Debt Ceiling Talks Collapse

JT, they're doing it again. Scare the old people and the poor into submission, then they can do what they want because they just saved our bacon. Well hopefully their slight of hand won't work this time, we need to get them out. Keep writing and prodding and maybe enough will wake up and kick the bums out. Very timely and good,

Peter

325 million in raises when the average person can't afford food? I doubt Congress will leave but the best I can do is let the public know how much off the debt is actually caused by Congresses salaries.

Thanks for your support Peter. I appreciate it along with your reading, commenting and posting.

All My Best,

JT

China's holding of U.S. debt constitutes only 7%...a minimal concern.. The overwhelming proportion of our debt is held by American creditors...they lose if we default...it won't happen.

Secondly, many people put forward the idea that, since China holds so much U.S. debt, that they have power over the U.S..

Rather, they hold so much of our currency that if we go down, they go down...in turn, we actually control them.

We become too big to fail....and we get bailed out as a nation..

There is still time to get the agreement done....but the GOP has to be willing to tolerate tax increases..

http://www.google.com/imgres?q=how+much+us+debt+do...//www.ritholtz.com/blog/2011/03/who-does-the-us-owe-money-to/&docid=WUefswFE9NcyZM&w=915&h=663&ei=L0QqTuTKPImosQOtqsDgCg&zoom=1&iact=rc&dur=62&page=1&tbnh=107&tbnw=148&start=0&ndsp=22&ved=1t:429,r:0,s:0&tx=45&ty=28

This points to a slightly higher percent than I have read about...I will be looking for more sources..

The GOP will have to tolerate a return to pre-Bush tax levels... There is no choice in that matter... It is just sad that they are putting so much stress on our system and our society to back a failed financial strategy.. The tax cuts didn't stimulate job expansion during the entire Bush administration...

Why so few in the GOP (I am one of those few) recognize this gross error I don't know...

Thanks for the link. I have read about higher rates than even described here.

I don't think we can blame one party here but a systemmatic failure on behalf of both parties in Congress.

I recognize it was haired brained scheme from the lack of weapons of mass destruction to tax cuts for the wealthy during an unfunded war. I don't think you have an argument form anyone outside of an election cycle. The question is will Congress pull itself together and do their over proced well funded jobs?

Because if they don't then all of them and that includes Democrats and Republicans need to be kicked out of office. All the Bums need to be Thrown out to send a strong message to Congress that we will no longer tolerate them acting ouot of their own self interests.

Thanks for following. I am following you as well.

JT

Hi JT,

You say Congressional salaries are estimated at $6.5 billion. 535 Congressmen, at $200,000 each, is about $100 million, before fringes.

I don't think it can be taken as a given that hitting the budget ceiling will unequivocally result in a credit rating drop, higher FIT rates, or a cutoff of SS/Medicare benefits. Although Congress will hate it, they have the option of reducing discretionary spending (pork) instead. The reality that not having some kind of deal in place and cutting anything to stay under the limit will anger somebody (the recipient who for a while isn't a recipient), but this is the price Congress pays for not having the guts to make a serious long term decision about operating spending, the tax base, and entitlement formulas.

I view the odds of defaulting on the official debt as very low (in the immediate present at least). Even the Congress, with their limited intellect, knows the dollar would sink like an anchor, and a depression would result (business couldn't import raw materials and other production inputs that are not available domestically, and would have to close shop en masse).

Actually, I don't blame DC insiders for the mess we're in as much as I blame we the people. We wanted for so long to live above our means on borrowed money. The problem now is the corpus has become so high, we can't continue down the same path. We must liquify (pay off) the existing debt; that means smaller government, lower entitlements, and a broader tax base.

The scariest thing here is that Congress may not implement real reform until the crisis becomes so large it can't be fixed.

Stu

JT - the dept ceiling issue is just an arena for political powerplay. Of course the US cannot go bankrupt. But the cost for maintaining its current economic status will rise if no agreement is reached.

