$100 Trillion Zimbabwe's

I subscribe to no school, but do have a basic grasp of math and logic, which tells me that since we've run out of buyers for treasury debt, and now the Fed is the debt purchaser of last resort, we are at the precipice of having to simply create cash to pay debt service and fund the government. The shell game of QE cannot go on forever, and if it can't, it wont.

The effective tax rate on high earners is already 50% in most areas. How much more do you think you can get? If you taxed 100% of all income over $1 million, you still wouldn't balance the budget. Plus, you will quickly find 39.6% of something is worth more than 100% of nothing - who would work anymore once they made $1 million? Nobody, they'd simply get paid in options, futures, or other compensation.

So - you'd be running up smaller deficits, but you wouldn't pay it down, and destroy the capital pool for investment, startups, and nearly all charitable contributions.

Having done that, where does the "unrepentant commitment to real economic growth" come in now that nobody has the money to invest? Why risk capital when it will be confiscated upon success?

This also begs the question what kind of country think it deserves more than half of any dollar a man earns.

The uber-wealthy aren't paying incoming tax. It's people trying to become wealthy that do. High marginal income tax rates have been the stick old money has been using forever to keep away new money...

Well if we retrograde the US to mid 19th century levels of affluence, we can quickly modernize and experience growth too... like most Asian countries have. But there is a maximum scale, and China is rapidly approaching the point if not reached the point of permanent single digit growth. It's insane to compare an evolving third world economy to a first world economy.

Imminent but apparently landing somewhere else... however, inflation has landed squarely here, where - gas, food, energy - all are at record high prices.

The initial round of QE de-leveraged $2 trillion in bad securities caused once again by price inflation in a commodity (real estate) - you cannot revalue a commodity without deflating it's price. But after that, QE became a way to cover the fact we couldn't sell our sovereign debt at issued rates. This has nothing to do with credit worthiness of the market, banks were FORCED to take cash in QE and simply sat on it. Simply pushing money into the economy does not create growth, you cannot force borrowers to take money, even at negative rates - ask Europe.

Not sure how any of your argument can be serious considering the downgrade in US government credit worthiness - for the first time in US history. You cannot tax your way to prosperity.

 

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Poor delusional MEC. During the 1950's, the undisputed heyday of the growth of the middle class, the maximum marginal federal income tax rate was 90%. Kennedy's famous tax decrease lowered it to 70%. States mostly had little if any income tax. 50% is unthinkable? Hah! Think again, pal. And while you raise marginal rates at the top end, you gradually eliminate the lower rate for capital gains. Income is income. What kind shouldn't matter. You also lower the corporate rate. By doing that, you incentivize corporations to make profits and reinvest using retained earnings, and disincentivize off shoring.

Higher personal rates incentivize hiring additional workers among partnerships and proprietorships because the tax code effectively subsidizes your personnel expansion. Every $1000 you spend on personnel expansion with a 28% marginal rate costs you only $720. With a 75% top rate, that $1000 cash outlay only has a $250 net cost and reduces your existing staff's burnout and increases their productivity. It's win, win, win. Plus the more sizable number of employed workers expands your, and everyone else's, customer base.

The only losers are those who have grown up believing that only entrepreneurship is a factor of production worth compensating. They need to be purged of that misconception.

Why risk capital? Because even though you can now expect less of a return on investment, it beats eating the stuff. Both the taste and the nutritional value leave much to be desired.

Can't tax our way to prosperity? What say we try it.

 

I draw these conclusions from MEC2's answer:

1. MEC2 "gets it," big-time. Firmly grounded in the REALITY of the moment, not the Keynesian pipe dreams of 30 years ago.

2. Mr. Bellman had a window seat in Economics 101.

3. We haven't even talked about the unregulated and unintelligible 1.2 quadrillion dollars' worth of derivatives; no one knows the counterparty risk, no one knows what they've "bet" for or against, and no one can possibly mark them to market, so it's conceivable that many banks are hanging by a thread. The nominal tally is substantially more than the WORLD'S entire annual GDP.

