Perfect Storm – February 2013?

A cross-post courtesy of market veteran (and occasional robust NC commenter) Bruce Krasting

I wish I could get a penny for every dollar that is going to be paid to lobbyist to fight the various recommendations of the Fiscal Commission. As advertised, they basically took no prisoners save a small portion of the older population that would starve without a monthly SS check. I think this exception was in response to the deficit panel being referred to as the “Cat Food Commission”. They may have dodged that bullet, but just about every other group in society is going to have a gripe.

-The mortgage deduction would be largely gone. There are a dozen industry groups that will rain on that parade.

-Social Security would be “socialized”. Some say SS is a third rail. We are about to see that in action. A big savings comes from a recalibration of COLA increases. So right away you have 60mm Americans apposed to this.

-$1.1 Trillion of tax deductions would be done away with. Think of all the tax lawyers and accountants that will line up to cry about this one.

-Get this. Federal workers would be required to put up half of their retirement contributions versus the 1/14 that they currently pony up for. You can imagine the howls we will get on that.

-The military budget gets a hatchet job. So the entire military industrial complex will rise up with one voice to appose it.

-My quick read of the proposals confirms my prior expectations that anyone in America who is under 45 should just bend over now. Most of the pain of the fiscal commission will be felt a few decades out. This group of folks is getting creamed and as far as I know they have no advocate. As this plan gets rolled out I suspect that the opposition from younger people will rise to a level that will make the US look like France.

But none of these things really matter. What’s important is to focus on this critical comment:

4. Don’t Disrupt a Fragile Economic Recovery
Start gradually; begin cuts in FY 2012.

Gradually indeed. There is a total of a whopping $17 billion of cuts in mandatory payments through January 1, 2014.

Next week there will be a great debate on what to do with the Bush tax cuts. Actually I don’t expect much debate at all. Our legislators hate to raise taxes and I don’t think they have the guts to do it now. They will point to the big unemployment numbers and pass the tax trash for 24 months. They will defer the hard choices on income taxes and the critical AMT.

Then there is good old Ben Bernanke. As of now his plan is to finish QE-2 next June. QE-1-Lite (the top up) will, in theory, be an evergreen program. But after 24 months the MBS portfolio will have been substantially reduced and the monthly prepays and related POMO Treasury buys will be significantly less than we are getting today. I think there is no stomach in America for a QE-3. The global (and now domestic) hostility to this crazy experiment makes the possibility of a 3pete decidedly slim.

So mark your calendars. Sometime early in 2013 we will self immolate as all of the promised steps of belt tightening, budget cuts, smaller government, smaller social payouts hit. At the same time taxes will be going up for every single wage earner regardless of what they make. High earners will get butchered. To top it off Big Ben will have to be throwing out a hefty sized anchor at pretty much the same time. The markets will surely see it coming.

The last transition of executive power was in the midst of an economic panic. Based on the timetable and the proposals in front of us we are setting up for a repeat. We will get the answer to that next week when the tax issue is pushed forward a few years. My bet is that hard choices on spending, monetary and tax policy will all be kicked down the road 25, 26 months. I wonder if our leaders understand that?

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  1. Ted K

    Heh, “robust NC commenter”. Like that. I like to give Bruce a hard time about his extremely crappy politics. But I do like reading him generally and his posts. Especially his posts on currency exchange. Bruce knows his currency exchange, I have to give him that, damn it all anyway.

  2. Pierre

    So bernanke gave CONgress a 2 year breather. No politician wants to deal with the truth when there are far more important things to worry about, like getting BHO re-elected or replaced. So by then, Europe will have kicked out 3 countries and reverted to 2 currencies (Euro-for-us, and Euro-for-the-rest-of-you), BAC and maybe one other will go into receivership drowned by mortgage malfeasance, the USD will become available in wallpaper sized rolls (unless the Euro beats us to it), China will publish hourly price updates on food and real estate, Saudi will use their new $1 trillion in petrodollars to buy a larger country. One thing for sure, though, American Idol will still be on the air.

  3. Michael Fiorillo

    The war budget cuts and elimination of mortgage tax deductions, et. al., are just window dressing and dodges – certain to be deleted from any final legislation – for the real purpose, which is the attack on Social Security, the living standards of the general population, and the overall looting of the Republic.

    Which, in the eyes of his major funders in 2008, is Barack Obama’s reason for being.

    He’s an all-purpose functionary: available and useful as a political pinata, while at the same time pathologically eager to please and be liked by his abusers and manipulators.

  4. DownSouth

    Bruce Krastin,

    Why do you perpetuate the myth that there is political paralysis?

    There is no paralysis.

    Evidence the banksters. When they want something, our policymakers move with the speed of Mercury and the determination of Ares. It’s only when the rest of us need something that there is paralysis.

    1. DownSouth

      Or maybe I should have said: It’s only when there’s something the rest of us want, or something the banksters don’t want, that there is paralysis.

  5. Bruce Krasting

    I actually thought there would be SOME discussion on the issue of taxes. NOT. David Axelrod said yesterday that everything would be fixed up no problem. The WH called it a “compromise”. I would call it a “fold”.

    The two year rollover on this costs $355b. A fair bit of dough. It is also more than half of Bernanke’s QE-2.

    Mr. Robust….

    1. Mickey Marzick in Akron, Ohio

      Let’s see… That most Republicans and many a Democrat can talk of the necessity of keeping the Bush Tax Cuts for the wealthy in place as essential to econommic growth and the necessity to emasculate Social Security in the same breath surprises you?

      That the continuation of these tax cuts for the wealthy will not likely result in any additional investment in this country and no economic growth to speak of because there’s nothing to invest in here when a better return can be had offshore and will likely encourage more “capital flight” to secret offshore accounts and additional tax evasion aided and abetted by wealth management funds on Wall Street and elsewhere surprises you?

      That the emasculation of Social Security in conjunction with the continuation of the tax cuts and no discussion of eliminating the cap on income for this program will likely result in more of the elderly actually eating cat/dog food as well as exert additional downward pressure on aggregate demand with QE inflating away our “savings” surprises you?

