Obama Commission Says Us Debt Is Greatest Threat To Security, Urges Sweeping Spending Cuts And Tax Reform

[interestrateripoff]

http://www.telegraph.co.uk/finance/economics/8173986/Obama-commission-says-US-debt-is-greatest-threat-to-security-urges-sweeping-spending-cuts-and-tax-reform.html

America's growing budget deficit is the greatest threat to the country's prosperity and security, President Obama's Debt Commission warned, as it recommended sweeping cuts in government spending and an overhaul of the tax system.

The National Commission on Fiscal Responsibility and Reform laid out a plan to cut the US budget deficit to 2.3pc of gross domestic product by 2015 from 9pc this year.

The commission, which was appointed by President Obama in February, argues that savings need to be found across all departments, including defence and healthcare programmes such as Medicaid.

.........

"Our challenge is clear and inescapable: America cannot be great if we go broke," the report, titled 'The Moment of Truth', said.

Meanwhile, the report from President Obama's commission called for $200bn in savings to be made by the goverment in federal spending in a plan that argues no programme should be sacrosanct. The government can save $13.2bn by 2015 by cutting 200,000 jobs, or roughly 10pc of the Federal workforce, while $800m can be saved by cutting the budgets of Congress and The White House by 15pc. The report also recommends a three-year pay freeze for all members of Congress and government workers.

"Like citizens, government must also be willing to do more with less and live within its means," the report says, which was co-authored by Democrat Erskine Bowles and Alan Simpson, a Republican.

The 59-page report also claims that more than $1 trillion a year is wastefully spent because of a tax system that is "fundamentally unfair, far too complex, and long overdue for sweeping reform." Besides arguing that the country's very wealthiest should pay more, the commission calls for corporation tax to be no lower than 23pc but no higher than 29pc.

Not read the full report but I bet that there is one key bit missing to is all, I bet there is NO PLAN TO PAY BACK THE DEBT.

You can cut all the jobs you want but with no clear plan to pay off the debt this is pointless. It would appear that they are trying to grow there way to service the debt only.

Still what better way to plug the deficit than by cutting taxes. We have true geniuses at work here.

The debt is too big ultimately, the promises made are ultimately unaffordable.

But as long as we pretend it will all be OK.

[interestrateripoff]

http://market-ticker.org/akcs-www?post=173658

You may as well pronounce this one "DOA" before it is even voted on:

Our challenge is clear and inescapable: America cannot be great if we go broke. Our businesses will not be able to grow and create jobs, and our workers will not be able to compete successfully for the jobs of the future without a plan to get this crushing debt burden off our backs.

Ever since the economic downturn, families across the country have huddled around kitchen tables, making tough choices about what they hold most dear and what they can learn to live without. They expect and deserve their leaders 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.

We have?

99 weeks of unemployment and the majority of the unemployed don't drop their $100 cellphone plans and $100 cable and Internet service. This despite the fact that essentially every town in the nation nowdays has Internet access available in the public library for those times you really do need it, and cell phones were not invented yet in the 1970s and 80s - yet somehow I managed to live and travel all over the nation without it.

"Black Friday" features the proletariat again bowling one another over at the door to get that latest piece of crap Chinese bauble.

And yet there's not one word of austerity from our government - or, for that matter, from our monetary authority at The Fed. Instead what The Fed proposes and does is to devalue the currency by directly monetizing the profligacy of the US Federal Government.

Independent central bank? Uh, no. More like fellator-in-chief for our President and Congress.

As members of the National Commission on Fiscal Responsibility and Reform, we spent the past eight months studying the same cold, hard facts. Together, we have reached these unavoidable conclusions: The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead.

Washington will not lead. Nor will it follow. Washington will do nothing about this because doing so means telling Bernanke to stick a sock in his mouth and literally severing his ability to monetize. It means recognition of the fundamental fact that I have been talking about for the last three and a half years - that one cannot expand credit at a rate that exceeds the expansion of GDP, as doing so both debases the currency and results in negative real borrowing costs, which always causes asset bubbles.

