Notable Quotes: #-----------
Economists can certainly disappoint you. One said that the economy would turn up by the last quarter. Well, I'm down to mine and it hasn't. -- Robert Orben #------------ Inflation is bringing us true democracy. For the first time in history, luxuries and necessities are selling at the same price. -- Robert Orben #------------- Regards, LelandJ Bob Calco wrote: > http://bit.ly/H5iel > > A fantastic article that puts the lie to most of the arguments for the > gargantuan spending spree Washington is going on lately, and points ominously > to our most likely future: > > - - - > Under President Barack Obama’s budget plan, the federal debt is exploding. To > be precise, it is rising – and will continue to rise – much faster than gross > domestic product, a measure of America’s ability to service it. The federal > debt was equivalent to 41 per cent of GDP at the end of 2008; the > Congressional Budget Office projects it will increase to 82 per cent of GDP > in 10 years. With no change in policy, it could hit 100 per cent of GDP in > just another five years. > > ... > > I believe the risk posed by this debt is systemic and could do more damage to > the economy than the recent financial crisis. To understand the size of the > risk, take a look at the numbers that Standard and Poor’s considers. The > deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). > Income tax revenues are expected to be about $2,000bn that year, so a > permanent 60 per cent across-the-board tax increase would be required to > balance the budget. Clearly this will not and should not happen. So how else > can debt service payments be brought down as a share of GDP? > > Inflation will do it. But how much? To bring the debt-to-GDP ratio down to > the same level as at the end of 2008 would take a doubling of prices. That > 100 per cent increase would make nominal GDP twice as high and thus cut the > debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent > increase in the price level means about 10 per cent inflation for 10 years. > But it would not be that smooth – probably more like the great inflation of > the late 1960s and 1970s with boom followed by bust and recession every three > or four years, and a successively higher inflation rate after each recession. > > The fact that the Federal Reserve is now buying longer-term Treasuries in an > effort to keep Treasury yields low adds credibility to this scary story, > because it suggests that the debt will be monetised. That the Fed may have a > difficult task reducing its own ballooning balance sheet to prevent inflation > increases the risks considerably. And 100 per cent inflation would, of > course, mean a 100 per cent depreciation of the dollar. Americans would have > to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold > would be $2,000 per ounce. This is not a forecast, because policy can change; > rather it is an indication of how much systemic risk the government is now > creating. > > Why might Washington sleep through this wake-up call? You can already hear > the excuses. > > “We have an unprecedented financial crisis and we must run unprecedented > deficits.” While there is debate about whether a large deficit today provides > economic stimulus, there is no economic theory or evidence that shows that > deficits in five or 10 years will help to get us out of this recession. Such > thinking is irresponsible. If you believe deficits are good in bad times, > then the responsible policy is to try to balance the budget in good times. > The CBO projects that the economy will be back to delivering on its potential > growth by 2014. A responsible budget would lay out proposals for balancing > the budget by then rather than aim for trillion-dollar deficits. > > “But we will cut the deficit in half.” CBO analysts project that the deficit > will be the same in 2019 as the administration estimates for 2010, a zero per > cent cut. > > “We inherited this mess.” The debt was 41 per cent of GDP at the end of 1988, > President Ronald Reagan’s last year in office, the same as at the end of > 2008, President George W. Bush’s last year in office. If one thinks policies > from Reagan to Bush were mistakes does it make any sense to double down on > those mistakes, as with the 80 per cent debt-to-GDP level projected when Mr > Obama leaves office? > > The time for such excuses is over. They paint a picture of a government that > is not working, one that creates risks rather than reduces them. Good > government should be a nonpartisan issue. I have written that government > actions and interventions in the past several years caused, prolonged and > worsened the financial crisis. The problem is that policy is getting worse > not better. Top government officials, including the heads of the US Treasury, > the Fed, the Federal Deposit Insurance Corporation and the Securities and > Exchange Commission are calling for the creation of a powerful systemic risk > regulator to reign in systemic risk in the private sector. But their > government is now the most serious source of systemic risk. > > The good news is that it is not too late. There is time to wake up, to make a > mid-course correction, to get back on track. Many blame the rating agencies > for not telling us about systemic risks in the private sector that lead to > this crisis. Let us not ignore them when they try to tell us about the risks > in the government sector that will lead to the next one. > > - - - > > The following observations bear repeating: > > "Income tax revenues are expected to be about $2,000bn that year, so a > permanent 60 per cent across-the-board tax increase would be required to > balance the budget. Clearly this will not and should not happen. So how else > can debt service payments be brought down as a share of GDP? > > "Inflation will do it. But how much? To bring the debt-to-GDP ratio down to > the same level as at the end of 2008 would take a doubling of prices. That > 100 per cent increase would make nominal GDP twice as high and thus cut the > debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent > increase in the price level means about 10 per cent inflation for 10 years." > > Obama keeps talking about cutting the deficit in half in 10 years, but he > doesn't plan to do this with budget cuts, that's for sure. Hence the awkward > moments last month or two when he poo-pooed $8 billion in pork spending and > made a big to-do about a whopping $100 million in meaningless "cuts" (that > were actually reapportionments). > > He *plans* to do it with painful tax hikes and inflation. Remember this: It > is his choice to do it this way, it was not forced on him, so when we all get > mugged by reality one day, let's not forget whose conscious choice to run up > the debt in such spectacularly hypocritical fashion made that day worse than > it had to be. > > If Obama were such the victim of previous "bad decisions," inheriting a mess > he must clean up, then he could courageously choose to set aside his leftist > policy ambitions and focus like a hawk on balancing the budget by 2014 with > all that political goodwill he's been given by virtue of the color of his > skin alone. Instead he aims to break the bank and snatch large swaths of the > private sector in the process, inflation risk be damned, because he is an > ideologue who believes the country should suffer for past economic sins. > > So he is ironically not merely sermonizing about them, he's doubling up on > them, and recommitting them with a bizarre but determined gusto. > > - Bob > > > > [excessive quoting removed by server] _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[email protected] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. 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