      What surprises me is that after 30 years of rightward drift and a steady diet of tax cuts and supply-side neoliberal antigovernment deregulatory bullshit proffered by Democrats and Republicans alike that anyone would expect anything different! Indeed, “rational expectations” would suggest that if you’ve been taking it in the ass for 30 years that you would become accustomed to it as the “new normal”. Indeed, that it could be different would never even occur to the victims. “It’s just the way it is…”

      The ground has been thoroughly prepared for the “willing penitent” mentality of most Americans. They expect to be fucked and this just confirms their expectations. Resorting increasingly to the underground economy to avoid paying taxes at all is their solution. Hence, discussion of taxation is superfluous in this context. What surprises me is that so many believe it could be otherwise.

      1. ECON

        Mickey, right on!! As a Canadian your CONgress is a theatre for puppetry and our Parliament is a shouting gallery but the business gets done (to an extent) by the legislative power of the prime minister esp in a majority parliament.

      2. Doug Terpstra

        Indeed, Mickey. The juxtaposition of extending tax cuts for plutocrats, a near certainty under this eunuch’s administration, while at the same time cutting seniors’ Social Security benefits is blood-boiling, red-hot irony. Plutocrats’ tax cuts will directly inflate the GOP’s deficit boogeyman, while Social Security’s funding has nothing to do with the general budget at all. It is too much: a vicious and unpardonable offense, the timing of which looks contrived to rub the peasants’ noses in it, just like continuing bailouts.

        1. Mickey Marzick in Akron, Ohio


          How any elected offical could argue for maintaining the Bush tax cuts for the wealthy and mouth the need for reductions in Social Security benefits at the same time has to make you wonder what the end-game really is.

          I suspect Social Security is the real target and the tax cuts are merely a bargaining chip. By now the wealthy have looted the private sector so well and squirreled much of that loot away in offshore accounts, that rescinding the tax cuts won’t bite them that much, particularly when looting the Social Security Trust Fund once and for all is the real prize. Doing so would signal the end of the New Deal and the the triumphal consolidation of the Raw Deal. The symbolic importance of which could not be denied.

          Such an outcome would be a win-win for politicians on both sides of the aisle insofar as one group, largely Democrats, could claim that the wealthy were “forced” to give up their tax cuts in return for the emasculation of the last vestige of the New Deal – Social Security – a goal that reactionaries have sought since its inception in 1935. When seen in this light though, the tax cuts are chump change. For such an outcome would allow both to argue that this compromise is indicative of each’s commitment to fiscal responsibility. The Tea Party might hold the line against any tax increases but many a big government Republican might see the advantages of such a deal.

          Tax cuts, after all, can always be renewed/expanded after the 2012 election. But once Social Security benefits are cut there’s no chance of ever rescinding/restoring them. That much is a longterm political/economic certainty given the economic condition of the country. Hence, I’m opposed to any reductions in Social Security. It’s the line in the sand for me, crossing the Rubicon from whence there’s no turning back.

          On the other hand, if the tax cuts for the wealthy were to remain intact and Social Security and other middle class “entitlements” like mortgage interest were sacrificed pursuant to deficit reduction there would be little doubt just how far to the Right this country had moved. It would also put the nail in the coffin of the Democratic Party once and for all. The latter’s future depends on how Social Security fares between now and 2012.

          One thing is certain. Given the electoral “shellacking” that the Democrats suffered in this recent midterm election, rescinding the Bush Tax Cuts for the wealthy without any reduction to Social Security benefits is not going to happen. If anything, AUSTERITY in one form or another is on the way. That much this election ensured.

          1. ignatius

            But once Social Security benefits are cut there’s no chance of ever rescinding/restoring them. That much is a longterm political/economic certainty given the economic condition of the country.

            The economic condition has nothing to do with it: Given that the US economy is about 2/3 consumption, the economy is in the gutter because of low wages (for non-Bankers) and low Social Security spending – not the other way around.

            Given that your federal debt is 100% in your own currency, this could be trivially fixed by printing money (like the Fed is doing right now) provided this money is actually for spent for the people and not to make the rich still richer. Nothing beats a wage-price spiral to restore public welfare and a middle class society.

    2. Ted K

      There WAS a discussion on taxes, but Boehner and McConnell killed that. You should be happy Bruce, the Bush taxes are kept so the ultra rich can go on paying 17% of their income in taxes, while teachers and nurses pay 35%, and the Government has squat in revenues because you Republican dimwits haven’t figured out the Laffer Curve is 100% B*llshit. Your beloved Republicans have gotten EXACTLY what they wanted, you should be doing a jig in the streets now Bruce.

      1. Bruce Krasting

        How do I get cast as a Republican? Because I am apposed to debt? PLEASE.

        For the record I have been taking it up the hooter for a decade on the AMT. I have no earned income, so I am stuck. No deductions for property tax, state tax, child care, medical, charity. I don’t make so much these days, but I am still taxed at an effective 42%. If you add back in the property taxes and sales taxes I am over 50%. So drop dead.

        1. Siggy

          I agree.

          Perhaps you might comment on this thought. Helicopter Ben buys some Treasuries from the faithful ‘primary dealers’. Fed gets Treasuries, dealers get cash. At a required 10% reserve ratio that $600 billion of cash can grow to $6 trillion. Swell, that’s a lot of push on a string. And then, maybe it isn’t because the $600 billion doesn’t even exist on the Fed’s balance sheet. Or does it in the form of the already existing expanded Fed balance sheet. But isn’t that stuff the likes of the Maiden Lane adventure in artful accounting?

          That’s the thing that puzzels me, does the $600 billion exist or does it require the electronic ledgerdemain that only the Fed can exercise?

          Now I’m a ‘primary dealer’, why would I do the deal. What would I do with the cash? Loan demand is quite low, what do I invest the $600 billion in that it might well be loan in the clothing of a sale? Is this repo105 done in several magnitudes greater than the Lehman fraud, oops misrepresentation? Perhaps I could buy some more Treasuries, all the new issue stuff. Given the trend of the budget, the Treasury will need a little help.

