Spending cuts: An Analysis

So the media, politicians, and of course everyone on ATS is going wild over spending cuts...and the amount of misinformation out there is stunning. And I'm not just talking about ATSians, but the media and most politicians in general. It's really quite scary

I figured it might be a good idea to debunk some of the popular talking points, and to properly analyze the situation. Instead of just making random claims like the media and politicians, I'll back up my mini-analysis with FACTS. Don't just believe me (lol, I'm quoting Beck...never thought I'd do that), click on the links and THINK for a second. Those who read some of my posts before know I'm definitely more of a "leftist" than on the right, but I'll try to keep an objective mind for this and will source my stuff properly.

I will focus on the ECONOMY mostly because this is a field I'm comfortable with, and also because it's apparently what people are most concerned about:

[atsimg]http://files.abovetopsecret.com/images/member/32fa09b522ee.jpg[/atsimg]

And yes, it will be rather long...this is a complex subject

1) Why do we have such a huge deficit?

This isn't about playing the blame game! It doesn't matter who's in power, every single US president has introduced policies that added to the problem...some more, and some less. And sometimes, policies introduced by a president who fixed the deficit in the short term, would result in huge budget issues in the future. Many policies, especially economic ones, can take months or even years to show an effect.

For those who care, here's the public debt vs GDP chart:

[atsimg]http://files.abovetopsecret.com/images/member/b8ae15c60f42.jpg[/atsimg]

Many factors can lead to an increase of public debt, and not always is a president directly to blame. Two things almost always cause it to increase: WARS and an ECONOMIC CRISIS.

If you read the chart, you can see that during the 80s, the deficit increased drastically. That was partially because of wars (Cold War, Libya, Lebanon), and partially because when Reagan came to power inflation and unemployment was at a crazy level...so the government had to increase spending in order to jump start the economy. Basic economics...

Buss senior obviously had his own wars...'nough said.

Now, some will rejoice in the fact that Clinton did so well. Think about it though, he had his own wars, and didn't really decrease spending...so what the hell happened? I'll tell you what...the economy boomed. We had the dot.com bubble building up for example. People were making money, companies were making money, and the government got a ton of income through taxes. And of course people will say "Clinton stimulated the economy" or something along those lines...and he did. But at a cost, a terrible cost.

You see, he continued to remove even more regulations on the financial industry than Bush and Reagan had already done. This allowed easy access to money, and allowed people to invest and develop stuff. Sounds great, if that "stuff" actually works out and starts to make enough money to repay those loans. Anyway, loans don't have to be repaid right away, so we wouldn't feel the effect for years...and there were still some security measures. Enough of them to have prevented the last crisis even...barely.

And then came Bush junior along. I said I'm going to remain "objective", but in this case I have to rant for one sentence. This clueless idiot and his corporate sponsored entourage put the last nail into the coffin of the US economy. Anyway, rant over...let's try this "objective thing" again

One video summarizes exactly what Bush did to kill the economy:



His "dream" (aka "nightmare" for us) was to remove the last few regulations on the financial industry. He claimed that the fine print in home mortgage loans was "too confusing" and that we needed to "simplify" it for people to get mortgages. Sounds great, right? But what this means, is that now people didn't have to provide proof of income to get approved for loans or other crucial evidence that they're able to repay their mortgage.

Banks ensure they get repaid by setting a minimum downpayment level that varies depending on your income or "credibility", neither of which were now required to get a loan. So basically, every bum could get cheap money, a house, cars, whatever...without any regards as to how that money will be repaid. That works, and people spend that money they lent, consumer spending rises, the economy is happy. UNTIL THOSE LOANS HAVE TO BE REPAID, or UNTIL PEOPLE CAN'T MAKE THEIR LOAN PAYMENTS ANYMORE!!!

Now, those defaulting loans alone would have been pretty horrible for the US economy. But thanks to Bush junior's removal of any meaningful oversight of the financial industry, huge investment banks were now repackaging those loans into bundles of loans...and then used those as collateral for other investments, or simply traded them. So once people couldn't make their monthly payments anymore, and once people figured out that their AAA-rated investments were now worth next to nothing, the # really hit the fan. Essentially, the very thing that drives investments by providing $$$ (the banks), were at risk of going under. And with it, a lot of huuuuge investment banks that had stakes in the entire economy.

