The Cancer of Debt and Deficits
By John Mauldin
February 18, 2012

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The Answer We Don’t Want to Know
The Cancer of Debt and Deficits
Income Measures What You Contribute to Society
Taxing Consumption
An Update on My Daughter
Some Thoughts on Writing and the Future of Employment

We are coming to the point in the United States when even the US government will no longer be able to borrow at very low long-term rates. That point is a few years off, and we have time to change paths; but as I have shown in previous letters, the longer we wait to get the deficit under control, the fewer choices we have and the more painful they are. NO country can run deficits the size we are currently running, along with unfunded deficits over four times the size of the economy and a growing overall debt burden, without consequences. At some point, investors in bonds will start wondering exactly what the process is by which they will be repaid. And what will the value of those future payments be?

One by one, the countries of Europe are losing their ability to sell their bonds at an interest rate that is sustainable for their economies and revenue bases without severe and socially disruptive restructuring, even if a central bank that will accommodate their spending by printing money or other countries will tax their citizens to pay for someone else’s debts.

The US will soon be faced with that same problem if we do not act soon. Will it be 2014? 2015? 2016? I think it will be earlier rather than later, as the bond market will look at Europe and what will soon be an imploding Japan and decide that the US is only different in size and scale. The interest on the debt is a growing part of the overall budget, and any rise will put severe constraints on spending or force large tax increases or require the Federal Reserve to monetize the debt. None of those have positive outcomes. Ignored long enough, it will bring about another Depression.

This week we will explore some options to actually resolve the deficit and debt crisis. Cutting spending or raising taxes have consequences, but not all cuts and not all taxes are the same. For those who have been wanting more specific solutions from me, I am going to address the issues surrounding taxation and offer my thoughts as to what we should do. Let’s see how many friends and readers I can upset this week. And I close with a few brief thoughts on writing, the coming employment crisis (will two billion jobs really disappear?), and advice for younger readers.

Before we dive in, I want to respond to a lot of letters and blogs about last week’s letter, which also handily works as a preface to this week’s musings. There were a lot of comments pro and con about my thoughts on various historical events. In quick review, I offered numerous thought experiments about what would have been different economically following a presidential election if their opponent had won. It was mostly an alternative-history type of speculative process. There are whole book series written with such a premise. What would have happened if the South had won the Civil War or Germany World War II? Total speculation as to the details, open to much disagreement.

And disagreement there was over certain interpretations of history. Would Al Gore (or pick your alternative president) have done certain things differently? Possibly, and maybe even probably. Such speculations are totally open for debate. But nearly all disagreements missed my main point, which was (and is) that presidents take the credit for good economic times and get blamed for bad times, when the reality is that they don’t have all that much control over the economy, especially in their first four years in office. They take the oath of office and their first budget isn’t even offered until 13 months later and then maybe adopted later in their second year, with lots of changes. With lots of compromises. Hardly time to radically affect the economy by year four of their term. Some changes? Yes, of course. But the main direction is already set, and they are really affecting the future more than their present time.

I argued that you really have to go back to Reagan to get serious change of direction, and even then you can argue that it was Carter that appointed Volcker (though I doubt he thought Volcker would create a major recession in an election year). Does anyone really think Reagan wanted a second double-dip recession in his second year in office? The legacy of Reagan was just beginning in 1984, and I will argue below that it was the restructuring of taxes in 1986 that provided the largest and most lasting contribution in terms of economics.

The Answer We Don’t Want to Know

Further, I believe that dealing with the deficit crisis is the single most important factor for the future of the Republic. I closed last week with these paragraphs:

“This (upcoming) election is ultimately about dealing (or not dealing) with the deficit, and putting the country on a path to a sustainable budget deficit, one that is less than the growth rate of the country. As I have argued elsewhere, and will argue in future letters, that is the paramount issue. Not dealing with the deficit runs the very real risk of the bond market treating us just as it is treating Italy and any other country that gets to the point where its debt is unsustainable. Not this year or the next for the US, but almost certainly before 2016. And once the bond market loses faith in a country, it takes a massive restructuring to restore that confidence. And we can see how that is playing out in Europe.

“The next president must have the ability to get a consensus. Let me shock a few of my fellow Republicans and say that I think the deficit is such a deadly disease that it would be better for the country for the Democrats to be in power and forced to deal with the situation than to do nothing. I would not like their solution, and I think it would be harmful, but not as harmful as a second Depression, brought on by not dealing with the deficits and entitlement problems.

