So Romney has picked Paul Ryan for Vice President; a man with a remarkably similar “deficit-reduction” strategy to that of George Osborne here in the UK, where unemployment and budget deficits have soared, and GDP remains well off its peak.
If Ryan or his Democratic rivals really understood the budget deficit, they would understand that its huge size is a result coming primarily out of a depression brought on by excessive total debt:
As debt soared from the 80s to the 90s, tax revenues soared as the economy boomed on borrowed money. But as the debt continued to grow relative to income, the costs of the debt mountain meant that income that might once have been invested in businesses and consumption went toward debt service instead. And so once we hit the point at which debt repayment exceeded new debt acquisition, we were flung into a depression. This has had a relatively severe impact on growth; since the deleveraging hit in 2008, GDP growth fell considerably from its long-term trend (nominal potential GDP):
So with the private sector (not to mention state and local governments) who acquired so much debt in the boom now deleveraging, Federal revenue has dramatically fallen, producing the huge Federal budget deficits we see today. Of course, Federal spending was on an unsustainable trajectory before that. But without a serious plan to get America out of the deleveraging trap (there are three routes out — liquidation, inflation and debt forgiveness) all talk of reforming entitlements is meaningless.
So, does Ryan’s plan address the problem of excessive debt?
No. Ryan completely misses the point of excessive total debt, and instead paints a portrait of the problem being one of excessive public debt:
Oh no! What a scary chart! But Ryan claims he is going to make public deficits disappear! How?
Ryan intends to cut taxes; reducing corporate taxes from 35% to 25%, and introducing two new income tax brackets; one of 10%, the other of 25%.
But here’s Federal tax revenues compared to the weight of total debt:
To get private debt to a sustainable level via tax cuts, Ryan would have to cut taxes to zero for a very long time (and hope that people use their tax cut to pay down debt instead of spending it at Chipotle and the Apple Store).
The biggest problem with that? Over 75% of Federal spending is mandated by law, and so US public debt — which Ryan believes is the real problem — would soar (as has happened in Britain). Ryan might seem worried about the future possibility of massive public debt (as opposed to the current reality of massive total debt), but his plan could conceivably result in much higher public debt — after all the OMB and CBO have gotten it all very wrong before, just twelve years ago foreseeing massive tax surpluses of $48 and $87 billion respectively in 2012.
So does he have any real plan to significantly raise revenues?
Ryan intends by 2022 to have closed enough loopholes to yield an extra $700 billion in revenue every year. That’s a lot of money. So which loopholes does Ryan claim that he will be able to close?
In his entire 98-page manifesto, Ryan doesn’t name any — but he has ruled out taxing capital gains as income, surely the biggest tax loophole of all, and one that has seriously benefited his running mate.
Ryan might talk tough on public deficits, but his own figures show that even if he can raise the revenue he claims to be able to raise (very dubious), the deficits won’t be gone for twenty years. Meanwhile, he has not even approached the subject of excessive total debt, which is the real problem.
The only policies likely to return the US to strong organic growth are those that would produce some form of debt jubilee. Neither of the major parties has any plan for that.
Does the US run a primary surplus? If not, then I don’t see how even a debt jubilee would be enough to save the day.
Both publicly and totally, interest accruals do not come anywhere near to matching the deficit.
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John, as you have eloquently [and diagrammatically] pointed-out, the purpose of the electoral process is to find that person/organization whom/that is the most effective liar.
THIS is who TPTB want delivering their messages to the electorate. EVERYBODY on the inside knows it’s all lies, as the process of becoming an insider is rationalizing the fact that your life is basically one of a prostitute/pimp/thug/general lowlife/complete sell-out/pathological liar.
This has been going on for thousands of years.
I agree. I am switching off now. Better things to do with my life than watching the SOAP OPERA which is US politics.
I just hope that whoever gets in does not ruin my retirement fund or start a war that result in my hard earned dollars going into my fuel tank.
Australian Politics is just the same. Mudslinging.
Do you know if we fired all our Politicians we would still have enough laws enacted to keep the country on life support. Then maybe we might get some real growth because business won’t be second guessing the next business suffocating law being passed.
I am sure the bureaucrat can fight among themselves for the tax dollar flowing into the Treasury Department.
How novel. Action through inaction.
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I am constantly amazed that the national dept is discussed in only tax revenues which is only 1/3 of what government really takes in, the other 2/3 from investments made for over hundred years that produce returns of 25-35% yearly called off budget accounts or CAFR that conservatively estimating 110 trillions in liquidity just sitting, so time to really task all local/county/state/federal leaders as to what going on with that money!!! It always seems that when either political parties are woofing somethings being maneuvered to take our eyes off the real pircture.There is great information on CAFR1.com about this subject.