          I’m not so sure that we must wait until 2013 for the perfect storm, I think we are in it up to our nostrils and it surely does stink!

          Now is that $600 billion cash for treasuries exchange going to be contingent on the Fed at some future date taking back the cash and returning the Treasuries to the ‘primary dealers’? How would this exchange be priced?

          Well there’s more than one idea there; but I would like to hear your comments.

          1. i on the ball patriot

            There are known knowns. These are things we know that we know. That the FED is a secretive controlling scam and deception is the strongest political force on the planet. There are known unknowns. That is to say, there are things that we know we don’t know. Things the secretive FED won’t tell us. Deceptions that we know exist but are unaware of. But there are also unknown unknowns. There are things we don’t know we don’t know. These are the things we can not plan for.

            Then there are the traditional recurring knowns, like the little guy always takes it up the ass and the 600 billion is already a part of the tax bill.

            Your questions bring to mind the foreclosure fraud being illegally settled behind closed ‘rocket docket’ courtroom doors. The public is being increasingly shut out as the corruption increases in intensity.

            Deception is the strongest political force on the planet.

        2. Anonymous

          “For the record I have been taking it up the hooter for a decade on the AMT.”

          If you are the same Bruce Krasting, former Wall Street trader, as in this NYTimes article, then you were a tax cheat who knowingly & significantly underpaid your U.S. income tax for many years by hiding income in secret Swiss accounts. If that is the case, then you deserve all the tax reaming you are getting, and then some. Just be thankful you avoided federal prison.

          But maybe that’s not you, in which case you have every right to complain about taxes.

          But if it is you, then absolutely STFU, and never talk about taxes, corruption, or hard economic decisions ever again.

          Or put a disclaimer on your every post, ala Sam Antar, divulging your history as a crook and how you’re now trying to make up for your past sins. If that is you.

        3. Jim the Skeptic

          Bruce Krasting says:” For the record I have been taking it up the hooter for a decade on the AMT. ”

          I have never paid the AMT but it should have been indexed from the beginning.

          I think I agree with you on other issues, but the social safety net in this country is not one of them. Europe is far ahead of us in that respect and I am sure their taxes are higher because of that. I don’t want to see Social Security harmed to save some millionaire about $15,000.

          By the way, I wish I had the income that was taxed at a 42% effective rate! We pay taxes to support the society that we see around us, and it’s not cheap.

        4. Ted K

          Interesting you didn’t mention how much of your income comes in capital gains, or your FEDERAL income tax deductions. The federal taxes would obviously would be the dominant topic here. Last time I checked sales taxes don’t go to Social Security Bruce. I could mention a certain article that was in the NYT around October of 2009. But I don’t know for certain if that was the person I suspect it was, and I would rather not play so lowball. But suffice to say, low-income workers in America (Emphasis on LOW-INCOME) don’t have options to park their money in tax free havens overseas Bruce.

          I find it interesting though. Bruce, you mention property taxes put you over 50%. frankly I find it hard to believe, but I’ll take you at your word. But I would bet a large some of money those property taxes are not JUST your home residence, but other properties you own.

          As a closer Bruce, I would say we generally don’t tax wealth in this country, we tax income.

          1. run75441


            I would think too that many people would love to be in a predicament of paying the AMT rather than be unemployed or less than median income

          2. Ted K

            Not folks like Bruce. They’re crying they had to pay 15% on capital gains, from the blood,sweat, and tears they gave making two phone calls to a broker, or taking one minute online to stroke some keys for a trade. Bruce thinks when he does that he’s creating jobs and the big bad evil “Big Government” should just leave him alone.

    3. Ron

      From David Rosenberg this morning:

      “The problem with the U.S. fiscal outlook: the dilemma is that the intractable U.S. debt and deficit situation cannot be solved by cutting government spending alone. Taxes, that evil five-letter word, will have to rise in the future”

      1. ECON

        David, right on !! You do not need to be a bear in the market but a bull in the political arena to get this done. But will the comatose taxpayer see the economy beyond the next channel change.

  6. Adam

    From Bill Mitchell’s blog today…

    I have been reading the Co-Chairs Draft Proposal from the US National Commission on Fiscal Responsibility and Reform, which was released on Wednesday (November 11, 2010). If I was religious I would be saying Please god, help us all. As I am not, I will say it anyway!

    I will provide more detailed analysis of the material they are starting to pump out in due course. But in the accompanying presentation, the opening slide caught my eye immediately. It said:

    We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today

    – America cannot be great if we go broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing debt burden off our back.

    – Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America:to give our children and grandchildren a better life.

    – American families have spent the past 2 years making tough choices in their own lives. They expect us to do the same. The American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.

    I recommend they redraft that slide prior to deleting the remaining 47 slides that follow. Perhaps something along these lines:

    * We have a responsibility to come together on a plan that will make America better off tomorrow than it is today given how bad the state of the real economy is now and how weak the government fiscal response has been.
    o America cannot be great if the private sector goes broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing private debt burden off our back. Given the government has no solvency risk (and cannot go broke) and that fiscal policy has the unique capacity to support spending and employment while the private sector restructures its balance sheet, it is our responsibility to recommend a further (jobs rich) fiscal stimulus.
    o Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America: to give our children and grandchildren a better life. And if we succumb to the maniacal protests of the deficit terrorists and cut back net public spending now and drive millions more workers out of jobs then we will be guilty of crimes against our children and grandchildren.
    o American families have spent the past 2 years facing tough choices in their own lives because the market system failed due to lax government regulation and dishonest and irresponsible entrepreneurial behaviour. Their situation has worsened because the government did not have the courage to provide enough fiscal support to ensure there was enough spending to support their their jobs. They have been lied to by the press, the conservatives and we have gone along with these lies – the buck stops with the President on this who had shamefully lied to the American people when he told them that the government had run out of money. The American people are now counting on us to stop lying and to face up to the basic macroeconomic rule that spending equals income. The American people know that they have live within their means but they know the government has no such financial constraint and should be spending so that they can be employed and save and that will make America strong for the long haul.

