Tue, Mar 25 2008
THAT IS, IF YOU ACTUALLY HAVE A JOB
10 reasons your taxes are going up
No matter who's elected president, the debt party's over
By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Reason No. 1: "Most Americans have yet to feel any of the costs of the Iraq war," write Nobel economist Joseph Stiglitz and Linda Bilmes in an excerpt of their new book, "The Three Trillion Dollar War," in Vanity Fair. "The price in blood has been paid by members of the volunteer military. The price in treasure has been financed entirely by borrowing. Taxes have not been raised to pay for the war."
Well, folks, the party's over. Campaign rhetoric won't hide America's excesses, denial, incompetence and arrogance much longer. No matter who's elected, taxes will increase to cover massive debts. Greed has driven America's great economic engine into a "debt contagion" ditch with a recession, bear market, price inflation, and weak job and housing markets ... you bet your taxes will increase.
Yes, our five-year war was totally financed by borrowing. But unfortunately, "deficit spending gives the illusion that the laws of economics can be repealed. They cannot. Americans will have to pay for the war at some point -- and when they do, they will be paying not the Bush markdown but the full price," the authors say.
We've been mislead by Washington's Enron-style accounting that hides many costs:
* Supplemental financing bills, outside the budget
* No veterans health-care estimates included
* No equipment replacement costs to restore our military
* Nothing about increases in state and homeland security
The real cost isn't $800 billion, it's already $3 trillion. And still, it doesn't include ...
* Interest on the ever-increasing $9.3 trillion federal debt
* Damage to our credibility from a weak dollar
* Out-of-control inflation in energy
* And the brutal damage to Iraq and other Gulf states
Washington's hiding all that from us. We were sold a war-on-the-cheap, to cost a mere $50 billion to $60 billion, to be self-financed out of oil revenues. Today we're spending $50 billion every month! This war is already an economic disaster for America and the bill's still coming due.
Still, we know there's strong opposition to taxes. But can a new president change much? Certainly not with two-thirds of the budget in untouchable entitlements and interest costs. Besides, Washington's not run by our 537 elected officials but by 35,000 lobbyists. And after the elections, all 35,537 will still be part of a conspiracy that hates change and loves to spend the $3 trillion Federal budget.
Mark my words: Taxes will (must!) be increased to recover from years of excessive spending, accumulating deficits and future earmarks. A new president may expose the problems but without Congressional restraint the taxpayers will get stuck paying "the full price."
Frankly, since both parties are mired in narrow ideologies, it's questionable whether either can manage a $15 trillion GDP economy. Read "Mismanagement 101," Dan Gross's Newsweek column: "As oil hovered near $100 a barrel, President Bush complained to OPEC about high oil prices. OPEC president Chakib Khelil responded acidly that crude's remarkable run had nothing to do with the reluctance of Persian Gulf nations to pump oil, and everything to do with the 'mismanagement of the U.S. economy.'" And our heavy reliance on borrowing keeps making it even more difficult for the next president.
But unfortunately, even though the party's over, that $3 trillion war debt is just a fraction of America's out-of-control debt which is bigger than the official $9.3 trillion federal debt. It's reason No. 1 taxes are going up.
Here are another nine problems increasing our government's debt and adding pressures for new tax hikes. I'm sure you can think of many others:
2. America's new Wall Street welfare program
This one's scary. For the first time in almost a century, the Fed's bailing out the investment bankers, those wild speculators who got us in this mess -- bailed out while two million homeowners face foreclosures and increasing interest rates.
The real sinners are free to sin again! Like J.P. Morgan Chase's $2 -- now $10 -- freebie of Bear Stern's equity, while the Fed stuck the taxpayers with billions of Bear's junk debt. Now Wall Street's greedy traders are free to start speculating again, playing in the same old $516 trillion high-risk derivatives casino. Bad move: The Fed's setting America up for an even bigger crash around 2012.
3. The Fed's nationalizing America's financial industry
Bear Sterns is a symptom of a systemic disease. As BusinessWeek put it: "Financiers preached the free-market gospel and pocketed unheard-of sums of money, yet when times got tough they called for a government bailout."
The Fed's dealing with America like a third-world banana republic, effectively nationalizing our financial industry! Wall Street's speculators have over $200 billion in junk write-offs. But like the government accounting tricks hiding war costs, Wall Street has also been inflating junk asset values and ginning up profits. And now the Fed's even helping them mask losses to prevent panic. Eventually this PR stunt will cut Wall Street's future earnings and increase taxes.
4. Huge resistance to cutting social and entitlement programs
Lobbyists like AARP will fight all cutbacks in Medicare and Social Security entitlements, even though those unfunded benefits will balloon to $50 trillion to $65 trillion within a generation. Economists say solving this problem will take Draconian cuts of 40% in benefits or tax increases of 40%. If we don't, entitlements will consume the entire budget in a generation. Untouchable near-term: Ergo, minimal cuts, higher taxes.
5. America's pork barrel lobbying machine
The Washington Post says lobbying is "Washington's biggest business." All those 35,000 lobbyists will be around for the entire 2009-2012 first term of the next president, and all screaming for government handouts. The Democrats need them. And while McCain promises to veto earmarks, his campaign's inner circle is made up of special interest lobbyists, ostensibly working for "free."
Expect little change. Lobbyists earn big bucks squeezing megabucks out of the federal budget, and your taxes pay the bills.
6. White House's free market nonaction policies
"We're on top of it," said the President in his St. Patrick's Day speech at the New York Economics Club, as if the credit meltdown had little effect on the economy. The Treasury secretary even got a Katrina-style "great job, Hank" for working one whole weekend to magically fix the crisis.