On top of that, that imbecile started 2 extremely expensive wars, and raised the defence spending to ridiculous levels. You can read about the military budget below:

[atsimg]http://files.abovetopsecret.com/images/member/3bac492aad53.png[/atsimg]

So the government was starting to make less money as the economy started to suffer, we already had 4+ years of expensive wars costing us $1.3 TRILLION, and just to make sure the economy will stay down after he shot it, he decided to give $1.7 TRILLION worth in tax breaks to the top 5% of the country, refused to close tax loopholes for his corporate donors (Exxon, the world's most profitable company paid ZERO taxes), and and topped it off with an almost $400b medicare drug plan.

And people wonder why the deficit increased

So anyway, just before he left, he started handing out bailout money to allow those banks and investment companies (some of them) to once again start becoming profitable again. He knew, that if he didn't do that, they'd take down half the economy with them as they are basically funding that very economy. In short, instead of fixing the actual root of the problem (almost no oversight, complete deregulation of the finance sector, corporate lobbyists essentially controlling Washington, etc.), he went for the bat# crazy option and applied a bandaid. It COULD have worked, if they had fixed the root cause of the crisis at the same time.

Along comes Obama, "CHANGE WE CAN BELIEVE IN"...mhhhhh...riiiight. It was clear that Bush's bailout strategy wouldn't work, at least not at that scale. So he had 2 options:

1) Throw more money at the black hole in an attempt to fix stuff, AND fix the root cause of the crisis.
2) Stop throwing money at it, accept that this will result in extremely high (not just 9-10%) unemployment, the economy going even more belly-up, build everything up from the ground by fixing the root cause of the crisis.

Being a genius, he went with neither of those 2 options...he just decided to throw more money at the problem without even thinking about fixing the core issues behind the crisis. The banking reform is a joke, and my mates at Goldmann, Credit Suisse, and all the others are laughing their asses off when we go for beers. He also didn't fix any tax loop holes for large companies. Exxon for example paid ZERO and made billions worth of profit, it's the most profitable company in the world...and the richest 1% now own more than the bottom 95% combined (LINK Yes it's Michael Moore, but he's actually correct in this case). Nothing against the rich of course, but you have to realize there's another important fact playing into this. There are many tax loop holes, but you need to know someone who is an expert on this. That's EXPENSIVE, so only wealthier people and companies can afford it. So their effective tax rate is massively lower while the poorer and lower middle class people often pay closer to their stated rate.

Ever since the 50s, the tax rates on the rich have dropped drastically (because they donate to politicians who then make sure they get their money's worth), while those of "regular people" remained fairly flat without a proportional decrease (because they obviously don't have the cash to pay off the politicians like companies and richer people). That would have been ok, but unfortunately the gap between rich and poor is widening in the US. So while in the 50s the top 1% had maybe 20% of all wealth in the country, it's now up to 95%. And exactly those people now pay less and less taxes...generating less and less income for governments (left and right) that spend more and more.

And of course politicians are paid off and refuse to fix anything...I mean, here's a guy asking regular people to pay taxes, or threatening to now cut their entitlement programs, but he's defending Exxon not having to pay any taxes while making billions in profits every year:



Some of you will now obviously say "but wait a second, we were told that social security, expensive teachers, healthcare, and veteran support is responsible". Well, you might like, or not like those programs, but the fact is, they are either self-funding or essential for the economy. Let me explain before you start throwing stuff at me

Social security is completely self-funding until around 2040, at which point it would run for another 40 years or so depending on demographics if we cut down entitlement payments down to 75%. Here are the projections. Now, that means it's paying for itself right now. That's something a LOT of other departments like defence can't claim. They are LOSS making departments. Now you can argue whether or not it should matter if certain departments make a loss or not, but the fact remains, social security is NOT responsible for this crisis and won't be responsible for one until at least 2040.