In the discussion about foreign involvement in treasuries this link may help:http://www.treasury.gov/resource-center/data-chart...

If you look carefully you will notice that China did not increase its involvement, while the total jumped from 4.000 Billion in Mid 2010 to 4.500 Billion in Mid 2011. Actually what happened is that while the chinese GDP increased by 10%, the current trade surplus towards the US is no more financed by the Chinese themselves. It is the finance hubs of the world (UK, carribean, Wallstreet...) who got deeper into the mess.

So if the dept ceiling busts and a shock of mistrust hits the world of borrowers and lenders, it will definitely hit the financing infrastructure of the world. This will have impact on Wallstreet and so at the end of bargaining and political muscle show, the dept ceiling will be raised.

Discussion about generous public spending for political mandates only reveals the mindset of politicians. It does not solve the economic crisis.

Chris

Hi JT,

Your math doesn't make sense. How do 5% raises double salaries in six years (Bachmann)?

Can you tell me more about the bonuses? How are these determined?

A reasonably priced currency is good for any country. But a severely beaten currency is a death trap. Sure, your exports are cheap, but unless you can build things mainly with domestically sourced inputs, you have nothing to export. The absence of drilling permits means we must import most of our raw materials (from South America and Africa), and most intermediate production goods must be sourced from Asia (because of the decline of our midwest industrial belt). A great deal of American production is final assembly, with the aggregator perhaps making only one part (e.g., Boeing makes fuselages, but buys just about everything else that goes in the planes).

You are right that pork and entitlements are not the same thing. Pork is unnecessary federal spending to buy votes. Entitlements in some, but not all, cases are funded by beneficiaries, but they are never fully funded by beneficiaries (i.e., there's always a big general fund subsidy). I appreciate that phasing out SS/Medicare will result in some people getting less than the value of what they paid in, but our national survival is at stake. More than 2/3 of the $90 trillion of off balance sheet debt goes to cover the accrued liabilities of the big federal entitlement programs. By phasing out the benefits, much of the special issue treasuries that back them can be ripped up. The simple point here is that it will take EXCRUCIATING fiscal austerity just to pay off the official investor owned debt of $15 trillion (an annual positive swing in the current account of $2.5 trillion for 30 years to cover principal and interest). The off balance sheet debt cannot be paid by any means. It MUST be mostly abrogated, or we will collapse financially. This is not "conservative meanness;" this is fact.

I see no evidence that Congress consciously wants to sink the dollar, but I admit that Federal Reserve policy could inadvertantly have that effect. Bernanke printed almost $3 trillion in fiat money in FY 2012 to retire T-bonds for the purpose of providing stimulus (more lendable cash in the economy). It didn't work. Willing borrowers were few, and banks were able to make more money buying depressed corporate bonds on the aftermarket than making new home loans. If the Federal Reserve keeps this up, we will not only have a falling dollar, but we will also have rising interest rates and inflation. $3 trillion is 20% of GNP; you can't keep doing this without ultimately stoking inflation, and the fear of inflation (high interest rates).

You could pay Congress nothing, and raise marginal rates on the wealthy to 75%, and it wouldn't matter a hill of beans. I admit that initially it would pull in a few hundred billion per year in extra revenues (remember from above, we need a $2.5 TRILLION annual swing), but keep in mind that the wealthy provide alot of the jobs we need (businesses that report income on Schedule C or K). If you make ROI's too small, private businesses will close down en masse, extract their tangible equity, and invest their money in securities (stocks, bonds) instead of job producing businesses. The ultimate effect would be much higher unemployment, and much lower federal revenue from wages. This strategy, over time, would make the debt larger, not smaller.

The flat sales tax is more fair than the progressive FIT. Since use of government services does not vary with income, the only truly fair tax is a flat-dollar poll tax. But too many people couldn't pay it. A flat percentage consumption tax is a compromise - it's more fair than the FIT, and it also prevents people from paying no tax (no loopholes, shelters, etc.). Also, most important, it does not depress business ROI's like the FIT does. That means more business investment, and thus more jobs. Finally, progressive taxes are illegal (the Constitution forbids them).

