Perusing yesterday's Financial Times, the news was anything but heartening, but we already knew that anyway, at least those of us who have some modicum of macro-economics exposure under our belt, whether self taught or other. But even devoid of this exposure, it doesn't take much common sense to comprehend that if a family - even a national family - extends its credit to monumental debt levels without paying off that debt, then it's asking for trouble. It will have to borrow much more to keep its spree going, and its interest rate will be rising all the time.
Does anyone reading this grasp what an interest payment of ONE TRILLION BUCKS a year would look like? Try to process that! That amount of interest, to be paid after this tax package passes (as it inevitably will, when the House of Representatives caves after some last minute posturing) is enough to pay for replacing nearly half of the country's crumbling infrastructure. It's also enough to extend the life of Social Security for five years, and Medicare for 7. But hey, who's counting? Who's even watching?
Well, the bond markets are - and they aren't very pleased! Recall earlier I blogged on the trepidations faced by Greece, Spain, and even Barbados as their (sovereign) debts increased relative to their GDP:
http://brane-space.blogspot.com/2010/05/will-barbados-fall-to-sovereign-debt.html
Now, the U.S. - after the likely passage of this tax package- is being put on warning (even as today's Financial Times reports that Moody's is set to downgrade Spain's bond rating from AAA to lower).
A story appearing yesterday ('Deficit Worries Put Dollar in Spotlight') referenced "a warning from rating agency Moody that the new U.S. fiscal package had increased the risk that the country's triple-A rating could be put on negative watch in the next two years".
That means that, thanks to the extension of these Bush zombie tax cuts, the nation's credit worthiness may be put at risk - as both Greece and Spain's were earlier. Perhaps many don't recall that as a condition for Greece to get further loans to keep its government running - it had to enact massive austerity measures (mostly firing tens of thousands of government workers, cutting pensions etc.) which led to rioting in the streets of Athens for weeks. Does anyone with two brain cells to rub together believe the same couldn't happen here? (Despite the fact, assorted soothsayers keep insisting it can't or won't since the U.S. still hold the world's numero uno reserve currency: the dollar. But with quantitative easing (ii) likely to push down dollar value even more, how much longer do realists think that will last?)
Meanwhile, the Chinese are allowed to manipulate their remnimbi at will to gain export leverage, and the U.S. can't say or do diddly or squat. How can it when the Chinese now own nearly $1 trillion of U.S. debt and are set to buy up another $500 billion or so to finance this tax cut? Where do dumbass Americans think or believe the money to finance their tax cuts comes from? Do they think it just grows on the Apple Blossom trees in D.C.? NO - it has to be borrowed, and that means from the world's current creditor nations (meaning those who've reaped the most in financial terms either by hocking their wares to other nations, like China, or selling their chief commodity -oil - like the Saudis).
And then, to pay this money back - again - where do dumbass Americans think the money will come from? It will likely come (under pressure from the bond markets) from massive austerity cutbacks - like slicing into Medicare, Medicaid, Social Security and even VA benefits. Is THIS what they really want? Do they really really need that pissant $1,500 extra or so a year (for a $65,000 earning couple) in exchange for future Social Security - when they likely can no longer work (or won't be hired because the corporate world has determined all those over 55 are no longer productive)?
And let's not even get into that other wretched aspect of this tax package which is to cut the payroll tax (which funds Social Security) by two percent, for two years. Absolutely BRILLIANTE move! Just as the program is about to welcome 44 million baby boomers over ten plus years, and is already paying out more than it's taking in, the geniuses in D.C. decide to cut its funding!
The rationale for this idiotically myopic move? It will put a few more extra bucks in people's pockets. How much? Let's look at a WalMart worker, earning about $650 gross every two weeks. That 2% cut in his or her payroll taxes will put an extra $26 in the wallet per month. Is that worth it? Some may bleat out 'Sure' - if it means buying an extra half week's worth of cheaper groceries. But....would it still be worth it if the downstream cost is a reduction in the Social Security cost of living allowance, when you can no longer work? Think about that!
In addition, just a one-year such "payroll tax holiday" will set up the need to borrow $112 billion next year or the year after to right the lessened Social Security finances to pay out needed benefits to all those retiring boomers. Where is that money to be borrowed from? Oh right, the Chinese! Just great - the Chinese now subsidizing our major retirement income as opposed to payroll taxes. My dad would be turning over in his grave to hear that!