As for healthcare, the cost of not having it outweigh the cost of having it. One of the key reasons people defaulted on mortgages, starting the crisis, was that they had healthcare related expenses they could cover. I'm not talking about the cost of health insurance, I'm talking about the cost of not having them and suddenly requiring a $50k treatment they're not insured for. Some people can't afford it for various reasons (disability, accident, unemployed, etc.) and their only option could be DEATH. You might not care about others, but you should realize that desperate people do desperate things. Think about it, so instead of being covered, he now cost the tax payer cops that responded, medical treatment, and a PSYCH HOLD. So in essence, not having health care not only costs lives and increases the rate of diseases and death in the country, but also costs the taxpayer money more money.

And lastly, entitlement programs and benefits like social security actually increase consumer spending (basic economics!), which stimulates the economy. If the majority of people (aka not the top 1% or 5%) don't have any money to spend because the government recked the economy and the people are now unemployed or suffering from pay cuts, then the companies don't make any money selling stuff. Without selling stuff, they can't hire more people or even have to lay off more people, who in turn can't buy stuff.

[atsimg]http://files.abovetopsecret.com/images/member/c40e820ba57d.jpg[/atsimg]

Do you see where I am going with this??

They essentially killed the economy while taking all our money, using it to give tax breaks to the top 1% (who now own 95% of wealth in the country), and tax incentives to their corporate donors like Exxon, and of course all the while playing the role of an imperialistic nation like old England starting a ton of expensive wars costing trillions and making sure the majority has no money to spend and stimulate the economy anymore (which is why it's taking so long to recover now). Lowering the tax braket of the top 1% while making sure they get most of the wealth had the biggest impact on the deficit...by far.

IT'S THE BIGGEST HEIST IN HISTORY!!!


Having said that, what's done is done...and we should focus on solutions rather than playing the blame game or evading the real issues. Funny enough that's exactly what all the politicians are doing at the moment, the people who are in power to solve those issues. And ironically enough WE elected them

Anyway, in point 2) below I'll talk about the debt ceiling and possible solutions...appreciate any comments, especially critical ones

2) So what about the debt ceiling, what are our options?

Basically, here's what's going to happen if you don't raise it:

The cost of the debt interest will become so crushing, it would crush everything. The government couldn't afford to borrow money anymore because interests rates for their borrowing would go up as they would lose credibility with other countries lending them money. This would result in a debt spiral of pretty epic proportions, and would pretty much destroy the US economy...and probably take down a few economies around the world with them as the US$ is still the key currency (not in the long term by the way, it WILL be replaced in the medium term). More people would lose their jobs, years of stagnation (or another recession), increasing poverty, fewer investments (apart from international ones for buying up stuff in the US for cheap), we couldn't afford any wars, no benefits at all, no infrastructure improvements and renovations, fewer security checks...and the list goes on. Not raising it is INSANE from an economic standpoint.

That's why the tea party and republicans are currently playing Russian roulette with the state of the economy, the very thing most people in the US apparently care about, in order to make sure their corporate sponsors keep their tax loop holes and incentives, and of course their rich private sponsors as well.

Having said that...long term, the US can't keep on raising it forever without thinking about spending cuts. But none proposed now would fix the issue, and if we don't rais it now, we're essentially destroying the economy for years to come.

I know there's some people who would like nothing more than to show China and the US's other lenders the finger...but apart from being a funny thought on first glance, it's a ridiculously stupid idea of epic proportions. It's not only about the money we already spent, it's about the money that the US HAS to borrow in the future. Every country borrows from others, and if you default, the cost of borrowing goes up, so you end up in a debt spiral. That's NOT where the US should be heading if it wants its economy and people to prosper!!

The education system would suffer, and not only would the people in the US lose out compared other emerging countries like China even more, that would also ensure that the average citizen earns less and is less likely to be employed. Why? Because there is a positive causation and correlation between the level of education and the level of income...and a negative correlation between the level of education and unemployment. In other words, if you're well educated, you're less likely to be unemployed and poor!! So if the education system sucks, the average person will "suck" income and employment wise....which in turn hurts the economy.

What people have to realize is that it's ALL CONNECTED. You can't just look at something like social security in isolation as it has a broader economic effect.

So whatever…let's raise it then, right?