This game - the lie that comes from ignoring exponents - is what our government and indeed our media promotes. Turn on Bloomberg, CNBS, any of the other major outlets or listen to Congress. This is all you hear. "Growth and more growth." Yet growth on a compound basis into the indefinite future is impossible - we live on a planet with a finite land mass and in a nation with a finite mass and finite resources. While we can expand to fill that on a permanent forward basis the idea of five percent growth annually is insane - this doubles output every fifteen years, roughly. How many doublings do you think we can manage to pull off?

In point of fact we haven't pulled off nearly as many as we claim. What we've done instead is cheated by creating more credit and debasing the currency. This is false growth. It is a lie. It destroys the savings of Americans and trashes their ability to provide for their own security, and nobody cares. Well, not initially anyway.

Ultimately everyone will care, which is what this report claims to be the case. But "caring" means we have to take this bull by the horns and deal with it. And there's no evidence - at all - that we will.

After all the talk about debt and deficits, it is long past time for America’s leaders to put up or shut up. The era of debt denial is over, and there can be no turning back. We sign our names to this plan because we love our children, our grandchildren, and our country too much not to act while we still have the chance to secure a better future for all our fellow citizens.

Our leaders will shut up.

Why?

Because putting up means:

*

Collapsing the bankrupt institutions - including all of the largest banks - and forcing them to recognize their actual losses. This means removing the ability to maintain fantasy valuation claims on HELOCs behind defaulted firsts that are underwater, it means recognizing when securities were sold without being actually perfected in securitization, it means enforcement of actual market price in all asset valuations and it means jailing those who lied and breaking up those institutions.

*

Collapsing housing prices to actual utility value. Removing speculative premium from housing isn't just a good idea, it's necessary. A house is a consumer durable good. Allowing it to be a speculative financial instrument is beyond idiotic; it is a demonstrably fraudulent practice and mathematically impossible to sustain.

*

Fixing our balance of trade problem. This means putting a stop to offshoring of labor as a means of chasing slave labor and avoiding environmental regulation. This is the real reason why we have seen the destruction of our labor base - we're sending our labor overseas not because we're less-skilled here in the United States but because we don't allow people to spew poisons into the air and water, nor do we allow them to build barracks and effectively force the labor force to live there and work under slave-like conditions. This is the legacy of our "manufacturing", whether it be to make clothes or toys.

*

Recognition that multiples and leverage in the markets that are based on the above has to come out. The idea that we can "sustain" multiples of 15-20x in markets is only possible when one has massive scams, environmental damage and fraud from the above. Banks without financial scams are institutions that earn mid-single-digit returns - all in dividends and are priced near book, as they are effective utilities. Companies without the ability to play leverage games are priced at their net operating margin on a perpetual basis which, again, is mostly paid out in dividends - which means their P/E ratios are cut in half - or more!

*

Real rates must rise to the point that it is never free (nor are you paid) to borrow. That is, borrowing money has to be expensive, so you do it only when you believe you can earn more via production than the borrowing costs. This is a major problem for the so-called "permanent growth" folks - in point of fact it means that credit must contract back to about half of what is outstanding now, and this will shrink GDP!

Best of luck on any - say much less all - of the above.

Our nation is on an unsustainable fiscal path. Spending is rising and revenues are falling short, requiring the government to borrow huge sums each year to make up the difference. We face staggering deficits. In 2010, federal spending was nearly 24 percent of Gross Domestic Product (GDP), the value of all goods and services produced in the economy. Only during World War II was federal spending a larger part of the economy. Tax revenues stood at 15 percent of GDP this year, the lowest level since 1950. The gap between spending and revenue – the budget deficit – was just under nine percent of GDP.

No. The deficit was closer to 12% of GDP and in point of fact has been at 10% or over since 2007:

Since the last time our budget was balanced in 2001, the federal debt has increased dramatically, rising from 33 percent of GDP to 62 percent of GDP in 2010. The escalation was driven in large part by two wars and a slew of fiscally irresponsible policies, along with a deep economic downturn. We have arrived at the moment of truth, and neither political party is without blame.