Did you ever ask yourself WHY the Fed's so desperate to hold interest rates near zero? We're near the tipping point. It won't take much of an increment to raise our net cost of borrowing (full speed ahead, Keynesian chumps) to 50% or 60% of GDP. This country, and most others, are already bankrupt, including China. All their gold is a drop in the bucket compared to their overall economy; all the gold we "might" have in Fort Knox would run the U.S.A. about 8 months. Then what?

 

Aren't we taxed enough? How can any growth in the economy be sustainable if you increase taxes in this fragile rebound from the crisis of '07-'08?

Wages are not keeping up with inflation as it is...yet i'll continue to grab my ankles and take it when paying for food...gas and energy.

The last thing we need are higher taxes to fix what our political leaders have created. The government needs to stop spending money they don't have.

Where's Ron Paul when you need him!

 

Here's where the money comes from (2012).



And a general summary from cbo.gov

"...The federal government’s fiscal year 2012 has come to a close, and CBO estimates—in its latest Monthly Budget Review—that the federal budget deficit for the year was about $1.1 trillion, or 7.0 percent of gross domestic product (GDP).

Although the deficit is approximately $200 billion lower than the shortfall recorded in 2011, fiscal year 2012 marks the fourth year in a row with a deficit of more than $1 trillion. As a share of economic output, the deficit has fallen in recent years—from 10.1 percent of GDP in 2009 to 9.0 percent in 2010 and 8.7 percent in 2011."

 

Found this little tidbit for sake of discussion.....

How does the Federal Reserve fit in? Jacob Hornberger says that "While the ostensible purpose of the Federal Reserve is to 'stabilize' the money supply, its real purpose is to enable public officials to spend as much money as they want by borrowing it and then letting the Federal Reserve pay off its creditors with newly printed, debased, cheapened, devalued dollars." This means that the Federal Reserve will try to inflate the debt away. Which means that if you lend me one dollar today, when I pay you back in 5 years, the "value" of that one dollar might only be $0.75 in real terms. Smart people realize this and would not lend money to a country bent on inflating their debt away.

 

The FED killed JFK

 

The growth of the 1950's wasn't in any way related to a 90% tax rate - it was already in the 70%'s during the depression, the undisputed nadir of all classes - it was because the United States was the only functioning industrialized nation that retained it's manufacturing base intact and didn't exhaust it's manpower reserves during WW2. After the war nations were lucky to feed themselves across Europe.

They did. In 1932 and 1936. Rates tripled. How did that work out?

 

These proposed solutions are just a bandaid on a deeper, more confounding problem. Our indiscriminate spending is going to be the eventual downfall, if the economy takes a turn for the worst.

Unsustainable market growth and weak economic indicators like wages and jobs do not fair well for a long term recovery. And a collapse of the derivative market for example may be the first Domino in a frightening chain reaction.

With near zero interest rates today, does the Fed have any other tricks left up its sleeve?

 

World War II got us out of the Depression. President Ovomit will get us into a big war to help the economy.

 

Isis?

Eithwr way, domestic industry and manufacturing for war helped kick start the economic recovery in the 40s. We are in a very different situation in the present day.

 

Actually, when the Federal Reserve system was created JP Morgan was *hesitant* to take the position of chairman. He was taking a big paycut, for one thing. Their true purpose was to try and stop the bust and boom cycle which is an inevitable part of our economic system. Busts and booms happen in any free market, from the Duch Tulip Bubble in the 1600's and probably before that.

The Fed's REAL purpose has always been to keep the public out of fear of a crash ever since 1907. They even held secret meetings on remote islands and told the public they were going on vacation so it wouldn't look suspicious when they knew stuff went down (hene all the bills about transparecy going back and forth).

I'm not going to join the demogogues and say our money will hyperinflate (I could see some double-digit stuff perhaps, i.e. from the 70's) especially since we EXPORT much of our inflation. The economy is such a stochastic system nobody can figure it out; I've even heard Bernanke say this in so many words. They do what they can to try and help stabiize things but in the end nobody really knows what is going on.