    I think that might be better although PowerPoint would probably split the message onto two slides. But it is better to tell the truth on two slides than to lie on one.

    On Slide 6 the heading is “Cut Spending We Simply Can’t Afford, Wherever We Find It”. Who is We? Answer: the private sector should never spend more than they can afford. That means they should only run sustainable debt burdens and probably not be in debt overall as a sector. But the US government can always afford to buy whatever there is for sale in US dollars on any given day.

    A sovereign government like that in the US is never revenue constrained because it is the monopoly issuer of the currency. It is nonsensical to talk about the US government as if it is a budget-constrained household.

    That doesn’t mean (all you goldies out there) that the US government should spend without discretion or control. It should only spend to ensure its socio-economic program to advance public purpose is being progressed and only in net amounts that ensure that nominal spending growth doesn’t outstrip the real capacity of the economy to absorb it with output increases. If the two aims are mutually inconsistent (that is, the implied size of government to deliver this program and the current size of the private sector overall add up to more than the real economy can support) then the government can either reduce its program ambitions (a political issue) or reduce the size of the private sector (via taxation increases etc). But none of these choices and decisions are financial in nature. They are mostly of a political nature.

  7. Ignim Brites

    I’m not so sure that the extension of the Bush tax cuts is resolved. We haven’t heard from Nancy Pelosi yet. If Dems were smart they would put the focus on jobs generating tax cuts by abolishing the payroll tax. This would allow them to let the Bush tax cuts expire, the extension of which seem unlikely to promote employment recovery. For the first time since Reagan, Dems would have the initiative on tax policy. Until then, it don’t matter whose in DC now, George Bush still holds the reins.

  8. i on the ball patriot

    Perfect Storm – February 2013?

    Perfect Storm implies natural causes, I would say that ‘The Perfect Gang Rape’ might be more apropos, and I would set the date back to 1966 …

    Wolves wrapped in a different brand of ruling elite bullshit — pernicious greed for a two tier ruler and ruled world. You have to hand it to them for long range planning.

    Deception is the strongest political force on the planet.

  9. Jesse

    The problem is that all these ‘reforms’ dodge the real reform required in the financial and political system.

    Most of the reforms I have seen involve finding the weakest people and punishing them the most. That is not reform; it is a type of fascism.

    1. Ina Deaver

      I fear that is where we’re headed, myself. Worse, I feel like rioting in the streets by the people who are about to be gutted AGAIN would only speed up the transformation. I’m not sure what to do, given that I get to vote once every few years, and the corporations get to spend unlimited amounts. Considering that all “elected representatives” plan to jump to corporate “government affairs” jobs when they are voted out or retire, there is no hope that the people in question do not know what side their bread is buttered on. I’m extraneous to this transaction, and I know it.

  10. ella

    Any commission serious about deficit / debt reduction would have recommended that the Bush tax cuts expire. They would acknowledge that the Bush tax cuts, the Bush wars and the Bush recession created the mess we are in. Bush nearly doubled the debt by adding about 4Trillion. Simple math and a bit of logic would eliminate all of the Bush tax cuts and wars. Add in a David Stockman temporary tax of 15% on the ubers would allow us to substantially reduce the deficit / debt.

    Next why is the commission still will to tax capital at a different rate than savings interest, and labor’s salaries? Why set up a tax system that never taxes expats and overseas earnings of Corps.

    Imagine how that encourages wealth and Corps to move off shore. It would further the scam of companies earning income here and booking it off shore to avoid tax. The same is true for intellectual property invented here but registered overseas, thus allowing profits to be booked overseas. Where is the mention of the scam that allows these same companies that avoid US tax and then claim that they need tax free repatriation of that income on the false claim that it will create jobs? Even though the last time they ran this scam under Bush they used the bulk of the money to pay themselves dividends and failed create jobs.

    If they are serious, then where is a simple clause that if these changes are passed they cannot be repealed or changed in the next Congress? So they think we are suckers, cut SS and Medicare and then go back to diminution of revenue and increase in spending for their base?

    Does this smell the same way the Greenspan commission pushed through an increase in SS contributions during Reagan under the ruse that the boomers would pay for the current generation of recipients and SAVE FOR THEIR SS. This is the reason there is a 2Trillion surplus in the fund. The problem of course is that Greenspan set it up so the federal government would be able to use our SS to fund the Reagan tax cuts. Cute.

    If you are serious about saving SS, then starting now remove 20% of the contribution from the general account into the SS Trust. One of the reasons they are so desperate to cut SS COLA’s is that they know they will have to raise taxes or cut spending elsewhere to pay off the SS federal bonds that the SS trust currently holds.

    How is setting up the conditions for inflation (QE2 & monetizing the debt) and reducing COLA and Medicare SHARED SACRIFICE?

    What of the estate tax? A 3+ million exemption? Right, how many have estates at that value. Concerned about the family farmer? Well, you do not need to create an estate tax benefiting all of the Ubers. Simple, tailor it to the family farmer. But how many family farmers are that rich?

    Let us take a look at government contracts. Are they really cost effective? Has anyone done an audit to find out? Just how much does a no bid contract cost the public? What about all of those off shore companies that pay little to no federal tax but make huge profits off the taxpayer? A true audit would give us the answer.

    Oh, how about all of those government debt guarantees to private industry. You know FHA, FANNIE, FREDDIE, CHASE and on and on. Any mention of those very lucrative deals?

    How about the Bankruptcy Reform Act of 2005, with special exceptions for derivatives? Take a hard look at how business are stripped making it harder to reorganize.

    How about the banking losses? You know the billions that the public is now guaranteeing and the FED is so desperately trying to protect. As he robs savers, pension funds, insurance funds, trust funds, state and local governments of interest income.

    There is so much more. Tell me again how this is shared sacrifice? I see the Commission wants to reduce you entitlement but not theirs. We now live in an environment where their tax entitlements and guaranteed government contracts and guarantee debts are protected.