Our budget was not balanced in 2001. It was, however, close (blue line.) Wars were not the primary problem, however, and expansions in debt (deficits) that match or are less than GDP growth in private terms (that is, where the red line is above the blue line) are not damaging. In fact, they show improving fiscal stability.

However, what is intolerable is a red line that is under the blue line. Such a state is unsustainable, as noted by the commission. Unfortunately we now are at a point where this number has approached 20% of GDP - for three years running. None of this has do with "wars", which have been going on since 2001.

All of it is due to attempting to prop up failed institutions and fiscal policies.

The Congressional Budget Office (CBO) projects if we continue on our current course, deficits will remain high throughout the rest of this decade and beyond, and debt will spiral ever higher, reaching 90 percent of GDP in 2020.

Debt is already to basically 100% of GDP if you count transfers out of the Social Security and Medicare programs. And if you don't, you're being dishonest so long as those programs exist.

Federal debt this high is unsustainable. It will drive up interest rates for all borrowers – businesses and individuals – and curtail economic growth by crowding out private investment. By making it more expensive for entrepreneurs and businesses to raise capital, innovate, and create jobs, rising debt could reduce per-capita GDP, each American’s share of the nation’s economy, by as much as 15 percent by 2035.

A 20% reduction in GDP in real terms no matter what is done nominally is unavoidable as we sit right now.

If we don't cut the crap and do it soon we're going to face a forty percent collapse in GDP, as two more years of this garbage will put us in a position where that becomes unavoidable. Attempting to "print" our way out of the mess with monetization through QE-whatever doesn't change this - you can change the nominal numbers but not the real impact on citizen's finances.

Unfortunately the commission continues to smoke bone. Specifically:

Don’t disrupt the fragile economic recovery. We need a comprehensive plan now to reduce the debt over the long term. But budget cuts should start gradually so they don’t interfere with the ongoing economic recovery. Growth is essential to restoring fiscal strength and balance.

There is and has been no recovery. Printing and borrowing money is not "recovery." Back out the deficit spending beyond economic growth and you see that we're down 10% for the second year in a row - the definition of Depression.

We cannot avoid reality and the longer we keep this crap up the worse the adjustment will be as these distortions must come back out at some point, and the longer we keep accumulating that damage the worse the adjustment will be.

Don’t make promises we can’t keep. Our country has tough choices to make. We need to be willing to tell Americans the truth: We cannot afford to continue spending more than we take in, and we cannot continue to make promises we know full well we cannot keep.

You just lied. See above.

Nobody wants to stop putting today on the credit card and promising to pay tomorrow, but that's exactly what has to happen.

More to the point, it is what is going to happen. We still have the ability to choose how and when, but that option and ability will not exist for much longer. These choices will be made for us if we refuse to make them ourselves.

The general plan put forward is good. But the hopium has to stop being smoked, and that includes in the commission.

Sadly, the evidence for that is absent.

Dennigers take on the report.

Still it's all contained...

[Timak]

They are proposing increasing the retirement age to 69!

69 years old!

They are saying income tax should FALL for all to reduce the defecit, even for the richest who would see a reduction of about 7% in their income tax.

The temporary 4% reduction in highest rate tax rates increased the defecit by $80b a year!

This is the final destruction of the US by the richest 1%.

[The Masked Tulip]

The only option the US has is a 50 year Cold War with China in which Chinese goods are no longer freely available in the US.

This would allow the US to grow its own economy, start making things and selling the things they make to each other again.

[interestrateripoff]

The only option the US has is a 50 year Cold War with China in which Chinese goods are no longer freely available in the US.

This would allow the US to grow its own economy, start making things and selling the things they make to each other again.

I like how you think the big multinationals would move the jobs back to the US.