Also, FDR had lot to do with getting us out of the Great Dpression. One of the first things he did in office was repeal the prohibition act which created a milion jobs.

The is all a MINDSET though. Fiat currency is a facade; peope have to trust it and when banks aren't reliable (there simply wasn't enough money) people freak out and withdraw. This is bad for the banks too since THEY invest your money, which I think is shady.

In 2008 there was a self-perpetuatng downwrd spiral. Asset backed mortgage securities (based on an over-speculated housing market where the assets themselves were over-vaued) had a lot to do with it. The REAL prblem is all a mindset, though. A buch of "money" that existed speculatively just "disappeared." People panic and people also get laid off because companies invest... If people get laid off they don't spend money. Companies lose money from this loss of revenue, and more people lose jobs. Now go back to step A) and repeat. Realize however nothing in terms of real assets has actualy changed. Markets go up and down but since investing is now nearly synonymous with the stock maret a huge crash would be devistating. Consumer confidence seems to be going up though, jobs are improving, etc. I don't see a crash happening in the near future; it will keep going up probably as a result of inflation. Any stochastic system like that I believe needs to hit an equilirium at some point. Adjuting for inflation it won't go up forever. Once people realize the lack of ROI though, who knows? That is, of course, if it hits equlibrium.

I think the next big crisis will be all the student loans that are collecting interest and probably won't be paid off because everyone has a degree these days and most don't get they job (or pay) they anticipated. It isn't really a shoe-in to the job market anymore (but tuition prices have gone UP along with enrollment). Is that not a scam?

Credit is somes needed to start a business or watever but it also causes these busts. The creditors are certainly making money though, i.e. off the average American who was told they need to pay tens of thousands of dollars (or way more) to not be fipping burgers.

 

You need to get a bloody clue, Doug. ONLY Keynesianism is worth a darn among economic paradigms. Not just 30 years ago, but now, and into the imaginable future. As it becomes "fashionable", among some, the neo-econo-cons, to turn from Keynesian prescriptions, all we do is accelerate our swirly down the porcelain fixture.

Yes, collective sovereign debt does have an unsustainable tipping point. On that the neo-econo-cons are correct. But the fact is that we are nowhere near it if we just recommit to re-progressivizing our tax code and commit to economic growth (yes, smoke-belching domestic industrial growth) to the exclusion of all countervailing concerns. Of course, if there is not enough collective will to do that, and protecting the wealth of the present-day incumbent wealthy is all we care about (which we all know is all that Reaganomics ever really was) then, yah, inflation is about all we've got. Their choice.

 

Problem is, there are almost no such things as free markets any more. In my daily economic life, I encounter mostly protected economic classes who have carefully and meticulously protected themselves from being in the free market, though things like licensing, professional associations, authorized distributorships, taxi medallions, seniority rules, etc. etc.

Now ... When I visit a coin auction, hooray, a vestige of a free market. It's like a little economic archeological find in a single room! Oh, except for the fixed percentage buyer's premium. See? They even destroyed the free market in auctions with a protectionist scheme.

But anyone who tries to analyze anything beyond auctions based on the assumption of working in a free market, has already deluded himself to the point of self-disqualification to be taken seriously.

In my adult lifetime, I have now witnessed the near-total destruction of what made my country "exceptional", from the demise of truly free markets (which were already pretty endangered) to the destruction of core civil liberties and the disappearance of the modal jury's understanding of terms like "presumption of innocence". That in itself would have been disgusting enough. But then to have to listen to a bunch of expensively quaffed blue suit, red tie, wearing buffoons throw "American Exceptionalism" around like an advertising slogan, instead of the cruel taunt it truly is, that's too much to bear.

 

Mr. Bellman, am curious as to what your thoughts are on bitcoin its problems it posses to the "free market"?? In addition to its possible affects on how it can be replaced in the USD's world reserve currency.

How about committing to a re-progressing the tax code like a fair tax or flat tax?

 

Remember, you asked, okay?