That's pretty much a sure thing, it HAS to happen. The alternative is too horrible to even consider. I hope the politicians in Washington know that and are just playing poker right now, but if they don't, consider us doomed.

But that's only going to be a fix in the short term. The US is at the verge of being downgraded, and the currency is quickly losing credibility due to the bad handling of the crisis...something has to give! They need to fix the root causes of the issue. I'm talking about tax income as well as spending cuts, one on its own won't fix the problem...and anyone looking at the figures will see that. Saving $1-3 trillion over 10 years doesn't fix a $13-14 trillion dollar deficit!!! Tax loop holes and incentives for people who don't need it or don't use it to stimulate the economy MUST STOP. Exxon for example FIRED more people since not having to pay taxes...and the price of oil isn't getting better either last I checked. So all those incentives do is increase the bottom line of companies. This needs to stop!

To Obama's credit, he actually tried that earlier this year and wanted to use part of that income to care for 9/11 first responders. You know, the people who ran into burning buildings to save others without regard to their own life? The ones who were called "American heroes"?

Guess who stopped the proposal in the first place, the GOP!! Why? Because the are also paid by the very same companies that would have had to pay more taxes!! So basically, # those heroes, here's your tax relief sugar daddy

Real options:

1) Fix tax loop holes: Make giant corporations pay their fair share. Look at Exxon's profit, calculate their corporate tax, and multiply that with the amount of giant companies located in the US. The amount is mind blowing. They have actually mostly fired more people since getting those tax breaks, so it's not as if they help fix unemployment anyway.

2) End tax breaks for the top 1%: It wouldn't harm the economy as a lot of those 1% people invest that extra money abroad anyway. It also wouldn't harm 99% of the population. Some people realize this and out of being patriotic suggest this option...sadly that's not in the US. It would net over $1.7 trillion over the next 10 years.

3) For the love of god destroy Fannie and Freddie...those rating agencies are paid for by the very same people they're supposed to rate. We need a new sheriff in town!!

4) Stop the influence of corporate lobbyists on politicians. Unless this point happens, the above won't happen. Right now, the politicians are working for the corporations (only the large ones that pay them a lot of course) and top 1% (their best donors) instead of the people, this needs to stop. By the people, for the people!! No more shady corrupt politicians. Proper oversight and laws need to be put in place...even if it means that Colbert SuperPAC has to end

5) Review ALL spending programs, including defence!! This isn't useful until we ensure the politicians aren't working for the top 1% or corporations anymore. Before point 4) is fixed, point 5) won't ever get fixed

Why do we need to fix this SOON?

The last crisis has shown that having the world's reserve currency consist of only one country's currency is STUPID. Mostly because if that country suffers, everyone suffers if they do business in US$. So in the medium term, the dollar will be replaced as the world's reserve currency. It makes economic sense, and major players like China, India, Russia, and South America have already voiced their wish for that. It's only a matter of time.

In the 19th century, the Sterling was the world's reserve currency. And just like the US today they suffered from a bad economy...and guess what happened next! The Sterling was replaced as the world's reserve currency...and lost about 80% (!!!!) in value in the process.

The dollar already lost a TON of value compared to other currencies. As an extreme, a few years ago you had to pay over 2 Swiss Franks for every dollar...you now only have to pay 79 Swiss Cents!! Now think about what would happen if the US doesn't get its house in order before the dollar is replaced as the world's reserve currency...what if its value drops 25%, 50%, or also 80% like the Sterling?

Google "world reserve currency" and read up. I strongly suggest you stay away from blogs and focus on proper sites like Bloomberg, or the Economist. Always make sure your sources aren't just stating an opinion, or at least recognize when they do and when they're mentioning real facts. It should be pretty clear to you soon that the dollar won't last as the world's reserve currency.

The only question is: Will it happen before the US manages to get its house in order (budget deficit) without harming consumer spending (and therefore the economy) by cutting in the wrong places? Harming consumer spending by cutting the wrong government spending would be a death sentence to the economy, in a time when they should be getting ready for losing their status as world reserve currency.