That won't happen until US workers are the lowest paid in the world. The way things are going that won't be too far away. Although quite how US workers will be able to afford the goods they will be making I'm not too sure.

[The Masked Tulip]

I like how you think the big multinationals would move the jobs back to the US.

That won't happen until US workers are the lowest paid in the world. The way things are going that won't be too far away. Although quite how US workers will be able to afford the goods they will be making I'm not too sure.

No, they would not have to become the poorest workers. The US would just need to pass an Act of Congress stopping work going overseas and, more likely, a big propaganda campaign about CEOs off-shoring work being un-American... being un-American is a small step from being traitorous...

Intel's Andy Grove has been talking along these lines about the US needing to keep jobs in the US and bring jobs back from China... I can see this gathering big momentum in the coming years.

[interestrateripoff]

No, they would not have to become the poorest workers. The US would just need to pass an Act of Congress stopping work going overseas and, more likely, a big propaganda campaign about CEOs off-shoring work being un-American... being un-American is a small step from being traitorous...

Intel's Andy Grove has been talking along these lines about the US needing to keep jobs in the US and bring jobs back from China... I can see this gathering big momentum in the coming years.

But the US will need to export, so wages will play a factor in this.

I agree that the US needs to bring jobs back and calling those companies un-American will cause huge problems. A lot of mud slinging to come, although I would expect to see a shift with some companies bringing home jobs soon so they can ride the way of nationalism whilst slinging mud at their competitors for being un-American.

[Timak]

I know they have been brainwashed into being "anti-redistribution of wealth" but they have a ridiculous third world wealth profile.

There is plenty of money for them to all have a stunning quality of life with just a bit more tax on the rich.

[The Masked Tulip]

But the US will need to export, so wages will play a factor in this.

I agree that the US needs to bring jobs back and calling those companies un-American will cause huge problems. A lot of mud slinging to come, although I would expect to see a shift with some companies bringing home jobs soon so they can ride the way of nationalism whilst slinging mud at their competitors for being un-American.

Why would they need to export in such a situation that I talk about? The US is such a vast internal market that they could simply pull up the drawbridge and do as I suggest.

If you visit the US often you discover all sorts of products that have earned their US creators vast fortunes that you hardly hear mention of outside of the US. The Yanks could allow a few chosen 'friends' such as us, the Japanese maybe - although the likes of Sony, etc, would also probably be forced to pull out of China - and aways the US goes getting back to dominant position again.

I think it would be bad for Mankind if this happens but I can see it happening.

[interestrateripoff]

Why would they need to export in such a situation that I talk about? The US is such a vast internal market that they could simply pull up the drawbridge and do as I suggest.

If you visit the US often you discover all sorts of products that have earned their US creators vast fortunes that you hardly hear mention of outside of the US. The Yanks could allow a few chosen 'friends' such as us, the Japanese maybe - although the likes of Sony, etc, would also probably be forced to pull out of China - and aways the US goes getting back to dominant position again.

I think it would be bad for Mankind if this happens but I can see it happening.

I don't protectionism will help, it's never worked in the past and the I think US debt levels are a noose around their necks. Unless they default/pay back the debt I can't see this working.

[The Masked Tulip]

I don't protectionism will help, it's never worked in the past and the I think US debt levels are a noose around their necks. Unless they default/pay back the debt I can't see this working.

Protectionism... well, they won't describe it as such... but this is the road we are now travelling down... It is only a matter of times before the trade barriers begin going up.

[shindigger]

I like how you think the big multinationals would move the jobs back to the US.

That won't happen until US workers are the lowest paid in the world. The way things are going that won't be too far away. Although quite how US workers will be able to afford the goods they will be making I'm not too sure.

FLIP!!

[Fishbone Glover]

But the US will need to export, so wages will play a factor in this.

Why? Wouldn't import substitution be sufficient?

[oracle]

But the US will need to export, so wages will play a factor in this.