    The Commission wants your entitlement to be cut first. Look them in the eye and tell them to permanently cut their entitlements first and then we can talk.

  11. Rodger Mitchell

    Let’s see if I understand the debt terrorist mantra, which consists of six points:

    1. Tax increases and spending decreases, both of which remove money from the economy, could hurt our fragile recovery. So we’ll delay hurting the economy until later.

    2. The federal government is broke, even though it acquired the unlimited ability to create money in 1971.

    3. Taxpayers pay for federal deficit spending, even though there is no relationship between tax rates and federal spending.

    4. Federal deficit spending causes inflation, even though we are fighting deflation, despite massive deficit spending.

    5. Federal government finances are just like my personal finances.

    6. Personal intuition is better than historical fact.

    I think that about summarizes it.

    1. ds

      exactly. and i would add one other that future growth is supply determined so whether unemployment is 10 or 1 percent today makes no difference with respect to long run growth and productivity trends.

      ten years ago the cbo was forecasting surpluses for 30 years out. their models at the time saw no problem with ss and medicare, and would have supported the prescription drug benefit and tax cuts with budgets balanced in perpetuity.

      the big debate at that time was how to spend the ‘surplus’, but now, 10 years later, there is a ‘structural’ problem that requires ‘sacrifice’.

      garbage in, garbage out.

      1. Stephen Malagodi

        ‎”ds says:
        exactly. and i would add one other that future growth is supply determined so whether unemployment is 10 or 1 percent today makes no difference with respect to long run growth and productivity trends.”

        I wonder if you realize the importance of your comment. That is, now that labor is not necessary for productivity, how do we value human beings?

        Since the advent of agriculture, labor has been a necessary input for the creation of wealth. It became a commodity with industrialism. Now that it is increasingly not necessary for productivity, how do we adapt societies for this new reality; the rapidly decreasing value of labor.

        The composer John Cage told this story in 1958 (or 9); “The big U.S. industries moved into Puerto Rico and destroyed the local economy. Now the unemployment rate is 50%. The problem is they only did half the job.”

        And a year or so later, more humorously, but more effieciently poet Allen Ginsberg asked the question “When will I be able to go into the supermarket and get what I need with my good looks?”

        And I say, People don’t want a job, they want a life.

        1. Mickey Marzick in Akron, Ohio


          Astute observation on your part as well! Gainful employment will be the only scarcity as labor becomes increasingly superfluous to production. Technological unemployment looms… amidst mountains of foodstuffs and shelves stocked with manufactured goods that cannot be sold because the means to consume them – EMPLOYMENT – is in short supply for the great bulk of the population. A downward deflationary spiral if there ever was one.

          Supply – both in agriculture and manufacturing – is not the issue any longer as the mountains of butter and acres of unsold automobiles attest. Production for profit – not use – is becoming increasingly untenable.

          The bane of humanity – aboslute scarcity – has been largely overcome in the West. Famine in advanced political economies is not an issue and is more often man-made elsewhere than the result of nature. Likewise in manufacturing. “Excess capacity” speaks volumes on this score.

          Postscarcity renders value systems predicated on scarcity obsolete with far reaching ramifications for advanced political economies. Neither Keynesianism nor neoliberalism are adequate in such a setting to the extent that “economics” is predicated on scarcity. Only if an artifically-induced scarcity [AUSTERITY] can be imposed on the citizenry of advanced capitalist political economies will “economics” and the value system underlying it maintain their relevance. But at what a cost… to humanity!

  12. ella

    It gets better…×4611908

    “In the interview, Mr. Bowles said he was pleasantly surprised by his experience with the panel’s Republicans. Through the work of the commission, he said, “you get to know a guy like Tom Coburn, who’s nothing like the caricature that’s painted.”

    Ella here,Coburn will only go for 90% spending reductions and 10% increased revenue. Will the D’s really cave on this? Looks like the fix is in…

    “Indeed practically all of the commission staff paid for by outside groups have one tie or another to Pete Peterson, the billionaire hedge fund manager who has sought to kill Social Security for several decades. And this is certainly true of the top-level staff. The Economic Policy Institute sent one staffer, Ethan Pollack, to the commission, and he has clearly been sidelined.”

    Ella again, meanwhile Obama says we should listen to these jokers and seriously consider there recommendations. Is he joking?

    1. DownSouth


      What are we going to do with you and Yves and your typos?

      But on a more serious note, don’t sweat the small stuff. Just keep it coming. I always find your comments thoughtful and most informative.

  13. Chief

    No intention of ever addressing the debt, or spending. Two year election cycle makes it pragmatically impossible.

    The devil is in this detail: if all the currency is paper, the assets are paper, the debt is paper: none of it is real. Don’t worry, be happy….until the music stops.

    What if there were no music? Major paradigm shift…

    All of our worry and dither is all based on perception and faith in the sanctity of contract and rule of law–that the paper is worth something. I wish Walmart would just move ahead and make its final move into health care, banking, and energy distribution. Ordering my blue vest this weekend.

  14. ron tough

    The country has already been looted you naive fools. Everyone over 40 has been a part of screwing everyone under 40 and believe me, my generation will make every last one of you suffer into your old age. You screwed up the system so bad that few of the under 40 can pay for the entitlements the over 40 crowd has voted itself. Thia ia generation warfare at its finest and the best part is that the under 40 crowd knows exactly who is responsible.

    1. Jason Rines

      Crime must not pay but revenge against the Boomers is not a plan. Heaven and hell periods are cyclical. The biggest macro factor contributing to the global downturn is two fold:

      1) People live longer. As they age the urgency to store wealth for decrepency accelerates. Central Bank model has accelerated the Golden Calf effect. The Boomer generation is the largest voting bloc and it is not surprising they vote for their own interests with the biggest chunk of spending going toward Medicare (longer life). The political failure of Medicare was in not enabling competition and encouraging monopoly instead. A level playing field is needed.

      2) Deregulation of finance which are middle men. Middle men have little value and why commissions are usually low for shuffling paper.