DISCLAIMER: In all fairness, the dollar could be replaced with a basket of currencies also containing the dollar...in which case the impact would be slightly (!!) less severe. It's probably the most likely scenario...

Your position is usually pretty left of mine. But that was pretty darned brilliant. Can't wait to see the next part!

/TOA

So basically Bush and the Republicans screwed up and left us with this budget mess and Obama and the Democrats are doing everything to make it worse...

This is what we get with the two party system.

reply to post by MrXYZ


I've been waiting for you to post this since I read your mention of it in another thread. Great points and takes away certain myths that have me pulling out my hair when I argue with certain viewers of certain news corporations.

I would retract nothing as nothing you said was inaccurate. However, you may want to add that much of the housing defaults weren't simply due to lax prerequisites or lack of universal health care (which is still huge, don't get me wrong) but the banks' ability to simply change interest rates on a whim without warning or justification played a large role, too.

I know several people who lost their homes and they were due to:
1 - Lost jobs (not their faults)
2 - Medical bills (nearly all of us are one injury or sickness away from homelessness)
3 - Rates suddenly changed (pure bank greed)

But none of them lost their homes because they just bit off more than they could have afforded had those things not come up.

Awesome report. I hope you get proper recognition for it.

reply to post by MrXYZ


I've got to say that, despite total economical collapse, it would be worth it to me just to stop the wars. No money = no military overseas. That reason alone has me wanting to not raise the debt ceiling.

If we agreed to an immediate withdrawal from all foreign nations, taxed the crap out of the top 1%, and closed all loopholes in the corporate tax structure? I'd be 100% behind raising the debt ceiling.

Originally posted by Cuervo
reply to post by MrXYZ

 

I've got to say that, despite total economical collapse, it would be worth it to me just to stop the wars. No money = no military overseas. That reason alone has me wanting to not raise the debt ceiling.

Wars would still be fought. And likely paid for with our money.

If we agreed to an immediate withdrawal from all foreign nations, taxed the crap out of the top 1%, and closed all loopholes in the corporate tax structure? I'd be 100% behind raising the debt ceiling.

You and the majority of actual, living breathing americans.

Originally posted by Cuervo
reply to post by MrXYZ

 

I've got to say that, despite total economical collapse, it would be worth it to me just to stop the wars. No money = no military overseas. That reason alone has me wanting to not raise the debt ceiling.

If we agreed to an immediate withdrawal from all foreign nations, taxed the crap out of the top 1%, and closed all loopholes in the corporate tax structure? I'd be 100% behind raising the debt ceiling.

The important message is, no single measure (or even 2-3 things combined) will fix the issue. That's why the people should be sooooo mad at the politicians in Washington. I mean, those guys fight over saving a TINY amount by hurting people who already suffer the most...and then never address the real issue to make sure they won't have to do it again. It's the poor and middle class now, but the upper middle class is probably next. And anyone looking at the numbers, and a bit of economic knowledge can see that just cutting spending won't cut it, we need to raise revenues. And there are plenty of ways we can do it without hurting the average American, just by making sure the corporations and top 1% pay their fair share.

But of course Boehner (just like Bachmann and Palin) are too stupid to understand that, which is why they say fixing tax loop holes and abolishing tax breaks for the top 1% isn't even on the table...and Obama's to weak and bought to do anything about it.

I totally get Jeff Jarvis, one giant "F**** YOU WASHINGTON!!!" to those clueless politicians dragging not only the US down, but likely a ton of other countries.

Well done OP.
I, for one, would like to see a substantial decrease in military spending on incursions that are not vital to our national interests and that spread a dislike of us around the world. There is no better defense than a strong homefront. That would cover a far amount of spending deductions.

Also, most of the money "borrowed" is actually "borrowed from America itself, either via the Fed or the SS trust fund, etc. Yes, there are a massive foreign payments. But for the Republicans to even intimate that it is okay to keep taxes so low on the top and then cut benefits that have ALREADY been taxed out of the whole....well, it makes me want to leave the party....

Am I REALLY the only one who thinks this entire 'debate' going on in Washington at the moment is anything more than political theater?