The last aspect of this whole clownish, foolish rigamarole is the belief that these tax cuts will somehow bring back jobs. This is a myth because the tax cuts that work for job growth are, paradoxically, those for business which leave profits alone. But in the business world, profits grow most when labor costs are least - which means the incentive is always present to downsize more than expand! Paradoxically also, the biggest bang for the buck would have been to pump the DEMAND side to feed money into the economy by extending the unemployment benefits to TWO full years, and including the currently excluded "99ers" as part of that package.
Now, this total would have cost about $120 billion for sure, but still significantly less than the $140 billion awarded the wealthiest 2% in Bush extended tax cuts - who will use the money mainly for hedge fund speculation, buying diamonds and new yachts. A total wasteful addition to the national debt that: a) won't solve the unemployment problem and b) will push up the deficit to a point that austerity measures will likely be bruited about. (Obama, it is reported, is likely to make proposals for Social Security "changes" in his State of the Union address next month - with some of them heralding from his "Deficit Commission". )
One thing for sure, the next two years will be very interesting. Obama swears he won't allow another Bush tax cut extension in '12, but sober minds don't see how he can possibly refuse in a high-octane election year. If he couldn't win the rhetoric battle to keep only the middle class cuts now, how can he win it then without being taken "hostage" once more? If one capitulates when the pressure is only moderate (and one has a lame duck majority in both houses of congress), there's no way you won't capitulate when it's at the blood vessel rupture level - with only a tenuous hold on the Senate.
As for jobs, the economists I heard this morning on Joe Scarborough, agreed that 2011 will be another so-so year, with not enough growth to drive jobs, because the banks still won't be lending. (Well, duh! They still have hundreds of billions of dollars worth of credit default swaps on their books).
Meanwhile, Financial Times' columnist John Plender writes in his column yesterday (p. 22):
"If the politicians fail to put together a credible strategy to reduce the debt, there will be in the end a day of reckoning. The positive side of the story is the U.S. is buying time for both itself and the rest of the world to rebalance unbalanced economies.
Yet it does so at a longer term cost to its own credibility as manager of the world main reserve currency"
Dumbya Bush (maybe not so dumb after all) must be laughing his ass off at the confusion and consternation he's caused with his tax cuts, as well as their likely downstream costs. But even he probably couldn't have imagined those costs would be dramatically magnified by including the effective dismantling of Social Security (via payroll tax cuts ) which he was never able to do via privatization.
Does anyone reading this grasp what an interest payment of ONE TRILLION BUCKS a year would look like? Try to process that! That amount of interest, to be paid after this tax package passes (as it inevitably will, when the House of Representatives caves after some last minute posturing) is enough to pay for replacing nearly half of the country's crumbling infrastructure. It's also enough to extend the life of Social Security for five years, and Medicare for 7. But hey, who's counting? Who's even watching?
Well, the bond markets are - and they aren't very pleased! Recall earlier I blogged on the trepidations faced by Greece, Spain, and even Barbados as their (sovereign) debts increased relative to their GDP:
http://brane-space.blogspot.com/2010/05/will-barbados-fall-to-sovereign-debt.html
Now, the U.S. - after the likely passage of this tax package- is being put on warning (even as today's Financial Times reports that Moody's is set to downgrade Spain's bond rating from AAA to lower).
A story appearing yesterday ('Deficit Worries Put Dollar in Spotlight') referenced "a warning from rating agency Moody that the new U.S. fiscal package had increased the risk that the country's triple-A rating could be put on negative watch in the next two years".
That means that, thanks to the extension of these Bush zombie tax cuts, the nation's credit worthiness may be put at risk - as both Greece and Spain's were earlier. Perhaps many don't recall that as a condition for Greece to get further loans to keep its government running - it had to enact massive austerity measures (mostly firing tens of thousands of government workers, cutting pensions etc.) which led to rioting in the streets of Athens for weeks. Does anyone with two brain cells to rub together believe the same couldn't happen here? (Despite the fact, assorted soothsayers keep insisting it can't or won't since the U.S. still hold the world's numero uno reserve currency: the dollar. But with quantitative easing (ii) likely to push down dollar value even more, how much longer do realists think that will last?)