      The trickle down effect is noticeable in my marketing business. Brokers for list marketing were topping out at 44% average on every order, acting is if they were ad agencies in controlling the client relationship and steered clients toward lists that paid themselves that 44%. The difference between the two groups is bankers own the place so the list brokers for marketing have declined to 33% while banker bonuses for blowing up the place have increased to $140 B. Owning the place means owning the guns put to the temple of the publics head.

  15. ella

    Fooled. This is class warfare, not generational warfare. And the rich/upper class has won. Ask Warren Buffet.

    “In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one’s home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2010).”

    But of course they don’t own it all yet. So, they perpetrate the myth that it is generational warfare. That along with the rest of their myths allows them to grab more. While convincing you that it is generational and you will lose what little you have left.

    1. ron tough

      how are old the 1%?

      what generation are they from? are they under 40?

      How many 32 year old billionaires (other than the facebook db) are there?

      warren buffet is how old? in this 80′?

      and the rest of his cohort refuse to retire, live beyond their means, “don’t touch my social security”, go to the hospital for every little ache and pain and medicare pays for it. That entire generation, from the richest to the poorest is sucking off the government teet in one way or another.

      1. Eclaire

        And how many Social Security recipients (and this would include those under 18 with a deceased parent and the disabled) and people receiving unemployment are socking the money in off-shore accounts? SS retirement payments and unemployment are all taxable, depending on income level, so a percentage is returned to the government.

        And, for heaven’s sake, find some new imagery! And learn to spell! All this “sucking on the government teet (sic) ” is getting shop-worn.

        1. ron tough

          The government should take the rich more, yes, the ultra rich. However, we can take all the rich people until they have nothing left and that won’t solve the 14 trillion dollars in debt we have. This is a multi-faceted problem. The oft-repeated ‘tax the rich’ is getting old.

          and ps nobody is getting unemployment and socking it in off shore bank accounts. They’re buying food and paying the housing bill. That’s just absurd.

          1. DownSouth

            What I fail to understand is why the federal debt has all of a sudden become such a life and death problem? What happened?

            And this is not an attack on you personally. After all, you’re just parroting what Bruce Krasting said, maybe with a few more histrionics, but the message is the same, to wit:

            My quick read of the proposals confirms my prior expectations that anyone in America who is under 45 should just bend over now. Most of the pain of the fiscal commission will be felt a few decades out. This group of folks is getting creamed and as far as I know they have no advocate. As this plan gets rolled out I suspect that the opposition from younger people will rise to a level that will make the US look like France.

            But again, why? Why now?

            Here’s a graph of the national debt for the sixty years from 1950 to 2010. The big run-up was under Reagan and Bush I, from 1980 to 1994, and it’s been more or less flat from 1994 up until now. So why wasn’t there an outcry under the “deficit hawks” Reagan and Bush I, when the actual increase occurred? Why is there all of a sudden this huge hue and cry, sixteen years after the fact, when the debt is not on the rise?

            It’s all just too Orwellian.

            I think guys like you and Bruce are like wind-up toys. Somebody winds you up and turns you loose, and off you go with nary a thought as to what you say or do.

      2. Anonymous

        “how are old the 1%?”

        You must be joking. Do you really think that the 1% does not include the younger offsprings of the uber wealthy? Or you understand that and just spread the propaganda.

    2. DownSouth

      ella said: “In terms of financial wealth (total net worth minus the value of one’s home), the top 1% of households had an even greater share: 42.7%.”

      So that’s what the fabled “ownership society” is all about! Seems like somebody forgot to send the people in charge the memo.

      And you’re right, it is class warfare, not generational warfare. And most people perceive it that way. Yves had a post on this a few months back, citing some polling information, and people like ron tough are a very small minority.

      Of course, given the way “democracy” in America works, the corporate media will give ron tough a microphone and put him in front of a camera, broadcast his diatribe from coast to coast. Then Obama can get down on his knees and beg ron tough for a compromise on Social Security.

      1. ron tough

        I was two years old when reagan was elected. You goofballs have spent spent spent most of my future earnings and now you act like its no big deal. Then you want to blame rich people for the governments insane spending. Who is being fed the lie? The very real issue is governmentdebt and entitlements and your only response is that rich people are too rich? That’s irrelevant, illogical and doesn’t solve anyy of what are about to become my generation’s problem.

      2. Bruce Krasting


        You want me to look at a graph of the explosion in debt since Ronald Regan? Okay, I looked. But now you have to look at some graphs of where this is headed. You think there was big growth in the past? Look to the future. We will be north of $1T each year for the next 10 years. That’s growth.

        One could argue that the $2t in debt explosion in the past two years was justified due to the weak economy. You can’t justify the policy any longer. What we are doing will hurt more than help.So that is my answer to your question “Why Now”.

        1. i on the ball patriot

          “You want me to look at a graph of the explosion in debt since Ronald Regan?”

          Look at some graphs of the explosion of consolidation in global media by the wealthy elite since Reagan first took office as Governor in California. And then realize that this global wealthy ruling elite media has been aggregated into Mr. Global Propaganda, the culture shaping force that has created a historical anomaly whereby the world has never had so many psychopathic, sociopathic, narcissistic and borderline nut jobs per total population, all pecking preprogrammed bullshit at each other like laying hens in an overheated and over crowded chicken coop.

          Ron Tough, product of Mr. Global Propaganda, blaming the elderly in the deflective scape goat of the day game is a real hoot. I used to think guys like you were cia plants but there are just far too many of you and I even have some in my own extended family.

          Ron, if they held a hunting contest to hunt down and kill the ten richest persons in the world and/or the ten oldest but poorest social security recipients in the world, with the goal of contributing the wealth of the persons killed to the greater good of society, which group would you go for first? The wealthy raper or the poor raped?

          Creating excessive government entitlements, and demonizing those who took advantage of those entitlements, was/is just another facet of the multifaceted divide and conquer scam, and it is not limited to scamerica, it is formula globally.

