You’re Cut Off

The debt ceiling crisis is supposedly down to the wire. Instead of the regular drop dead date, we have the super-duper drop dead date. Why is that? Like most things, President Jackass is trying to force Congress to create a solution, sign it and take credit for it. When things go south, he blames it on unforseen (by the media) circumstances, like gross executive incompetence.

Right now, the solution is a pre-budget budget deal. Budget negotiations are tricky because they use CBO scoring. The CBO assumes x amount in revenue and y amount in expenditures and z amount in economic growth. If we listen to Paul Krugman, the debt that is 100% of GDP now will become a lower percentage as growth increases. The debt grew 14% last year. I don’t see a 14% growth rate unless we gear our economy to selling cocaine coated nukes to our enemies.

How about revenue? This is where scoring comes in. The ten years of the Bush tax cuts took approximately $2.4 trillion out of the revenue side. Did we get any growth in the economy to match it? Do we want to end the tax cuts now, when it means approximately 50% higher taxes for the lowest tax bracket? We could restore that 4% increase in the upper tax bracket, but this year it would reduce our deficit from $1.67 trillion to $1.61 trillion.

The spending side is important for one reason. We have to pay about 4.5% in interest on our total debt. If spending were equal to revenue and GDP was 5%, we wouldn’t have to do anything to bring the debt down. Neither will happen anytime soon. We can only slow the rate of increase.

This is why a GDP based balanced budget amendment could work to our long-term benefit. Instead of using projections out to the future, it would rely on the approximate GDP of a budget year and then allocate 19%. This figure is still a little on the high side, but it’s better than the 23% or more of GDP we try to spend now. It would even work for economic downturns like this. Even though we only took in 15% of GDP last year, the ceiling of 19% would mean we could deficit spend by 25%of the total budget to spur growth. Maybe we could even keep the 15% of the budget we spend on debt service.

For decades now, instead of dividing the pie for the budget, we just order more pie and charge it to the next year’s budget. This spending isn’t cured by spending. Washington needs to be cut off.

About 1539days

I'm like a word a day calendar for executive disasters.
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33 Responses to You’re Cut Off

  1. votermom says:

    A balanced budget amendment sounds like a reasonable idea to me in theory, however, what are the possible gotcha’s if any?

    • 1539days says:

      Given enough time, Congress usually finds a way to abuse it.The chief complaint is that any limit of spending is bad if we REALLY REALLY need it. The Republican Balanced Budget Amendment works off something called Hauser’s Law. For the last 80 years or so, federal revenue has landed somewhere between 16% and 20% of GDP. Of course, last year if went considerably lower thanks to the paroll tax holiday to defund Social Security.

      The other argument from the left is that revenue doesn’t have to be locked at 19%. We could just tax the wealthy more and bring the number up. History tends to go against that idea, since federal revenue was still about 19% even when the wealthy were taxed at 91% of income.

      • Three Wickets says:

        Depends how we define wealthy. When the top marginal rate was 91% under Eisenhower, that bracket represented a significantly smaller portion of taxable income than today’s inflation-adjusted income exceeding 250k which is taxed at only 33% (and after deductions probably closer to 25%).

      • Three Wickets says:

        Make no mistake. Lowering tax rates on the wealthy and corporations, which both Obama and the Republicans want to do, will significantly add to the deficit challenge in the short and long term which puts more pressure on Medicare and Social Security.

        • And the SS/Med people spend the money at local stores, keeping the local stores afloat. While the wealthy put their money … elsewhere.

        • Three Wickets says:

          Agree. I think that’s also been somewhat lost in the debate. Immediate cuts to Medicare and Social Security will have the effect of a negative spending stimulus on the economy. Less demand, less consumption.

      • 1539days says:

        This gets us back to the revenue recipe. Tax increases tend to work when they’re new and retroactive. People and corporations make decisions all the time for how much it’s worth to them to pay certain taxes. It may be possible to extract 22-23% of the GDP in revenue, but it hasn’t happened yet.

        The training wheels have to come off sometime. Going back again and again with stimulus is going to have less impact on the economy every time. Half of this country is one some kind of federally funded health care, including Medicare and VA, and it has not been stimulative enough. The interest on the debt is almost as big as TARP or the Obama Stimulus and it’s going straight to the Chinese.

        • Three Wickets says:

          Chinese hold 1 trillion is US treasuries, about 7% of our national debt. The Japanese hold about the same. The vast majority of our government debt is held by our own private sector.

          Fed stimulus/easing to the supply side is not the same as Treasury true stimulus to the demand side. When the private sector withdraws from making investments, the government needs to fill the void with some additional spending, or the economy will contract even more. Businesses today are not investing because they see weakness in consumer demand, not because they are afraid of federal deficits.

        • “The vast majority of our government debt is held by our own private sector.”

          Which means that the vast majority of the interest on the debt is going to the private sector. Iirc Bill Clinton started paying down the Natl Debt so as to cut down those interest payments. One reason why Bush ran it up again, may have been to restore that flow of interest money.

