Friday, January 1, 2010

Bad Omens Point to Much Harder Times Ahead...

We tried Keynesianism, most recently between 1964 and 1981 and with predictably calamitous results – inflation and unemployment steadily rose during that period, until both spiraled out of control, along with interest rates in the late 1970’s STAGFLATION, which saw a staggering 22 point Misery Index (the worst since the Great Depression) and a Prime Lending Rate that topped 21%!

Ironically enough, it’s Keynesianism (Liberal economics) that got us into our current economic disaster and its hyper-Keynesianism that is almost certainly going to make it much, MUCH worse.

Leftists still inanely insist that the Bush tax cuts “led to deepening deficits,” which of course, is demonstrably UNTRUE.

G W Bush’s across the board income tax RATE cuts, greatly INCREASED income tax revenues and halved the deficit by 2006! The idea that, “had Americans paid taxes on all that income at the old rates, the revenue increases would’ve been much larger,” is patently absurd.


Because “people respond to incentives!”

The ONLY reason Americans (especially the top 10% of income earners in America) paid more in income taxes when the tax rates were lowered, was because those lower rates allowed them to keep more of THEIR money. Had the tax rates remained higher, they would have UNDOUBTEDLY and UNDENIABLY continued to defer more of their income upfront. No one denies that and no one has EVER confronted me with even “the possibility that Americans MIGHT have paid more in taxes, even at higher rates.” That would run counter to our very human natures.

What are some of the signs of impending harder times?

They are legion, not the least of which is the fact that both silver and gold have more than doubled since the start of 2009.

Another is all the news of impending Municipal layoffs across the nation as tax revenues fall.

How bad is that?

Many economists have noted that using federal stimulus money to avoid layoffs at schools, as a huge number of states are now doing, is going to create shortfalls even more difficult for states and schools to contend with when that money runs out.

New York State has seen a huge source of its revenues decrease, as Wall Street has been hit hard by the current recession, but other states across the country face a similar dilemma, as they too have been using stimulus money to plug budget holes instead of paying for one-time expenses.

A Government Accountability Office report released a week ago found 63 percent of states in a representative sample planned to use 50 percent of their school stimulus money to retain jobs. Other uses were nonrecurring items including equipment.

On top of that, huge tax increases loom large, including steeply higher costs for energy even if Cap and Trade fails to pass (which it should fail), as the EPA has no presumed the power to regulate CO2 emissions, threatening to skyrocket America’s energy costs at a time when those costs SHOULD BE dropping!

Energy use is a reliable measure of human advancement.

Union workers have found out that Pelosi-Care/Obama-Care seeks to slam them with a HUGE tax bite!

To pay for expanded coverage, the House bill imposes a 5.4 percent income tax surcharge on individuals making more than $500,000 and families earning more than $1 million. The Senate Bill slaps a 40 percent tax on insurance plans with premiums above $8,500 for individual coverage, and $23,000 for family plans, among other levies.

Senate Finance Committee chairman Max Baucus said the Senate bill's tax on high-cost insurance plans won't really be a tax on insurance. "After a while, there wouldn't be any tax, because companies just would find a way to avoid it," Baucus said, by which he meant employers will trim their insurance plans to keep them under the taxable threshold and instead will pay workers more in cash. Brookings Institution economist Henry Aaron agreed, saying, "Workers will receive a larger proportion of their compensations in the form of taxable wages, rather than untaxed health insurance. That's where the revenue gain comes from."

The Senate bill would, in effect, be an income tax increase, as the House bill would. But the House bill would hit high-income people, while the Senate bill would have an impact on some middle-income workers who happen to have high-cost insurance.

In chasing revenue to help pay for health-care reform, Democrats have managed to rally two groups that usually tend to oppose each other - unions and Big Business. The focus of their ire is that proposed 40% excise tax on high-premium or so-called Cadillac health plans.

The proposal targets health premiums above $8,500 for individuals or $23,000 for families, with the tax beginning in 2013. The excise tax would provide the government an estimated $149 billion by 2019, according to the Congressional Budget Office. The complete $848 billion reform bill is expected to lower the U.S. deficit by $130 billion.