          If you want to hate, hate the wealthy elite global gangster owners of the central banking cartel that own Mr. Global Propaganda and are responsible for the intentional herd thinning conflict being created. Dump the FED and regain control of currency and debt issuance.

          Deception is the strongest political force on the planet.

          1. Jason Rines

            This is poetry: “Mr. Global Propaganda, the culture shaping force that has created a historical anomaly whereby the world has never had so many psychopathic, sociopathic, narcissistic and borderline nut jobs per total population, all pecking preprogrammed bullshit at each other like laying hens in an overheated and over crowded chicken coop.”

  16. Tom Hickey

    Krugman got this exactly right. This plan is the same old tax cuts for the rich payed for by the middle class. This plan is DOA.

  17. Rodger Malcolm Mitchell

    Come on, Tom,

    You know that no one “pays for” tax cuts. You know that because the U.S. if monetarily sovereign, federal taxes don’t pay for federal spending. You know that even were federal taxes reduced to $0, this would not affect by even one penny the federal government’s ability to spend.

    Taxes on anyone, rich or poor, injure the economy by removing money from the economy. Tax cuts for anyone, rich or poor, stimulate the economy.

    Tom, you know this stuff, so why the “. . . paid for by the middle class” line?

    Rodger Malcolm Mitchell

    1. Anonymous Jones

      Was this sarcastic?

      If not, it is so daft and “hiding the ball” that I can’t believe you haven’t been pilloried yet. Cui bono, m’f’er? Taxes are redistributive, not just stimulative or depressive. So what if some policy is stimulative if only 1% benefit from such stimulus and 99% are thrust into poverty? I can’t believe we still have people who can assert this crap with a straight face and not get punched or excommunicated.

      1. Rodger Malcolm Mitchell

        In a monetarily sovereign nation, government spending is not supported by government income, either from taxes or from borrowing. The government creates money ad hoc, simply by pressing a computer key.

        If taxes were $0, this would not change the government’s ability to spend by even one penny.

        Contrast this with you and me and Greece and Illinois. None of us are monetarily sovereign. We can’t create money ad hoc, by pressing a computer key. We need a source of money, before we can spend money.

        Prior to 1971, the U.S. was not monetarily sovereign. Federal money creation was limited by our gold supply. Today, federal money creation is not limited by anything.

        And that is why federal taxes are not redistributive (though state and local taxes are). See the difference?

        Rodger Malcolm Mitchell

          1. Rodger Malcolm Mitchell

            Taxing destroys money, the opposite of creating money. That’s why taxes hurt the economy, and tax cuts stimulate.

            The government does not pay bills with taxes. It destroys taxes received and creates new money ad hoc. If you were to pay your taxes with actual currency, what would the government do? Shred the currency. There is zero relationship between taxes collected and government spending.

            Define “wealth.”

            Thanks for the tip.

            Rodger Malcolm Mitchell

          2. Septeus7

            Quote: “Prior to 1971, the U.S. was not monetarily sovereign. Federal money creation was limited by our gold supply.”

            Rodger Malcolm Mitchell doesn’t anything understanding about economics or the English language.

            noun \ˈsä-v(ə-)rən, -vərn also ˈsə-\
            Definition of SOVEREIGN
            a : one possessing or held to possess supreme political power or sovereignty b : one that exercises supreme authority within a limited sphere c : an acknowledged leader : arbiter

            The idea that United States was less of a sovereign nation under Bretton Woods which was the period of the unparalleled US domination after WWII and the period of least amount of economic instability and the greatest economic development in human history is absurd.

            A floating rate system is by definition not sovereign as the value of the currency is determined by the market rate not by the Sovereign body aka the United States Government.

            Under Bretton Woods, the value of the currency relative to Gold or any other currency was determined by law as determine an act of Government. If the value of the currency in anyway is determined by forces outside the sovereign body like a group of Oligarchs aka “the Market” then it not sovereign.

            Check any law dictionary, and check the US military dictionary. Economists are con-artist who work for Oligarchs.

            They have no understanding of the basic physical economy of capital i.e principles of engineering and ecology. They have no way of predicting the cost of anything based on balance sheets because a balance sheet doesn’t tell if a machine is going a break down the next month because the welding on machine wasn’t done right. You can’t get that information from your accounts but does it determine the costs to the business? Hell yes.

            Abba Lerner was a Hjalmar Schacht and austerity loving idiot never checked a single legal dictionary before he he came up with his own historically ignorant defintions.

            The limitation of the money supply by a psuedo- Gold Standard was self imposed constraint just as so-called “reserves” and U.S. debt ceiling are self imposed restrains today. The reason for using gold in the balance of payments is a limitation on the Banks by enforcing a physical limitation on the inflating of financial assets by banks.

            After 1971, Banks have inflated financial assets and total investments in infrastructure and value added capital investments has all but disappeared domestically. MMT is a fake “new left” version of neoliberalism working to undermine legacy of FDR and the New Deal. I say we send Keynes and MMT back to the British along with the Austrians and Marxist every other kind of foreign Imperialist Economic philosophy.

            The economy has nothing to with money or units of accounts but with physical “resources” and people.

            Empirical evidence shows tax breaks for the rich drive up costs for everyone and MMT is theoretical model which is by definition wrong. Economic systems are bizarre systems which by definition cannot be modeled. Only model free methods are valid for bizarre systems.

            Quote from Rodger Malcolm Mitchell: “Define ‘wealth.'”

            If you don’t what wealth is then you shouldn’t be talking about economics. Wealth is the accumulation of value. What is value? The physical and political ability to effect transformation in matter resulting in improvement to human survival and living conditions. In short, wealth your represents your cumulative physical power and political power over matter and in associations with other people.

            This is second chapter of Henry Carey’s “the Manuel of Social Science” which is the greatest economic treatise of all time which resulted US industrial policy, Japanese industrial policy, German industrial policy, Taiwan, Korea, currently China, France, Italy, etc… The modern world was build the American system of political economy.

            It was not Keynes, it was not Marx, it was not Adam Smith, not Ricardo, Mises, or any economist of the Imperial Free Trade school.