“As a businessman, I would rather pay higher taxes on profits than to have no profits at all. Just tell me the rules and I will figure out how to adjust. A Depression 2 would mean 20% unemployment (at least) and a real lost decade, with the Boomer generation trying to figure out how to deal with no money and no jobs and being old.

“And the choices we would be forced to make? The spending cuts would be far deeper than anyone can now imagine, and the taxes needed far greater. Think what happens when any country has hit that debt limit. Greece is not having fun. And either Italy is going to be unhappy with the longer-term recession it will have, or Germany is going to be unhappy with the ECB backing Italian debt at below-market rates for a long time, which means printing money and a much lower euro. Actually, I think both must happen if the euro is to remain a viable currency. That’s just what happens when you don’t deal with deficits before they become a problem. If Italy is to remain in the euro, there must be a back-door bailout by the ECB, accompanied by Italian austerity (is that an oxymoron?). And don’t forget Spain.

“What would the Fed do in such an event? Does it succumb to the worst fears of the Austrian economic crowd and monetize the debt in an effort to fight deflation and depression? Does it trash the dollar and make gold bugs happy? Or does it find its inner Bundesbank (Austrian) core and eschew the easier way out, forcing the federal government to cut spending and raise taxes while interest rates are rising?

“This is a question to which we do not want the answer. Whether it’s yes or no, the answer is a disaster. Just choose the form of disaster you prefer. To the unemployed, retirees, and the young, it will make little difference. Ask our grandparents (or my father and mother), who lived through the Depression.

“And doing nothing will mean that we find the answer to that question. The very answer we want to never know in real life. It makes for interesting speculation now, but living through it will be hell.”

The Cancer of Debt and Deficits

The growing debt and the deficit is a deadly cancer on the economy. It will deliver a mortal blow to the economy if not dealt with. As I recently experienced in my family, it is better to deal with a cancer as soon as possible. Putting off treatment will not make the cancer go away by itself, and the cancer of our debt is clearly growing and malignant. It will soon overwhelm our national economic body. But dealing with a cancer is not without cost and pain, whether on a real personal level or a metaphorical national level.

The problem is solvable. It is not that there are not a lot of solutions. It is that we have not yet found the political will to decide what course of treatment is needed. Let’s start with a few basic presuppositions that I think must be addressed in order to marshall an effective set of choices.