Unfortunately, the Treasury and the Fed are following the same playbook that pushed the 1970s economy into a long, deep recession. Pimco's Bill Gross says we need an aggressive Rooseveltian fiscal package. No chance. This administration only knows a free market (for business) and tax cuts (for the top).
7. Aging infrastructure: roads, bridges, water, sewer, etc.
Imagine taking that $50 billion monthly cost of fighting and rebuilding Iraq and shifting it to upgrading our own highways, hospitals, power, sewer and water plants. Dream on. Yet our deterioration continues and deferred maintenance only works so long. Expect higher gas taxes, plus sizeable cutbacks in state and local services, or general tax increases.
8. Paradigm shift: consumer spending vs. consumer savings
In one generation our savings rate declined below zero. Policymakers favored a consumer-driven economy, capital formation fell and debt piled up. Meanwhile, consumers took a cue from an out-of-control "spend and borrow" government piling up huge deficits.
9. Recession reality replacing arrogant optimism
The past five years the Wall Street Bubble Machine relied on an artificially low 1% Fed rate to create the housing boom and then the subprime-credit meltdown. Meanwhile our optimism and faith in capitalism sank with all the phony asset values and stock prices concocted by Wall Street ... and it'll happen again ... because Wall Street's relentless, all-consuming greed is setting up the economy to crash and burn again, all too soon ... and the taxpayer will pick up the tab ... again.
10. Now your turn, what's your top reason taxes will increase?
Seriously, you tell us, what did we miss? Or do you honestly believe we can "stay the course" and not increase taxes? If so, tell us how. Tell us why we're wrong in saying: "No matter who's the next president, your taxes are going up."Tue, Mar 25 2008
TRADING IN YOUR RETIREMENT CONDO FOR A CARDBOARD BOX
If, after years of paying garbage taxes (Social & Medicare, etc) you had any hope for the government to help you in your old age, hope no more, 'coz yer officially screwed:
"To get the money to pay the benefits, the government will have to borrow or close the gap in other ways such as cutting benefits or raising taxes."
Hooo-boy.
Government benefit programs in trouble
WASHINGTON, Associated Press - Trustees for the government's two biggest benefit programs warned Tuesday that Social Security and Medicare are facing "enormous challenges" with the threat to Medicare's solvency far more severe.
The trustees, issuing a once-a-year analysis of the government's two biggest benefit programs, said the resources in the Social Security trust fund will be depleted by 2041. The reserves in the Medicare trust fund that pays hospital benefits were projected to be wiped out by 2019.
Both those dates were the same as in last year's report. But the trustees warned that financial pressures will begin much sooner when the programs begin paying out more in benefits each year than they collect in payroll taxes. For Medicare, that threshhold is projected to be reached this year and for Social Security it is projected to occur in 2017.
The first year that payments will exceed income for Social Security will occur in 2017, just nine years from now, reflecting growing demands from the retirement of 78 million baby boomers. Medicare is projected to pay out more than it receives in income starting this year.
"The financial difficulties facing Social Security and Medicare pose enormous challenges," the trustees said in their report. "The sooner these challenges are addressed, the more varied and less disruptive their solutions can be."
Treasury Secretary Henry Paulson, one of the trustees, warned that the country was facing a fiscal train wreck unless something is done.
"Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity," Paulson said in releasing the new report. "Our nation needs a bipartisan effort to strengthen both programs for future retirees."
President Bush, who wanted to make overhauling Social Security his top domestic priority in his second term, tapped Paulson to lead that effort. However, Paulson has been unable to forge a consensus with Democrats, who took control of Congress in 2006.
Democrats contend that Bush lost valuable time after his 2004 re-election pushing a plan to allow younger workers to direct their payroll tax contributions into private accounts, an idea that went nowhere in Congress.
While the Social Security trust fund will have resources until 2041, the more critical date in terms of government revenues will occur in 2017. That is the date that Social Security will have to pay out more in benefits than it collects in payroll taxes. At present, Social Security is running large surpluses that are going to fund the rest of government.
However, in 2017, the situation will be reversed and the government will have to start filling the gap between what Social Security will be collecting in payroll taxes and what it must pay out. Technically, it will do that by redeeming the non-marketable Treasury securities that are held in the trust fund. However, those bonds are simply government IOUs.
To get the money to pay the benefits, the government will have to borrow or close the gap in other ways such as cutting benefits or raising taxes.Tue, Mar 25 2008
WHAT THE FUCK KINDA THIEVING BIZARRO WORLD VOODOO IS THIS?
From The Wall Street Journal:
"Thanks to a relatively new accounting rule, firms like Morgan Stanley, Lehman Brothers and Goldman Sachs last quarter booked hundreds of millions of dollars in gains based on worsening perceptions of their own creditworthiness.
How does that work? If the market decides a company is a bigger credit risk and starts demanding fatter risk premiums to buy its debt, the value of its existing debt falls. Under a rule being phased in throughout corporate America known as Financial Accounting Statement No. 159, that same logic applies to a company’s own debt. Companies that mark their liabilities to a market price, as Wall Street usually does, thus record as revenue a drop in the value of their own debt obligations.
Accounting experts said the exercise is perfectly legitimate, particularly if firms that mark liabilities to market do the same with their assets. At the same time, it highlights one of the ironies of so-called fair value accounting. “If you have a liability that declines in value because your credit worsens, you have a gain,” said Stephen Ryan, associate professor of accounting at New York University’s Stern School of Business.
FAS 159, which brokers are adopting earlier than most companies, couldn’t have come at a better time for Wall Street. The firms are taking writedowns of billions of dollars to reflect the lower value of leveraged buyout loans and securities backed by mortgages and other assets that are stuck on their books."
So let me get this straight:
If I owe my creditcard company $20,000, but I can only afford to pay back $5,000, I'm actually worth $15,000?
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