            Down with Imperialism, down with MMT.

            See Ha Joon Chang for information on actual developmental economics as opposed to the babbling idiots of mathematical economics.

  18. Hugh

    I agree with ella. This is all about wealth inequality. I generally use the formulation: 1% own 1/3 of the country, the top 10% own 2/3 of it. The Cat Food Commission cuts the tax rates of the richest Americans from 35% to 23% and for corps from 35% to 26%. While most Americans are being told to make do with less, the rich are being told to make do with more. We pay more and get less. They pay less and get more. Under such conditions, inequality can only intensify.

    Noticeably absent from the Bowles-Simpson recommendations were how the wars, future Wall Street bailouts, and the repayment of the Social Security surpluses would be handled. I think we all can guess what will happen with each of these.

    What is important to understand is that the money, and the access to resources that money represents, has always been there. But if we tie up most of it in the hands of a few then we deny its use to the rest of us. Money will always be there for the rich, for the wars, for the bailouts. Yet we are told it can’t be there for jobs, education, healthcare, housing, and retirement for the rest of us. This is not because of immutable laws of supply and demand but the greed of people who are too rich and control too much of our political process.

  19. Doug G.

    Interesting that the timing of a breakdown is the last game in town. But for me it is like watching a rich aunt on her deathbed, chest rising and falling with each great rattle, wanting to be the one holding her hand when she exits this world. Each exhale projects a putrid stench into your face as you struggle to hang onto the feeble mitt, or break away to vomit. Die already.

  20. Js

    I fully consider the meme “overpaid government employees” to be just another bit of over-hyped rhetoric. Ok, there is certainly some small quantity of government personnel that are “overpaid” and that should certainly be addresses, but I’m guessing the brunt of the cuts will be targeted at those who are certainly not overpaid.

    Why not this: let Congress lead by example. The government employees will accept a pay cut proportional to the pay cut that Congress gives (and maintains!) on itself. After all, aren’t they in reality also “government employees”?

    1. Rodger Malcolm Mitchell

      Federal spending is stimulative, because it adds money to the economy. Federal salaries are paid by federal spending. So a reduction in federal salaries, would reduce the amount of money coming into the economy — i.e anti-stimulative.

      Or we simply could fire those federal employees, which would add to unemployment — also anti-stimulative.

      Rodger Malcolm Mitchell

      1. Jason Rines

        Or we could create a level playing field and discourage monopoly, encourage capital formation and get far better return from the private sector than unions. Is anybody going to argue that unionized works outperform the private sector?

        1. Angry zebra

          Aren’t unions part of the free market, allowing collective action by labor to compete with capital owners?

  21. Hugh

    It alls depends on what you mean by “outperformed”. You can pay non-unionized labor less and demand the same amount of work from them as unionized labor and then claim that non-union labor is more “productive” than union labor. That is a trivial, obvious finding.

    We have seen, however, the results of such thinking over the last 30 years. We get a deteriorating society with great wealth inequality in it. Wages stagnate and wealth aggregates on the investment side. Rents become more important than labor. Jobs are not only de-unionized but shipped overseas.

    Unions were not about making workers less productive. They were about protecting the existence of the middle class. In that sense, both unionized and non-unionized workers benefited from them.

  22. Paul Tioxon

    Won’t freeing up all of this public waste allow the private debt which is, what 5-10x the public debt?, more than the public debt balloon even further. I mean, when you calculate loan to value ratios and debt service capacity and you carve out a huge amount of money from the government doesn’t this automatically trigger a 15,000 overpriced finance newsletters to announce the new gold rush? I would hope that Goldman and Morgan Stanley et al would have all kinds of investor soft sell events heralding the coming boom in something or another now that all of the money that used to get flushed down the toilet for schools and keeping old people on track to get even older is now available to be scooped up as it becomes disposable or discretionary or just spare change floating around with no real purpose.

  23. Moneta

    My quick read of the proposals confirms my prior expectations that anyone in America who is under 45 should just bend over now.
    If the young get screwed, the old will get screwed too.

    They can print all the money they want and fork it over to the boomers, but if the young are pushed aside and productivity is not there, their money won’t buy much.

  24. playon

    “anyone in America who is under 45 should just bend over now…”

    It’s the baby boomers who are now really taking it in the shorts… after working their entire lives, in their senior years they get screwed out of social security, their pensions have been gambled away, the value of their homes have dropped like a stone, and big-time inflation awaits their golden years.

  25. ella

    Absent substantial auditing of government contracting to private industry, there is simply no way to know if contracting / privatizing government work is cost effective. But here is a sample audit… “Contractors billed New Jersey $27 for light bulbs, and ran up tens of thousands of dollars in other “unreasonable costs” on a $119 million weatherization program funded with U.S. stimulus money, the state auditor said.”

    These stories are all too common. Take a look at private contracting in the Iraq and Afgan war. You will find huge contracting rip offs of the taxpayer.
    Here is another example. “For more than a decade, banks and insurance companies convinced governments and nonprofits that financial engineering would lower interest rates on bonds sold for public projects such as roads, bridges and schools. That failed promise has cost more than $4 billion, according to data compiled by Bloomberg, as hundreds of borrowers from the Bay Area Toll Authority in Oakland, California, to Cornell University in Ithaca, New York, quietly paid Wall Street to end agreements since 2008.”

    We are talking about taxpayer dollars at the federal, state and local level. Massive audits are needed. Fraud on the taxpayer should be seriously punished. Where the government can do the work better and cheaper, the work should be done by government employees.

  26. notwithstanding

    Propaganda: The Bush tax cuts provided one of the longest periods of economic growth in history… somehow, the housing bubble, for which we’ll be paying for decades, has been lost… Supply side economics might make sense if the money were invested here, and demand side economics might make sense if the money stayed here… We’re in a box and it is not clear how we’re going to get out. Giving the wealthy money sends it overseas for investment. Giving the poor money sends it overseas for consuption… Where do we go??? The future doesn’t look particularly positive no matter what the government does with tax policy.

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