Over the years, many unionized workers have given up wage increases in return for more comprehensive benefits as health-care costs outpaced inflation. The International Brotherhood of Teamsters warns that an excise tax could lead to steep reductions in benefits or exorbitant cost increases. "It is important that senators understand the damage that the excise tax provision could have on working Americans," the Teamsters said in a Nov. 23 e-mail to supporters. The tax would fall on one-third of Americans in a decade, the Teamsters say, with the average affected household paying $7,600 more in taxes between 2013 and 2019. "In the end this tax will just be passed off to workers and retirees either in the form of higher premiums or reduced benefits," AFL-CIO spokeswoman Amaya Tune wrote in an e-mail.

Moreover, such an excise tax results in even more geographical tax discrimination! Whereas a plain-vanilla health plan in Boston, for example, can cost more than one with incredibly rich benefits in Des Moines. These various factors make defining Cadillac plans a difficult exercise.

Besides all that, former Minnesota state legislator Allen Quist points out that two single people each making $30,000 per year would pay $1,320 combined for private health insurance if the Pelosi House bill was in effect now. However, if the two individuals were to marry, they would pay a combined cost of $12,000 a year for the same level of insurance under the Pelosi bill.

Quist notes this "marriage penalty" extends all the way from a two-person combined income of $58,280 to $86,640. The GOP candidate notes that that $28,000 spread encompasses a large number of Americans.

"Let me be very blunt," says the House hopeful. "Tyrants know that marriage and family are the basic core of society and the basic foundation of government -- and if people are going to control others, they see marriage and family as their number-one threat.

"So tyrants always want to weaken the family," he concludes, "and that's what this bill is designed to do. And it's designed to do it very effectively."

“Once the income of Americans exceeds 400% of the Federal Poverty Level, there are no limits on the premiums they can be charged, and their premiums are no longer subsidized. The poverty level is much higher for two people living unmarried as compared to the same two people being married. That is why citizens in many cases will pay far more for insurance if they are married. Why should married people be subjected to financial discrimination?

“This extraordinary penalty people will pay, should they marry, extends all the way from a two-person combined income of $58,280 to $86,640, a spread of $28,360. A large number of people fall within this spread. As premiums for private insurance escalate, as expected, the marriage penalty will become substantially larger.

“The Senate bill stipulates that two unmarried people, 52 years of age, with private insurance and a combined income of $60,000, $30,000 each, will pay a combined cost of $2,483 for medical insurance. Should they marry, however, they will pay a combined cost of $11,666 for insurance—a penalty of $9,183 for getting married.

“Businesses will shed their employees and health care dollars into the Exchange, but the dollars that are paid back out will be directed only to those who make less than 400% of the Federal Poverty Level. Those above the Poverty Level will receive none of their previous insurance benefits from businesses. For that reason the new system is income redistribution on steroids.

So rising energy and health care costs, along with higher tax rates promise to REDUCE federal revenues further, while tamping down investment and job creation, making the current predictions of “another decade of high unemployment” an unrealistically rosy one. Those things alone, will, without question, incrementally increase unemployment. That is, unemployment, far from “topping out” at the 10.2% many economists predict right now, is really poised to increase steadily from here.

The rapidly rising prices for precious metals, especially gold and silver are proof that inflation is on the way.

Under Ben Bernanke, the Fed has printed TRILLIONS of new U.S. dollars without any productivity to justify their existence...those dollars ARE already worth less than the dollars of a decade ago and that too, only gets worse from here! The inflation rate is set to increase momentously over the next few years and with China’s and other foreign U.S. debt holders poised to raise the cost of servicing that mammoth debt, there’s no way for the Fed to tamp down the coming inflation by lowering interest rates, as that won’t be an option, once America is paying more to service its own debt. The age of “cheap money” is over.

A twin calamity of the Pelosi-Reid-Obama Debt (it’s THEIR DEBT, since Pelosi-Reid added $over $3 TRILLION between 2007 and 2009 and a whopping $1.4 TRILLION over the last year alone) is that as the interest the U.S. government pays on that debt increases, the Fed will HAVE TO charge higher interest rates to its borrowers – American businesses and industry.

That means fewer new jobs will be created (higher unemployment), higher inflation (as the fed continues to print mountains of currency) and higher interest rates, which will dampen business expansion and slam the housing market with higher home mortgage costs.