I agree that the US needs to bring jobs back and calling those companies un-American will cause huge problems. A lot of mud slinging to come, although I would expect to see a shift with some companies bringing home jobs soon so they can ride the way of nationalism whilst slinging mud at their competitors for being un-American.

it'll certainly need to import considerably less than it presently is,but you could also say exactly the same about europe.If the leadership of the EU would stop bickering and playing such a stupid game of one-upmanship with uncle sam,maybe they could finally figure out that BOTH sets of blocs face similar issues.

technological,demographic,ecological..the lot....and it would make sense for a bit more cohesion,if it is done correctly(and that does not mean the bullying or imposition of federalism,but a collective concensus with respect for a bit of national space and identity)

[Butthead]

I know they have been brainwashed into being "anti-redistribution of wealth" but they have a ridiculous third world wealth profile.

There is plenty of money for them to all have a stunning quality of life with just a bit more tax on the rich.

Has it occured to you that the reason there is plenty of money is that they don't over-tax the rich and redistribute wealth?

[Stay Beautiful]

Threat chart now looks like,

1. Debt

2. That wiki bloke

3. Terrorism

its like Top of the Pops

[interestrateripoff]

Threat chart now looks like,

1. Debt

2. That wiki bloke

3. Terrorism

its like Top of the Pops

So far that wiki bloke has revealed nothing of real interest or anything that we don't already know. What's the next relavation going to be Prince Philip doesn't like foreigners?

He's not really a threat, in fact he's feeding the x-factor generation meaningless gossip. Leak something meaningful or at least interesting like who killed Kennedy.

[Stay Beautiful]

So far that wiki bloke has revealed nothing of real interest or anything that we don't already know. What's the next relavation going to be Prince Philip doesn't like foreigners?

He's not really a threat, in fact he's feeding the x-factor generation meaningless gossip. Leak something meaningful or at least interesting like who killed Kennedy.

Agreed.

Kennedy? No way!

[erranta]

I can't see it working either, but I'm willing to bet tariffs are coming - first on overseas imports from overseas manufacturers and later on overseas imports from US manufacturers.

This should be a new thread but too knackered!

"Fed data released today show Goldman, General Electric and the European Central Bank were among the big names that came to the Federal Reserve for help during the financial crisis. "

Data shows Goldman Sachs lapped up emergency loans

Goldman Sachs Group Inc , viewed as one of the stronger banks during the financial crisis, was actually one of the heavier users of emergency lending from the Federal Reserve bank, data released on Wednesday showed.

The U.S. bank tapped the overnight lending facility a total of 85 times for $589 billion from September through November 2008, the data show. On one occasion in mid-October, the bank borrowed about $24 billion in overnight credit across two of its units.

Morgan Stanley (MS.N), took 212 loans between September 2008 and March 2009.

Empty as the rest of them - but fraudulantly carry on trading for Banker Bonuses!

http://news.yahoo.com/s/nm/20101201/bs_nm/us_goldmansachs_support

[@contradevian]

No, they would not have to become the poorest workers. The US would just need to pass an Act of Congress stopping work going overseas and, more likely, a big propaganda campaign about CEOs off-shoring work being un-American... being un-American is a small step from being traitorous...

Intel's Andy Grove has been talking along these lines about the US needing to keep jobs in the US and bring jobs back from China... I can see this gathering big momentum in the coming years.

I can't see this happening. Indeed I am amazed at the attitude of some the americans I have spoken too on this, almost suggesting I am anti business and a communist for suggesting that corporations need to move jobs back to US, and also their brass plates back from Ireland etc. They are also quite happy to call Obama a communist and a do nothing president. They are that wedded to their concept of "capitalism" that they can't see the banks, corporations and financial elites are screwing them over.

Edited December 3, 2010 by Sir John Steed

[LJAR]

There is plenty of money for them to all have a stunning quality of life with just a bit more tax on the rich.

Having actually lived in both places, compared to the UK they do have a stunning quality of life. Particularly those on modest incomes.

Compare houses, diets, white goods etc.

The USA is kicking most of the rest of the world all over the shop.