The government is certainly to blame for the housing bubble - Greenspan kept interest rates so low that you could borrow money almost for free and speculate on any hard asset you wanted. This drove housing prices way up (massive demand for new homes by developers building on speculation using borrowed money). But the blame for overpaying by and overlending to ultimate residents lies with the ultimate home buyers and the banks, especially in cases where banks issued ARM's to let people get in over their head with low initial teaser rates, and later the borrowers had to default when the resets occured. It was a classic case of mania based on the assumption that house prices would increase forever, and the economy would stay so strong that no loan underwriting was necessary. Essentially, what happened in 2008 was a repeat of the same errors committed during the S&L crisis of the mid 80's (terrible loan underwriting, and non-enforcement of capital structure regulations).

Stu

Hi JT,

I've paid into SS for over 30 years. Under my own phaseout proposal, I would get nothing, not even a return of my FICA taxes.

I agree the under-taxation of the wealthy is atrocious. Many of these people pay no taxes at all due to loopholes. This is one of the reasons I like the consumption tax; everybody pays something.

The S&L crisis, just like the 2008 commercial bank collapse, was caused more than anything else by two major factors: lax underwriting, and failure to enforce capital risk rules. Yes, each had some unique nuances, but these were the big issues.

On government services you're making my point for me. The federal government rules more than it provides services. And whatever services it does provide do not generally vary with income. Thus the progressive income tax is not equitable. Flat taxes ARE fair, for the reason just explained. Don't confuse equity with "social engineering."

Wealthy people and corporations DO create jobs, and they would create them in America, if Congress would stop letting them offshore our jobs. You could fix this problem in two seconds flat. Countries like China with 35 cent per hour labor demand export protection in exchange for letting us set up shop there. They impose import tariffs on our exports, but demand that we not impose retaliatory tariffs. Our corporations spend BILLIONS on "campaign contributions (bribes) to get this special treatment. If Congress was forced by law to erect retaliatory tariffs in all instances, we would be kicked out of China, India, etc. faster than you could blink. Our jobs would return home.

I'm not aware of any time I've attacked you, but of course I've attacked Obama vehemently, and will continue to do so until his sorry ass is tarred, feathered, and kicked out of town. He is a transnational socialist, he's wrecked every strategic alliance we ever had (except with the UK), he violates the Constitution with abandon, and serially breaches affirmative duty. He is a traitor, and should be impeached.

I've never torn up Muslims; I've spoken stridently against radical Islam, and I will continue to do so. It is not a religion, but is a political ideology based on inflitration, terror, domination, and genocide.

Stu

JT,

There IS equitable taxation - a flat poll tax. The problem is most people would have to take pauper's oaths, and the system would collapse. The VAT or national sales tax is a compromise. More equitable than the FIT, everybody pays something, and it's feasible (it won't fall apart).

Wealthy corporations aren't supposed to be represented? How come? They are owned by PEOPLE (the shareholders), WHO HAVE RIGHTS.

I agree business is about making money. I don't blame the corporations for bribing Congress to get the special tariff treatment, as corporate managers owe fiduciary duty to their shareowners to maximize profits. I blame Congress for accepting the bribes. There is no actual crime here as the "bribes" are just campaign contributions.

I could write a book on Obama's traitorous activities; way too much to discuss here. But in very short summary format, he's ripping our Constitutional Republic to shreds and replacing it with socialism. What do you think about the unconstitutional Appointments Act? Obama is trying to (substantively) alter the Constitution WITHOUT ratification by the states. Obama is a criminal.

Centrists are the last thing we need; they are the ones playing Texas Two Step with the Democrats, and solving nothing. We need a solid TPM president with strong centrist support in the population (so Congress can be bullied by a budget hawk POTUS into fixing the debt problem for real).

