Resistance Begins at Ohm!

Wednesday, July 13, 2011

First, we can't go back to those happy days

1. Things change. Adaptation is necessary. Pretending that doing the same things will produce the same results doesn't change reality. It wastes time and that limits the options. The population is getting older and sicker and is unemployed for longer. The first two facts are obvious and aren't changing. The last one may change, but not any time soon. Not unless/until we start producing things in this country and stop sending more money overseas than we bring in.
2. It doesn't matter how high we increase taxes. If we take all the money from people making more than $250,000 per year, it still won't be enough. So the middle/working class is going to pay too, directly and indirectly. The idea that we can close loopholes for corporate jets to pay for college scholarships is ludicrous.
3. It doesn't matter how much we cut discretionary spending. Not far short of simply closing the federal government (meaning the good and the bad - cancer research, national parks, border patrol, too), cutting the budget still won't be enough.
4. If we do nothing, medicare will run out of money and everyone loses benefits. The longer we wait to fix it, the more people will be affected. We can preserve benefits as they are for people 55 and older including those who are already getting benefits - if we act now. If we wait for a new congress, it will be people 60 and over. So whether you are over 55 or under, you have no incentive to put this off. The status quo is not an option.
5. If we do nothing, social security payouts will exceed its income - and benefits will be reduced for everyone. The extra money doesn't come out of the general fund that pays for everything else. While the program is required to be self-sustaining, the benefits that are owed in the future are still obligations that the federal government owns. Increasing income taxes and closing loopholes has no impact on this - it is just changing the subject. Changing payroll SS taxes and retirement ages are required. (There is an issue in that the government has to borrow money to pay back the iou's to the SS program, but no one is proposing not paying them back. One does want to keep the interest as low as possible.)
6. Arguing over things like tax breaks for corporate jets take up more oxygen than the loopholes are worth. $300 million is a joke when we are talking about $trillions we don't have. But singling them out is just mean-spirited. Middle class workers are building those jets after all. Without buyers... does the government take over that industry, too? There are consequences. Take gas/oil taxes. Tax increases result in price increases so the tax ends up being paid by the middle class anyway.
7. The biggest budget killer is interest and the more we borrow, the more of the available budget pie gets eaten by interest. The most important thing is to quit borrowing.  The second most important thing is to keep interest rates down. Making investors worried is counter-productive.
8. Reducing the amount the federal budget increases from one year to the next is not a cut, sorry. Borrowing doesn't go down until spending goes down. Don't be fooled by those smoke and mirrors.
9. Taxes are going to increase anyway. The Bush tax cuts expire in 2013 and the 2% cut in payroll taxes expire in 2012. In this environment, there is no way either of those are going to be removed by this congress.
10. It doesn't matter what actually happens on August 3, perception rules. The markets are driven by what the marketeers think will happen. The damage will be done 7-10 days before that. And those damages are not "undone" by taking action on the borrowing ceiling on August 1. The real damage will be the increase in interest rates for everyone - take credit cards for example. When businesses are paying more in interest, then the price of goods goes up as well.

All this has impact in various ways on jobs - sometimes in unexpected  ways.

There is a smidgen of good news. If you move your 401K to treasuries, those bonds are going to be paying out more interest. If you can take a lump sum and retire to South Vietnam before the Treasury has to pay out, you might just make out. If you can survive inflation until then.

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