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The Fiscal Cliff

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  • #519312
    hugh59
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    The government is not “investing” in the future; it is borrowing to pay its current operating expenses. Sooner or later interest rates for government borrowing are going to go back up. When they do it will no longer be possible for the government to keep borrowing. By then we will be addicted to the current level of programs.

    #519313
    rus
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    hugh59 said:
    By then we will be addicted to the current level of programs.

    We’re not addicted now?

    #519314
    rosebush
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    I’m torn between thinking the ‘austerity’ measures (pushed by western governments since the 2008 financial meltdown) are utter stupidity or absolute cunning .. maybe a bit of both. By laying off public sector workers, attacking pensions and welfare entitlement, and cutting back on services, they’re effectively taking money *out* of the economy .. removing the purchasing power that a recovery requires. The only ones benefiting are those who are snapping up public assets at knock-down prices (e.g., Greece). Across Europe at least some people seem to have seen through it as a massive con. The only country that bucked the ‘harsh austerity’ prescription was Iceland, where they let the banks fail, and they’ve done rather well ..

    #519315

    myliftkk
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    hugh59 said:
    The government is not “investing” in the future; it is borrowing to pay its current operating expenses. Sooner or later interest rates for government borrowing are going to go back up. When they do it will no longer be possible for the government to keep borrowing. By then we will be addicted to the current level of programs.

    Whether or not the government is expending receipts in methods that are intended to generate further receipts, or forestall further expenditures later, is a wholly different point than whether total expenditures are covered by a combination of receipts and borrowing.

    You might ask Bill Gross about the “sooner” part of interest rates. Legend has it he’s lost a boatload betting on that. Rates will go up when investors find a safer bet for their money. The way the rest of the world looks, I wouldn’t bet any money on that happening anytime soon. Why wouldn’t you invest in the world’s largest insurance company with the world’s best army?

    #519316

    myliftkk
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    gramarye said:
    This is true as far as it goes, but piling more public debt (which ultimately gets paid by taxing the private sector) on top of our already-significant private debt overhang is not the way to get people employed again because employers are more reluctant to hire when they already have significant debt service payments and also know that they might soon be called upon to make more significant public debt service payments (a.k.a. higher taxes).

    We definitely need to get more people employed. I don’t think anyone is arguing otherwise. The question is whether simply letting the “fiscal cliff” happen is going to result in a net positive or a net negative (counting both the short and long term) for the employment picture. I’m inclined to side with Walker and rus and say let it happen, even though I know that it would mean an increase in taxes across the board.

    Btw, there are charts showing the private overhang of debt has already been significantly reduced.

    You realize the “fiscal cliff” has nothing to do with the Bush taxes expiring right? Those are two entirely different things. The fiscal cliff is a policy trigger that enforces mandatory fiscal cuts in targeted expenditure segments of the government budget based on the failure to pass a fiscal budget that meets the same goals (1.xT of reductions over the next 10 years). The deadline for that occurs sometime in Jan/Feb. Before that though, is the possible expiration of the entirety of the Bush tax cuts, which would would mean an injection of about 1T in terms of government revenues into the budget calculations (which changes the fiscal cliff negotiations dramatically). If the Bush tax cuts expire, the fiscal picture for the government budget is a lot less bleak going into negotiations on the cliff. They, meaning policymakers, only have to make up the difference between the revenue raised by the expiration and number targeted in the fiscal cliff policy (which is a lot smaller if tax rates revert back) to essentially defuse the trigger.

    Only real issue with the cliff is if people (not the rich, who save most of it anyhow, but the unwashed masses) further depress spending because payroll tax increases (which would hit most workers every 1 to 2 weeks), the economy isn’t going to see any more demand, and the risk of a 2nd recession is high.

    Politically, it’s a win-win for Dems. They have a worst case scenario of higher revenues and pre-pinned blame for any economic failure on the GOP (which the majority already believes) if they go don’t buckle on the higher marginal rates question.

    #519317

    myliftkk
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    gramarye said:
    The problem is that with deficits being what they are, if taxes don’t go up now, we know that they’re going to have to go up later–and likely by even more. Since economic actors act today based on their best guess of what’s coming in the future, that will slow economic growth even with lower taxes.

    That assumes always economic actors are always rational, which is by the evidence, grossly untrue. Otherwise, there would have never been a financial bubble.

    You and I may be rational actors when it comes to economic matters, but most people are not, and studies consistently prove this to be the case.

    #519318

    tdziemia
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    Here is what happened historically to tax rates in the last de-leveraging.
    Public debt peaked at 120% of GDP in 1946-47. Tax receipts actually dropped from 20% of GDP during the war to about 16% of GDP from 1946 to 1950, then were very steady, at an average of about 18% for the next 30 years. So the last deleveraging occurred with very little increase in federal revenue (taxes) compared to the prior period.

    Yes, taxes will need to go up by several percent of GDP to get us out of the current predicament. The question is what’s the best way to do it (which taxes, and at what rate of increase from the current historically low levels). My vote is increase taxes on the top quartile, and especially on the top few percent, cap the mortgage interest deduction, which most economists think is a stupid incentive anyhow, close the ridiculous loophole for hedge fund managers (symbolic), increase the capital gains rate somewhat. All of these moves will not affect consumer behavior anywhere near as much as increasing taxes across the board.