Bitcoin - I am not sure whether the concept is somebody's psychology doctorate thesis, somebody's idea of a joke, or the biggest con in history, but I strongly suggest it's one of those three. Money and "legal tender" laws are, and should be, the 100% exclusive realm of duly constituted governments, period!

"Fair" tax or flat tax ("fair" must always be in quotes because it's a joke) - NO, NO, NO, NO, NO! A flat tax is an utterly horrible idea! I don't need to imagine or forecast the horrible economic effects of a flat tax - my state's income tax is one. Its detrimental impact on state revenues as the middle class hollows out, and more people need state government services, while the wealthy still pay the same rate a burger flipper does, is a systemic recipe for economic disaster. We need to be increasing the "slope" of our tax rate table, not flattening it! If upward income redistribution did not also concurrently also create additional need for governmental services, then a flat tax could be made revenue neutral. But it can't, and therefore needs to be rejected because it will increase fiscal deficits.

A flat tax advocate is saying, "the rich pay too much and the poor pay too little". Really? How sick are they? Blood. Stone. You do the math. We started reverse Robin Hooding in the 1980's (steal from the poor to give to the rich) and the economic challenges we face today flow directly from that choice.

 

Can you POSSIBLY GET any more ignorant? Virtually nobody paid income taxes in the 1930's and the top total pay-in per year in the initial Social Security payroll tax was 10 bucks. (1% rate) Nothing about the Depression or its end had anything to do with tax rates. The average guy first started even being aware of income taxes during the postwar expansion. And yet, the newly felt income tax did not have a negative effect.

By the way, at the end of WW2 our total sovereign debt was quite a few times higher, as a percentage of GDP, than it is now. And we retired it totally in less than a longish generation. What's the difference now? Less shared sacrifice, more personal entitlement. The wealthy have lost any remnant of shame.

My dad was an entrepreneur his entire life. His take on the fashionable name "Job Creators"? "I never created a [CT not allowed]ing job in my life. If it was up to me and I could have done it, I'd have done everything myself. My customers created those jobs, I didn't! You saw how many of them I kept on when business went south dint cha?"

 

Lets not resort to name calling Mr. Bellmen. Mec is far from ignorant. A man of your statue and credentials is the last person I'd expect it from. We all have our own opinion and whether who's right or wrong doesn't make one to name calling.

 

Ignorant is as ignorant writes and advocates. I'm almost 60 and I have a head start on being the crabby old man I hope to become. At the rate my body is medically breaking down, I may not get there, so I have to hurry. I have a short tolerance for foolishness. I suffer fools EXTREMELY badly.

I also have a short fuse for selfishness. For the first time in my life, I have some decent disposable income, and I live a truly spartan lifestyle. Everything I do, say, or acquire is about my son and the life and country I'd like to leave HIM. It's not about me. I'll be totally disabled soon enough, and dead shortly thereafter. The diagnosis is in, and the clock doth tick. You might like to know what knowing of what you will die is like. I no longer need to wonder. There are lots of people less impaired than I am collecting disability. I choose to continue working 50+ hours a week and donating all of my vacations to serving the ANA as a National Volunteer.

On the other hand, my son is in a hospital also fighting for his life right now, and he's only 19, so the whole exercise may be moot.

 

Yeah, I agree with a lot of things that you have written, but it does not make your argument any stronger to call a contrary opinion foolish. The dismal science of economics is no more a science then phrenology, the fact is that we still have inflation, we still have joblessness and other economic ills that if economics was a science its stated goals are different than its actual goals.

I picked up some of those Zimbabwe inflation notes a few years ago just for the fun value of being able to prove I am a multi-trillionaire. not knowing there value when I bought them and having a blind trust in my local coin dealers having good deals, I paid twenty for a fifty trillion, a hundred trillion and a 50 billion note, when I saw a bunch for a lot less and mentioned it to my dealer friend, he admitted that he did not pay right for the notes.

Which was a revelation to me, up till then I thought all these dealers had a lock on what things were worth, but since then I have found that even very knowledgable dealers still have weak areas.