There’s virtually no good news in the indicators we see before us.

For all rational Americans wondering what just happened, it’s important to note that Keynesian (big government/LIBERAL) economic policies got us into this mess and are currently making it much, MUCH worse!

For over two decades the U.S. government pressed banks to lend more money to low-income borrowers. The Reno justice Department brought suit against numerous banks for failing to do just that.

When banks began their first round of massive subprime lending in the 1990s (over $1 TRILLION of such loans were made between 1993 and 2000), they had to be bailed out. Once bailed out, those banks realized that “there was no down side to reckless lending policies,” so long as the Federal government would back them up and bail them out.

In effect, they were betting on bad loans with our tax dollars!

When the Dodd and Frank controlled GSEs (Fannie Mae and Freddie Mac) were pressed to buy/guarantee a new wave of subprime loans at the start of the last decade (some $4 TRILLION in subprime loans were made between 2002 and 2008), the GSE’s share of the U.S. mortgage market skyrocketed FROM an already far too high 24% to a staggering 51%!

That bit of government malfeasance in the mortgage market is what caused the current economic calamity.

Moreover, since the U.S. has had a “highly regulated market” (also called Corporatism) since 1912, the failures of the current financial order aren’t “a failure of the free market,” as we haven’t had a free market in nearly a century, but a failure of the REGULATED market!

All this makes economic policy all too clear, the government-run or “Command economy” has failed everywhere it’s been tried, so if the regulated market also fails, that ONLY LEAVES the pure free market espoused by America’s Founders as the only viable option remaining.


At-The-Water-Cooler said...

Linked to your post form Jeremiah Films - Obama's Keynesian Jobless Recovery

JMK said...


That's a great mix of articles there....especially the WSJ rticle on the coming costs of Keynesian economic policies.

Skunkfeathers said...

Having lived through the previous Keynesian economic face plant, I am prepared to lose everything again, thanks to the untriumvirate of Barry, Pelosi and Reid. May they all go down in flames at the ballot box in '10 and '12.

JMK said...

The REALLY sad thing about all this is that a clueless (math-impaired) media joined the chorus blaming Capitalism and "the unregulated free market" for the current economic crisis.

We haven't had a "FREE market" in America since 1912!

What this is, is the failure of the REGULATED market.

Government began pressuring banks to invest more of their proceeds into the communities where they exist (DUMB IDEA) and to offer "low income Americans" (that's "people who can't pay loans back") mortgages and other lines of credit that are, as Senator Proxmire extolled "the levers of wealth."

Look, low skilled and low income Americans SHOULD be excluded from the levers of wealth and wealth creation.

CREDIT IS wealth! Credit MUST BE earned.

By coercing banks to join an inept (Keynesian) government in social engineering, the government undermined the sound banking practices that made America's banking industry (pre-1979) the best in the world!

The feds bailed out numerous American banks in the 1990s after they made a bundle (that's $1 TRILLION worth) of bad (subprime) loans in the 90s.

After that, the banks KNEW that ultimately, they weren't loaning/betting (as Barney "Fife" Frank called it, "Rolling the dice") with their monies, they were betting with TAXPAYER monies.

The GSEs (Fannie Mae & Freddie Mac) were signed onto buying/guaranteeing all those subprime loans, so between 2000 and 2008, they floated a whopping $4 TRILLION worth of bad paper and brought the entire financial house down!

Keynesian economic policy and what Andy Cuomo rightly called, "Affirmative action in lending" is what caused the current economic collapse....BUT the zipper-head Keynesians blamed "CAPITALISM" for THEIR mess....and the media and thus a huge segment of the American people went for it!

THAT'S why things are only going to get worse...much, MUCH worse, BECAUSE G W's Keynesianism has been followed up by Obama's hyper-Keynesianism!

This will be far worse than the inept hyper-Keynesian Carter following the ultra-Keynesian Richard Nixon.

The only saving grace (and frankly, it isn't much of one) is that THIS TIME scores of public sector workers will get slammed....armies of teachers, social workers, cops and firefighters will be laid off, so it won't only be the private sector that gets slammed this time.

Hopefully the lesson that it's only a VIBRANT PRIVATE SECTOR that allows a robust public sector to even exist, will soon sink in!

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