Stu

Hi JT,

A 20% end use sales tax (the amount necessary to pay off the official national debt over 30 years, assuming we also get $1.5 trillion in annual reduction in federal operating expenses) is not as onerous as it appears. Remember that not only would there be no personal income tax, but business income taxes would also vanish (meaning the cost of business FIT would not be built into product and service prices). The cost of end use goods and services would not rise by a full 20%, and consumers would have more money in thier wallets.

Corporations are not owned by the government. It's more accurate to say that corporations influence government (via campaign contributions), and government sometimes illegally influences business ("corporatism", the socialist concept of forcing corporations to comport their activities to the attainment of national goals).

GWB was anti-constitutional in military matters; Obama is anti-constitutional in everything.

In a sense, "radicals" are just what we need now. RINO's will only block the Obama agenda. Only true conservatives will roll it back.

Trashing the TPM and its platform over one issue (Congressional raises) makes no sense. It's like holding Romney's mistake on MA HC against him forever. While I'm no Romney fan by any means, I look at the whole picture, not a single error.

You are right that fiscal hawks do not get elected, because we the people are so addicted to goodies we can't afford. Our solution is to elect politicians who will borrow from the future. We need to wake up, hunker down, and pay off the debt, or there won't be a future.

Stu

Hi JT,

You are correct that a 20% VAT or end use sales tax, in place of the FIT, would do more than just raise total federal revenues. The poor, and wealthy tax dodgers, would take a hit. The middle class, and many of the honest wealthy, would see a reduction. The issue is that too much of the tax base (currently income) simply escapes taxation via shelters, loopholes, and outright cheating. We need a system without loopholes, and one that minimizes cheating, so ALL of the tax base is actually taxed. The obvious impliction is that those now paying little or no taxes will bear a disproportionate share of the tax increase. How could it be otherwise if the goal is to ensure that all taxable activity is actually taxed?

FISA was of course related to military issues, but certain aspects of it are unconstitutional (such as permitting surveillance without a court order). I doubt FISA is so riddled with unconstitutional aspects that it is non-severable, but the unconstitutional portions should be stricken by Congress or the courts. FISA, sadly, is a blueprint on which the blatantly unconstitutional Patriot Act is modeled (the Patriot Act is something akin to FISA on steroids).

Speaking of radicals, who could be moreso that Obama and his Czars? The Net Neutrality Regulation (violates the Tenth Amendment), The Patriot Act (which Obama extended, and violates four Amendments in the Bill of Rights), The UN Small Arms Treaty (violates the DOI and Second Amendment), The AG Firearms Restriction Bill (violates the DOI, and four Amendments in the Bill of Rights), The Appointments Bill (violates the Appointments Clause of the Constitution), The Disclose Bill (violates the First Amendment), The Internet ID Bill (violates the Tenth Amendment), The Internet Kill Switch Regulation (violates the Tenth Amendment), Failure to secure our southern border and expel illegal aliens (breach of affirmative duty), Stated promise not to enforce DOMA (breach of affirmative duty), The "First-to-File" Patent Bill (violates the Patent Clause in Article I of the Constitution), The Federal HC Plan (violates the Tenth Amendment, Senate Cloture Rules, and the House's constitutional sole discretion in originating bills to raise taxes), Waging war in Lybia without Congressional consent (violates the War Powers Act), Exempting Interpol from FOIA requests (violates the "confrontation" clause of the Bill of Rights), The Governor's Conference Executive Order (violates the federal posse comitatus law), Pressuring immigraton courts to drop valid deportation cases (violates horizontal separation of powers, Articles I-III of the Constitution), etc. Please bear in mind that this is a TINY SAMPLING of illegal bills and executive orders coming straight from Obama's desk (the real number may be in the hundreds or even thousands). I appreciate that some of the above legal abuses have been killed by Congress, but this in no means exonerates Obama. The point is that he serially violates the Constitution and federal code, and breaches affirmative duty whenever he doesn't "like" a law.