        • 1539days says:

          It’s going to the Chinese. The Japanese won’t be buying debt at the same levels for a while and we have tapped out the debt purchasing ability of federal entities.

          Businesses are seeing weak demand, but they’re not going to be overjoyed by people buying with their unemployment checks. It’s a temporary boost. That’s why the economy picks up and then fails constantly now. My opinion is that things are too good on the supply side with low interest rates. We need to raise interest rates to trigger a last minute borrowing surge by business. Inflation and economic growth go hand in hand, unless you’re President Carter.

        • Three Wickets says:

          Right now our banks and corporations can’t buy US treasuries fast enough, even at these low rates. There is no shortage of investable funds in the private sector, but they are rushing to park their liquid assets in cash, which probably means there is stronger expectation of contraction than growth.

        • “Half of this country is one some kind of federally funded health care, including Medicare and VA, and it has not been stimulative enough. The interest on the debt is almost as big as TARP or the Obama Stimulus and it’s going straight to the Chinese.”

          Huh? If the Chinese own 7% of the debt, then they’re getting 7% of the interest; same for other foreign creditors. If the “vast majority” of the debt is owned by the private sector, that’s where the vast majority of the interest is going.

          Medical costs don’t stimulate the economy like purchases of groceries and clothing do.

  2. OT:

    Greenwood had a good piece on this earlier, which url I think I already posted.

    • votermom says:

      Egregious jumping to conclusion & lack of verification by the media (as usual).

    • DandyTiger says:

      I’m sure the ones who jumped to that conclusion will discuss their errors, apologize, and promise to do better. /snark

    • Pips says:

      Glenn Greenwald has a good post on that and links to this brilliant post How a clueless “terrorism expert” set media suspicion on Muslims after Oslo horror.

      I’ve also noticed how both the media and many bloggers in the US make the killings out to be about religion. Because the killer refers to himself as a Christian? I’m pretty sure that’s mostly ment as “opposed to being a Muslim”. And fantazising about himself as a Templar Knight.

      In fact it’s all about politics. It’s about being against Muslims and the European “culture- marxistic elite”, as he calls it. It’s about being an extreme, radical, right winger. It’s about nationalism.

      It’s also about being a narcissist with a hugely overrated selfesteem. About making as much noise/ destruction that he is certain to be noticed. And … it’s about being a mysogynist. In his Manifesto he even, alledgedly, gives advice to how best to kill women. But no, religion is not a big part of why this guy went on a bombing and killing rampage.

      • Good link, thanks. So much for the Muslim group who supposedly ‘claimed credit.’

        As to Breitvik’s motives, it seems to have been a mix. We can’t eliminate any of the factors. He targeted the Labour party headquarters and their Labour Youth Camp; Norwegian sources say he wanted intended to destroy the future leaders of the party. As to his motive for attacking the Labour party, he disagreed with them on many issues, notably ‘multi-culturism’ and their support for Muslim immigration. He supported Pam Geller’s anti-Islam site and similar.

        I agree that the first reports (mine among them) stressed “Christian” and even “anti-Muslim” as indicating “Not a Muslim himself” to counter the assumption that the shooter/s “must” have been Muslim. But from what’s come out later, it does look like anti-Muslim feeling was a big part of his thinking and planning.

    • Pips says:

      Heh! Didn’t catch that we’re probably referring to the same man and the same good post: You say Greenwood, I say Greenwald. 😉

  3. Mimi says:

    My husband just came home from a weekend in Austin with buddies. He proudly produced his new “Adios, Mofo” tee shirt with Obama’s red striped, rising sun, blue sky insignia in the O’s. I told him he cannot wear something obscene out of the house. He just laughed.

    • Pips says:

      You mean something like this Campaign 2012? 😉

      I actually can’t believe that that logo was ever taken seriously. That someone aspiring to being POTUS would seriously use it … and that he would still be taken seriously by voters. Seriously!

      • Mimi says:

        Yes that’s it. But this one has three of the rising suns. I guess one wasn’t enough.

    • Obscene? I’m sure that ‘mofo’ is just a term for something quite innocent.

      Let’s see….

  4. Three Wickets says:

    Market wants more borrowing, more than they want more austerity.

    • yttik says:

      Yes, but I’m tired of what “the market” wants. The market has gotten a huge bailout and a stimulus and they are now the proud owners of several US Congressmen. : )

      What I want is jobs and the bulk of those are provided by small businesses. What we need to do is relieve people of the uncertainty. Having a Gov that can just keep spending, just keep printing money, is scary and makes people nervous.

      • Three Wickets says:

        Understand and agree. But the federal debt ceiling is a false marker, and the market (for investing) sees that it’s a false marker. Consumption (more than 70% of our economy, including housing) will not snap back overnight, it is still deleveraging. We need more investing from both private and public sectors to help with jobs and spendable income and rebuild the economy for the long run. If all we do is deleverage, the broad economy will keep shrinking.

  5. DeniseVB says:

    Have been thrown in moderation for a couple of days now ;(

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