    #519319
    rus
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    http://www.huffingtonpost.com/2012/11/18/obama-fiscal-cliff_n_2155018.html

    While touring a monastery in Thailand on Sunday, President Barack Obama fused together prayer and the fiscal cliff.

    Obama was with Secretary of State Hillary Clinton for a tour of the ancient Wat-Pho temple. In the process of viewing the site, the impending budget negotiations became a topic of conversation.

    “We’re working on this budget,” Obama said in front of the monk, according to Reuters. “We’re going to need a lot of prayer for that.”

    The Associated Press adds that Obama later said he was not joking about prayer’s role in America’s fiscal challenges.

    “I always believe in prayers,” the president said. “I believe in prayer when I go to church back home, and If a Buddhist monk is wishing me well, I’ll take whatever good vibes he can give me to try to deal with some challenges back home

    #519320
    rus
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    http://online.wsj.com/article/SB10001424127887324595904578123593211825394.html

    U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.

    Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.

    Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.

    At the same time, exports are slowing or falling to such critical markets as China and the euro zone as the global economy downshifts, creating another drag on firms’ expansion plans.

    Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.

    #519321
    News
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    Tax Talks Raise Bar for Richest Americans
    By DAVID KOCIENIEWSKI
    Published: November 19, 2012

    By most measures, the personal finances of Anne Zimmerman, a small-business owner in Cincinnati, have little in common with those of Oracle’s chief executive, Lawrence J. Ellison. Ms. Zimmerman runs an accounting business and a cloud-based Internet service company with combined annual profit of $250,000 to $500,000 in recent years. Mr. Ellison made nearly $15 million in salary, bonuses and perks in 2011, even without the $62 million he received in stock options from Oracle.

    READ MORE: http://www.nytimes.com/2012/11/20/business/economy/tax-talks-raise-bar-for-richest-americans.html?ref=business&_r=1&

    #519322
    Schoolboy
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    To be honest, I’m fairly confident that a “bipartisan” agreement will actually come up with a far inferior plan than the so called cliff.

    Instead both sides will completely cave thus resulting more in a kicking the can down the road approach.

    It actually confuses me to see so many people believing that both sides will finally work together for the good of the country and not their own constituents. I guess there is always hope… but let’s be realistic.

    #519323
    gramarye
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    myliftkk said:
    You realize the “fiscal cliff” has nothing to do with the Bush taxes expiring right? Those are two entirely different things.

    No, they are not. The “fiscal cliff” is the combination of the Bush tax cuts expiring, the Obama stimulus-plan tax cuts expiring (e.g., payroll tax cut), and the sequestration measures put into place to pressure Congress to get a budget passed, all hitting at once. It is all of those things combined.

    #519324
    News
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    US stocks rise on hopes for budget deal, Europe
    November 19, 2012 5:49 PM ET
    By DANIEL WAGNER

    The stock market finally shook its post-election slump. Investors seized on hope that Washington will reach a deal on the federal budget and drove stocks Monday to their biggest gain in two months. A pair of strong corporate earnings reports also helped.

    The Dow Jones industrial average closed up 207 points, or 1.7 percent. Since President Barack Obama and a divided Congress were returned to power Nov. 6, the Dow had fallen six of eight days and a total of 650 points.

    READ MORE: http://money.msn.com/business-news/article.aspx?feed=AP&date=20121119&id=15811485

    #519325
    Bear
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    gramarye said:
    We definitely need to get more people employed. I don’t think anyone is arguing otherwise. The question is whether simply letting the “fiscal cliff” happen is going to result in a net positive or a net negative (counting both the short and long term) for the employment picture. I’m inclined to side with Walker and rus and say let it happen, even though I know that it would mean an increase in taxes across the board.

    I’m not, myself. First, austerity hasn’t worked for Europe; it’s hindered recovery rather than helping it[/url]. Second, it’s a crappy idea in a recession to begin with—I have no qualms with it during good times, but right now, taking money out of the economy is just a bad idea. It’s true that our debt is exploding—from something like 60-70% of GDP to around 100%. But the reason you want debt low is, in broad strokes, the same reason you want a zero credit card balance: so that when the shit hits the fan, you have an emergency reserve. You pay it off when you’re out of danger—which, given our unemployment rate and the state of our economy, we emphatically are not.

    I do think it’s sensible to start turning deficits around with an eye toward balanced budgets and debt reduction in the short-to-medium term. But across-the-board cuts are rather like doing surgery with a chainsaw. The more I hear from people who’ve realized that their livelihoods would be effected, the more I’m impressed that the indirect consequences would be a lot more dire than most people realize.

    Unfortunately, I’m afraid that much of the outcome will be decided by people’s predilections regarding government and fiscal responsibility in general, rather than our understanding of the wisdom of austerity measures specifically in recessionary times.

    #519326
    News
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    Fiscal Cliff Letter: Small Business Owners Urge End Of Bush Tax Cuts
    Posted: 11/20/2012 4:03 pm EST

    WASHINGTON — More than 600 small business owners and executives wrote a letter to every member of Congress urging them to end the Bush-era tax cuts for the wealthy under any deal brokered to avert the so-called “fiscal cliff.”

    READ MORE: http://www.huffingtonpost.com/2012/11/20/fiscal-cliff-letter-small-business-owners_n_2167229.html

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