Regarding the GOP primary candidates, I can support Bachmann, Paul, and Cain. The others are RINO's or flip-floppers (if any of them won the primary, I would vote for them in the general election just to help keep Obama from getting a second term). Paul is a libertarian, and is probably the ultimate "anti-Obama." Obama steals power from the states and people, and hands it to the feds. I have a fear Paul will steal power from the states and feds, and hand it to the people. Power stealing is wrong no matter which direction it goes in. Cain is a solid conservative, and I believe he would stick to his campaign promises. The problem is that he is well known only in right wing circles, and will receive no special interest money in the general election (because being TPM he does not want to sell his office). That puts him in the impossible position of having to raise hundreds of millions of dollars for ad money in the general election, when 65% of the voters barely know who he is. The reality is that no matter how good Cain's platform is (and it is good), financial considerations will make it virtually impossible for him to beat Obama. Bachmann's platform is similar to Cain's. But Bachmann has the HUGE advantage of natinonal name recognition. With good campaigning, she can attract centrist contributions at a grassroots level, in addition to those from her right wing base (namely, centrists who are upset with Obama about jobs). She will not be able to match Obama dollar-for-dollar (since Obama will be getting hundreds of millions from unions, the LGBT and abortion lobbies, corporations, etc., none of which Michele will get), but she doesn't have to. If she can at least raise a credible amount of money (say, $500 million), and match Obama 50% on campaign spending, she can beat him by having a better message.

As I've said many times, I believe it is imperative that federal revenues be increased, since fedreal spending reductions alone cannot result in actual debt liquification, but only lower deficits (i.e., slower buildup of debt, but not debt reduction). I am strongly in favor of higher federal tax dollars, just not higher federal tax rates. We need a tax system that does not punish business investment that sustains and creates jobs, and one that recognizes, to the greatest extent fesaible, that use of federal services does not rise with personal income. This is why I support repealing the FIT and replacing it with a VAT or end consumer sales tax.

Stu

Hi JT,

It isn't cruelty. We have a crisis. The government budget is not big enough to achieve debt liquidation via spending cuts alone. We can only resolve the debt crisis via a combination of spending cuts and more tax revenue. And the only place to get more tax revenue is from the portion of the tax base paying little or no tax. That means the poor, and those among the wealthy that are heavy users of loopholes and shelters. It's just math.

Suing under the FOIA for lawsuit purposes is one thing. But using Interpol testimony in a criminal trial, without having access to the documents on which their verbal testimony is based, denies the accused his/her Constitutional right of confrontation of accusers (the Sixth Amendment).

We are not in disagreement on FISA. As I stated, certain, but not all, portions of FISA are not Constitutional.

The LGBT Lobby is strongly in favor of Obama. Obama did fight hard to repeal DADT, and if I recall correctly, it was repealed, possibly with implementation pending final review by the Joint Chiefs.

Both Bachmann and Cain have excellent chances at the primary level. Cain has no chance of beating Obama because Cain can't raise enough money (he's unknown to centrists). A Bachmann/Obama contest, for centrists, will be a choice between the lesser of two evils: are you madder at Obama about jobs, or too scared to vote for Bachmann? I think a Bachmann/Obama contest will be a real squeaker. Bachmann will pick up the 35% right wing block, and Obama will get the 25% who are left wing. The 40% in the center will decide the outcome. Unlike Cain, Bachmann is well known enough within the center to raise money from them, but how she campaigns will determine whether or not enough of the center supports her.

Stu

JT,

Under a VAT or national sales tax, everyone will pay tax, because suppliers/retailers will mark-up prices and pay it for them. This is the whole point. If we want to avoid job killing increases in FIT rates, the only option is to increase the tax base (by ending loopholes and cheating). We need a tax system where NONE of the tax base escapes taxation. This way the RATE can be kept reasonable, and still result in national debt reduction (as long as we also have a roughly 40% reduction in federal operating expenses).