Just the same old good cop bad cop routine that keeps us blaming the 'other' party.

reply to post by watcher3339

Also, most of the money "borrowed" is actually "borrowed from America itself, either via the Fed or the SS trust fund, etc.

And that still has a NEGATIVE effect as it devalues the currency and makes imports ridiculously expensive. Especially once the US$ isn't the world's reserve currency anymore!

But yeah, good point...forgot to mention that. Someone needs to steal the Fed's money printer!! Do it quickly before I have to decide whether to use toilet paper or dollar bills when I take a dump

Originally posted by incrediblelousminds
Am I REALLY the only one who thinks this entire 'debate' going on in Washington at the moment is anything more than political theater?

Just the same old good cop bad cop routine that keeps us blaming the 'other' party.

Exactly!! And it's something that should scare the crap out of US citizens.

Instead, the large majority seems to have been so lulled in by misleading "opinion shows" on TV or on blogs rather than using their brain and actually facing the facts. They have to demand a change (no pun intended), and fast. And that change shouldn't be a knee-jerk vote where they automatically go with someone even more clueless like Bachmann. Someone who's not even hiding that she's a corporate puppet:

"If we took away the minimum wage -- if conceivably it was gone -- we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level." Michele Bachmann, Jan. 2005

Wait Michelle, I have a better idea...let's all work for free so your corporate donors don't have to waste precious money on wages...more profit, yay!! And then they can spend all that money they DON'T HAVE on those goods and services companies offer. Makes perfect sense

Wow, Atheist, you suffer from the same condition I do. I had a feeling this excellent report would go largely ignored since it didn't fit anybody's pre-fed pet perspectives.

Originally posted by Cuervo
Wow, Atheist, you suffer from the same condition I do. I had a feeling this excellent report would go largely ignored since it didn't fit anybody's pre-fed pet perspectives.

Yup, and at the same time someone started another pointless/fact-less "Neo-Liberal Communists and Marxists are destroying America" thread that is now 5 pages long instead of using his/her brain.

This whole "left vs right" (or as per some people's world view: Nazis vs Commies) has been pushed so much onto people, they are now unable to look at facts. George Carlin got it right

Originally posted by The Old American
Your position is usually pretty left of mine. But that was pretty darned brilliant. Can't wait to see the next part!

/TOA

Thanks

We have to realize that this left vs right bickering is only hurting us...and we need to look at facts again.

Originally posted by MrXYZ

Yup, and at the same time someone started another pointless/fact-less "Neo-Liberal Communists and Marxists are destroying America" thread that is now 5 pages long instead of using his/her brain.

Holy crap. I thought you just made up that thread title to be facetious but it's really there! You should have just titled this as "U R BAD WITH MONEY: COME AT ME BRAH" then maybe people would have read it.

reply to post by Cuervo


Well, at least instead of having to debunk stuff in every one of those ridiculous threads, I can now just link to this one...

Originally posted by MrXYZ


Instead, the large majority seemsto have been so lulled in by misleading "opinion shows" on TV or on blogs rather than using their brain and actually facing the facts.

Bold mine.

Perhaps it's just that. Many speculate hat the entire 'Arab Rising' is manufactured on twitter by three-letter-agencies (the TLA), is it that hard to conceive of the Stupid Rising in America?

They highlight a minority of the population as representative of the whole, or at least a significant majority. But when you talk to people, do you experiene the same thing? Or is it a more diversified and intelligent perspective?

I agree, many people IRL are partisan chumps. At times we all are, i suspect. But I don't want to believe the vignette of America i'm given on Cable Television is representative of any real majority.

Just keep plugging on. The useful and informative threads dont always fill with talking point banter. This is probably for the best.

Great OP!

But at the same time maybe you could change the headline to "Mexican Nazi's want to steal your Big Mac!"

reply to post by incrediblelousminds

I agree, many people IRL are partisan chumps. At times we all are, i suspect. But I don't want to believe the vignette of America i'm given on Cable Television is representative of any real majority.

I agree to a certain point. People WANT change...which is why they elected Obama based on his slogan. And they deserve a change. But there's a HUGE gap between what they want and what they get, and it obviously doesn't matter which party wins. The only winners are the corporate sponsors of politicians...