Changes in Social Security -- eliminate the cut off at $110K salary, define end runs to provide income without calling it income -- stock share deals and the like) as income subject to Social Security. Tweak the age eligibility upward.

Cuts in some of the agricultural subsidies (such as ethanol).

Cuts in corporate subsidies

On the revenue side -- simplify the code for sure -- but in so doing, make sure the burden shifts somewhat to the very wealthy (perhaps by capping the lower capital gains rate to a certain number, above which it is treated as regular income).


What I won't mention here is regulatory changes -- *that* is off topic.



"What we need is comprehensive tax reform, but it is not truly the subject of this thread. I am working on a proposal along these lines, and I will start a new thread (to see what you all think about it) on it when it is ready.."

Adam Smith said "Every tax", while the discussion leading up to that comment may have been a "poll" tax, the comment cannot be constrained by the context.

Similarly, the context of the support for progressive taxation may have been property/rent taxes, as I read it the final sentence of that paragraph is one of principal in support of a specific case.

Batman wrote:

Sorry Robin, generalizations do not need context.

As for using 2011 as a baseline for tax levels, as you've already researched in another thread, government income as a proportion of GDP was lover in 2009 and 2010 than at any time since 1950. It seems likely that 2011 did not see a major change, thus it seems an odd choice to use as a baseline. The average value of receipts as a percentage of GDP for 1951 to 2010 is 17.9, 2011 is estimated as being 14.4. Outlays over the same period have average 20%, in 2011 it's estimated to be 25.3. Clearly outlays have to be reduced, though to me it's just as clear that receipts have to be increased.

Average receipts / outlays
1951 to 1960: 17.53% / 17.81%
1961 to 1970: 17.98% / 18.79%
1971 to 1980: 17.91% / 20.30%
1981 to 1990: 18.81% / 22.23%
1991 to 2000: 18.75% / 20.29%
2001 to 2010: 17.07% / 20.57%

Growth in GDP:
1951 to 1960: 62.05%
1961 to 1970: 91.11%
1971 to 1980: 152.24%
1981 to 1990: 87.59%
1991 to 2000: 65.60%
2001 to 2010: 41.89%

From the above there does not appear to me to be a clear inverse correlation between tax burden and growth, indeed it seems that there's a "sweet spot" around 18% receipts, with a sharp drop off in growth as receipts are reduced.

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I think you'll find it's a bit more complicated than that ...

One of the factors here -- in a severe recession, like the one we've had over the past 4 years, revenue declines fairly quickly -- stock prices drop so capital gains receipts plummet, corporate taxes drop as they can show a lack of profit (especially with carry-over tax handling), and personal income tax receipts drop.

The effect there is that revenue drops off.

From the above there does not appear to me to be a clear inverse correlation between tax burden and growth, indeed it seems that there's a "sweet spot" around 18% receipts, with a sharp drop off in growth as receipts are reduced.

But I'll also say there were some people who lived during and after the 1929 stock market crash and they didn't even notice it other than it being reported in the newspapers.

Why I suspect that most Japanese didn't really notice a thing. Just so you can have one statement right. (You should read why that is true, it will make your blood boil!)

Guy, my frustration with you is that you are unable to stay on topic. Start a Guy Navarro talk radio thread.

What about here and now? Is the USA Bankrupt? Is the gridlock so much that the House and Senate will watch DC burn?

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