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You have obviously done a bit of homework. It is moot because Ryan’s budget while far from an answer, is so much closer to what is needed than the current budget and spending policy’s it is a start to returning to reality. Something that government has not done in a long time.
Matt Tiabbi has an older view of Paul Ryan and his budget. Just the first sentence shows you that the man actually has problems and cannot think straight. There is no good basis for the ryan budget, it is no better than what we are doing today because it will lead to a larger deficit and richer rich people.
Paul Ryan, the Republican Party’s latest entrant in the seemingly endless series of young, prickish, over-coiffed, anal-retentive deficit Robespierres they’ve sent to the political center stage in the last decade or so, has come out with his new budget plan.
Read more: http://www.rollingstone.com/politics/blogs/taibblog/tax-cuts-for-the-rich-on-the-backs-of-the-middle-class-or-paul-ryan-has-balls-20110407#ixzz23Gy4EMnp
You mean the two parties are really no different? Just different lipstick on the same pig? Oh No… Stop being a doomist. Where is the optimism? You little kids stop pestering the good Romney and his now good running mate Ryan. Quick call Don Guier to beat some sense into u folks.
I wonder if anyone is going to mail Paul Ryan a copy of Richard Koo’s book on debt deflation or anything by Hyman Minsky…
An excellent idea.
Much of the political process is about transferring the electorate’s attention from the issues to the personalities. But even more important, is setting the agenda, i.e., choosing what issues are acceptable to discuss.
Not until the Elite have squeezed every cent out of the current system, will they entertain and “newer (and better)” [more palatable] way to steal from the rest.
They will call this, “a return to true democracy,” or, “the second American revolution,” or some such thing, and although it will seem like a breath of fresh air compared to what we experience now, what it will contain is the seeds of the next flogging to come as they take their craft a notch higher.
People need to understand that system [institutions] are what they are, and guard against their inevitable [and insatiable] appetites for power. As the sun rises in the east and sets in the west, this reality holds true.
So true. I am sure the beginning of the next system will seem more fair. Am I really that bearish or am I really a realist.
Joe, it’s not about being, “right or wrong, bullish or bearish, conservative or liberal, theistic or secular, etc.,” but instead, it’s simply about seeing things as they truly are.
Systems, like all things, simply are what they are. If you understand their true nature, they you can deal with actually what is going on. This is what is so important to do, and it is THIS what the the information branch of, “the system,” attempts to distract attention.
Once you understand the true nature of any “thing,” the answers become apparent [immediately]. For example, Ron Paul understand the nature of money [albeit, politically slanted].
In my own profession of medicine, seeing true nature is understanding that health care must be about health and NOT disease. The answer [then] becomes quite simply a system that puts its resources into prevention-only.
All systems become dys-functional [it is their nature], break-down, and die. New ones are born and proceed through the same life-cycle. The key in dealing with the current mess is to see what is really going on and prepare oneself accordingly. In this particular crisis, this means personal austerity for the great majority. This is NOT a bad thing.
When people tell you how negative you are [because you understand the crisis], don’t buy into their angst, because people are just expressing their OWN fear, anger, and delusion. It’s not about you.
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This entire piece is from Zerohedge, are you zerohedge? I’m confused.
Oh, I see, you submitted this to Zerohedge.
What do you suggest? Inflation will destroy savings and the income of the elderly – it certainly isn’t fair to the people we borrowed from. Debt forgiveness is socialistic – it destroys investors and their desire to invest. Selling off assets and cutting the growth of spending sounds like the best option to me but I’m not an economist.
What the hay is a debt jubilee? A combination of all those things?
Also, it’s important to remember that he is the VP pick not the presidential. Romney is opposed to NDAA, the auto bailout, any bailouts. He will temper any budget Ryan suggests. Ryan said it’s a starting point budget, not an end point.
Yes, sometimes i submit to ZH.
The best way to deal with excessive private debt is with uniform inflation. The way inflation typically destroys savings and pensions is through the Cantillon Effect — because the new money goes first to the banks and financiers they get a transfer of purchasing power. With a debt forgiveness program, you cancel debt, with new money, and if you don’t have any debt, you get a cheque for the same amount.
It’s not really socialistic. If everyone gets the same amount of new money and inflation, there is no gain or loss, and nobody is getting ahead on anyone else’s back. Socialism would be taking from the rich to give to the poor. With a debt jubilee, you’re not really taking from anyone, you’re just reducing deleveraging costs and so taking a massive depressive weight off the economy.
Ultimately, if we don’t have some debt forgiveness, the economy will stay depressed and that more than anything else with destroy investment, and we will just end up either with either the economy collapsing under the debt load, or steep and nasty stagflation as the central bank prints more and pumps the financial system to keep the debt load serviceable.