You're missing my point on FOIA. I know FOIA requests are routinely stonewalled. Most of these requests are in connection with press or advocacy group activities to uncover corruption. The FOIA issue with Interpol is different. A rule was enacted which permits Interpol operatives to testify for the prosecution (the US AG's office) in criminal cases and reference Interpol documents damaging to the defense, without having to actually produce the documents and have them admitted as evidence. This prevents the defense from having the ability to confront and cross-examine the damaging testimony, in violation of the Sixth Amendment.

I agree Cain has little chance of beating Obama due to name recognition among centrists and resultant funding issues. I still think Bachmann/Obama would be a close race. Obama will raise more money, Bachmann won't have the jobs issue as a liability, both will be unappealing to the center, and Bachmann will have a larger core voting base. Bottom line: if Bachmann can capture about 40% of the center, she can win.

Stu

Hi JT,

A VAT or end use sales tax will not cause inflation or a depression. Yes, consumer prices will take a one time hit. But don't forget that all income taxes go away, and the other part of my plan is greatly reduced federal operating spending, so the private sector is less "crowded out." Federal workers would take a gigantic hit in jobs and compensation level, but private citizens, though paying more tax in total, would see a mix of effects (some would pay more tax than they do now, some would pay less).

The Constitution IS almost dead. That's why the TPM came into being - we want to resurrect it. While GWB was unconstitutional in matters relating to Iraq, federal decisions in all three branches have been eroding the Constitution ever since the beginning of the industrial revolution 120 years ago. Bush was a bit player in this. The big offenders were FDR, Wilson, Clinton, and Obama. We definitely can force the feds to return stolen powers to the states and the people. If we cap federal spending at a MUCH lower percentage of GNP than it's currently running, the "regulatory state" will have to be dismantled (i.e., agencies that don't perform duties Constitutionally mandated to the federal government will have to be defunded en masse, and their regulations vacated, because there will be nobody to enforce them).

Bachmann is disliked by the GOP, which is one of her most desirable qualities (she's not an establishment RINO who will sell us out for special interest money or votes). I agree she will have a tough time with the center, but so will Obama (due to the jobs recession). And the right wing voting base is 35% of the electorate, compared to 25% for the left wing. All these factors, put together, mean Bachmann has a chance. Romney would be a disaster. Not that he would necessarily do anything bad, but he doesn't have the fire in the belly to roll back progressivism; the most he'll do is prevent it from expanding. Further, Romney is a flip-flopper (he'll say/do anything for money and votes), and is in the hip-pocket of the big banks (i.e., he may press for poor financial regulation in exchange for the millions they are donating to his campaign).

I assure you the TPM is not going to go away. I think it will grow in numbers at the grassroots level, and saturate Congress by an incremental 3-5% per election at minimum. To be factual, there are thousands of TPM groups, and some supported CCB, some didn't. Those that didn't simply felt that CCB didn't go far enough (because it permits a short term increase in the debt ceiling). I myself view CCB as a necessary evil if we can't get anything better, but would prefer debt reduction immediately. How did the TPM "make a mockery of the election process?" Look at 2010 - all the election fraud and intimidation was committed by liberals.

I agree taxes will and must go up. I just don't want punitive rates imposed, because it would kill more jobs, and possibly work effort too. As I keep saying, we need to bolster the tax base, so the feds collect alot more money, but the tax rate can be kept reasonable. Soaking the corporations and the wealthy is the dumbest thing we could do. It would just mean more offshoring of business investment, and thus jobs. We need to make the US business-friendly again: reasonable taxes, elimination of unnecessary regulation, elimination of tariffs that favor other country's exports at the expense of our own, etc.

The truth is that both parties are playing a "stunt" with the debt ceiling. Both parties want to look like they are "doing something," so they submit bills they know the other party will reject. The reality is that both the GOP and the Democrats are terrified of real spending cuts, entitlement reform, and increasing revenue. Fiscal austerity hurts the voters, and makes getting reelected harder. But we have to do it, or financially collapse.

Stu