Meanwhile, the Chinese are allowed to manipulate their remnimbi at will to gain export leverage, and the U.S. can't say or do diddly or squat. How can it when the Chinese now own nearly $1 trillion of U.S. debt and are set to buy up another $500 billion or so to finance this tax cut? Where do dumbass Americans think or believe the money to finance their tax cuts comes from? Do they think it just grows on the Apple Blossom trees in D.C.? NO - it has to be borrowed, and that means from the world's current creditor nations (meaning those who've reaped the most in financial terms either by hocking their wares to other nations, like China, or selling their chief commodity -oil - like the Saudis).
And then, to pay this money back - again - where do dumbass Americans think the money will come from? It will likely come (under pressure from the bond markets) from massive austerity cutbacks - like slicing into Medicare, Medicaid, Social Security and even VA benefits. Is THIS what they really want? Do they really really need that pissant $1,500 extra or so a year (for a $65,000 earning couple) in exchange for future Social Security - when they likely can no longer work (or won't be hired because the corporate world has determined all those over 55 are no longer productive)?
And let's not even get into that other wretched aspect of this tax package which is to cut the payroll tax (which funds Social Security) by two percent, for two years. Absolutely BRILLIANTE move! Just as the program is about to welcome 44 million baby boomers over ten plus years, and is already paying out more than it's taking in, the geniuses in D.C. decide to cut its funding!
The rationale for this idiotically myopic move? It will put a few more extra bucks in people's pockets. How much? Let's look at a WalMart worker, earning about $650 gross every two weeks. That 2% cut in his or her payroll taxes will put an extra $26 in the wallet per month. Is that worth it? Some may bleat out 'Sure' - if it means buying an extra half week's worth of cheaper groceries. But....would it still be worth it if the downstream cost is a reduction in the Social Security cost of living allowance, when you can no longer work? Think about that!
In addition, just a one-year such "payroll tax holiday" will set up the need to borrow $112 billion next year or the year after to right the lessened Social Security finances to pay out needed benefits to all those retiring boomers. Where is that money to be borrowed from? Oh right, the Chinese! Just great - the Chinese now subsidizing our major retirement income as opposed to payroll taxes. My dad would be turning over in his grave to hear that!
The last aspect of this whole clownish, foolish rigamarole is the belief that these tax cuts will somehow bring back jobs. This is a myth because the tax cuts that work for job growth are, paradoxically, those for business which leave profits alone. But in the business world, profits grow most when labor costs are least - which means the incentive is always present to downsize more than expand! Paradoxically also, the biggest bang for the buck would have been to pump the DEMAND side to feed money into the economy by extending the unemployment benefits to TWO full years, and including the currently excluded "99ers" as part of that package.
Now, this total would have cost about $120 billion for sure, but still significantly less than the $140 billion awarded the wealthiest 2% in Bush extended tax cuts - who will use the money mainly for hedge fund speculation, buying diamonds and new yachts. A total wasteful addition to the national debt that: a) won't solve the unemployment problem and b) will push up the deficit to a point that austerity measures will likely be bruited about. (Obama, it is reported, is likely to make proposals for Social Security "changes" in his State of the Union address next month - with some of them heralding from his "Deficit Commission". )
One thing for sure, the next two years will be very interesting. Obama swears he won't allow another Bush tax cut extension in '12, but sober minds don't see how he can possibly refuse in a high-octane election year. If he couldn't win the rhetoric battle to keep only the middle class cuts now, how can he win it then without being taken "hostage" once more? If one capitulates when the pressure is only moderate (and one has a lame duck majority in both houses of congress), there's no way you won't capitulate when it's at the blood vessel rupture level - with only a tenuous hold on the Senate.
As for jobs, the economists I heard this morning on Joe Scarborough, agreed that 2011 will be another so-so year, with not enough growth to drive jobs, because the banks still won't be lending. (Well, duh! They still have hundreds of billions of dollars worth of credit default swaps on their books).
Meanwhile, Financial Times' columnist John Plender writes in his column yesterday (p. 22):
"If the politicians fail to put together a credible strategy to reduce the debt, there will be in the end a day of reckoning. The positive side of the story is the U.S. is buying time for both itself and the rest of the world to rebalance unbalanced economies.
Yet it does so at a longer term cost to its own credibility as manager of the world main reserve currency"
Dumbya Bush (maybe not so dumb after all) must be laughing his ass off at the confusion and consternation he's caused with his tax cuts, as well as their likely downstream costs. But even he probably couldn't have imagined those costs would be dramatically magnified by including the effective dismantling of Social Security (via payroll tax cuts ) which he was never able to do via privatization.
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