  1. It has to be politically feasible. The Right would like to address the problem with spending cuts and reforms. Reforms and spending cuts are necessary but not sufficient to deal with the problems. For instance, disability payments are now running $200 billion a year and growing rapidly. Some 25% of those unemployed since the beginning of this crisis have somehow qualified for disability payments. We can cut the time allowed for unemployment benefits, but that does not offer large numbers. Government transfers now account for 22% of household income. Cutting that will be politically difficult.
    The real problem is health care. How much do we want and how do we want to pay for it? Health care must be thoroughly reformed, but the will (the votes) to go back to the 1990s is just not there. Rising costs can be controlled but not eliminated. The same goes for Social Security. We can raise the retirement age, do means testing, and make other changes; but the fact is that there are more Baby Boomers retiring each year. There is no Social Security Trust Fund. The money was spent on other projects, and now Social Security runs in the red each year. What Republican is running on a platform of taking away Social Security from those who are presently receiving it or will be eligible for Social Security within 10 years? Want to cut defense? Military pensions? Government pensions.
    And the Left wants to solve the problem by raising taxes on “the rich.” We are down well over $1 trillion a year in our deficit. Obama’s new plan raise taxes a lot and still has $1.3 trillion in deficits, with very rosy assumptions.
    “According to the New York Times, the president’s plan to abolish the Bush tax cuts for those making more than $250,000 is expected to bring in merely $0.7 trillion over the next decade, or about 0.4 percent of Gross Domestic Product per year [about $60 billion in the coming years, under optimistic projections that assume higher growth and no recessions]. As a comparison, the Congressional Budget Office estimates that the deficit over the same period is going to be $13 trillion, more than 6 percent of GDP per year.
    “The rich in America obviously have lots of money, but there are simply not enough of them to fund the president´s preferred level of spending.” (American.com)
    The hard reality is that the rich just don’t make enough to cover our current deficit. If we raised taxes to something like 60% on the top 10% of income earners, not just the 1%, we might get enough tax revenue, if the “rich” cooperated by making the same income they do now. That type of tax rate is just not politically feasible under any conceivable elected Congress.
    It will require both spending cuts AND different and higher forms of revenue to get a deficit reduction plan through Congress, even a majority Right or Left Congress. If Obama could not get higher taxes (except for health care in the future) in his first two years, with a decidedly Democratic Congress, it is very unlikely to happen in time to deal with the deficit crisis. Something must be done SOON. We don’t have another five election cycles to debate this.
    We have unfunded liabilities that simply cannot be paid under any tax scheme. Those promises will not be kept, because we will not have the money in future years, and it gets worse with each passing year.
  1. Tax rates matter to the growth of the economy. Even a low estimate of the results of raising taxes by 10% reduces GDP by about 0.4% of the increase in taxes. There are studies by very credible economists of both political parties, which I have written about in detail, that show that tax cuts and increases have a multiplier of as much as 3, as to their effects (Romer, as an example). An average estimate would give you something like a multiplier of 2. I have read no studies based on actual statistics and not some untested theory that suggests that taxes have a neutral effect. To suggest taxes have no effect on the economy makes for good sound bites and is nice in theory, but the studies of actual statistics simply do not support that idea. Increasing the taxes on the rich may be “fair,” but it is not GDP-neutral.
    Kennedy, Reagan, and Bush cut taxes, and the economy grew and more taxes were collected in total within a few years. But we are no longer able to cut marginal income tax rates and borrow to pay the deficit, waiting for growth to happen to make the cuts “pay for themselves.” We have simply borrowed too much. We are close to the limit. We must find other options.
  1. Some taxes appear to have less effect on economic growth, although I cannot argue that we have enough data points or serious academic studies to prove it. Reagan cut marginal income tax rates in 1986, but paid for it by getting rid of numerous tax deductions; so the overall affect was revenue-neutral, but the economy sure did grow after that. People (at least US citizens) clearly adjust their spending, investments, and incomes in response to marginal income tax rates. I am not arguing “fair share” or the morality of income distribution, simply observing a fact.
    The principle is if you want more of something, then lower the taxes on whatever it is, and vice versa. If you want to increase overall national income (again not talking about the fairness or how it is distributed), then tax it less.
    This idea is not radical. Rather, it is well accepted by nearly all political types. Congress (both parties) has passed over 3,000 laws giving tax breaks to encourage certain types of economic behavior they deem to be good. Mortgage interest-rate deductions, charitable deductions, tax breaks for married couples and children, and so on down to very minor and industry-specific breaks. They all assume that taxes affect behavior.
  1. Some level of government spending is necessary, although what is necessary by one person’s lights may be seen as a waste by another. But governments should provide for the common need what a free market would not do. Defense as an example. Is health care a common right? A majority of voters certainly think so. Education? Roads? Regulations on certain industries? Again, a serious majority of voters think so. One might argue for something less, and certainly Ron Paul does so rather well, with a growing following over the years I have known him; but such a vision is not politically feasible in the next four years.

Income Measures What You Contribute to Society

  1. There are some ideas that are fundamental to the growth of the economy, capitalism, and free markets as we know them today. Thomas Hobbes argued that income measures what you contribute to society and spending measures what take from it. Adam Smith argued that it is the wealth of nations and not the wealth of governments (or kings) that matters. His idea was that it was more important to grow the economy than the government.
    Without economic growth the average person will be left worse off. If our population grows 1% a year, then if GDP does not grow by 1%, there is less for each person to share. And private-sector growth is what is needed for general prosperity. Notice in the chart below (courtesy of Rob Arnott and Research Affiliates) that private (non-government) GDP has not grown for well over 10 years. This is about the same time period in which wages and private incomes have been flat. There has to be growth in the private economy (in total) for those employed in the private economy to make more money (in total).
  1. Keynes did indeed argue that deficit spending was a good thing in recessions. But he also assumed that the debt would be paid back in the next growth cycle. We forgot that latter part and now must deal with the consequences.
  1. I am not going to argue here how we should spend the tax revenues. I am simply going to suggest how we might collect them with as little negative impact as possible. That is not to argue there will be no impact. Taxes have consequences.
  1. I will confess I found a great deal to not like about the recommendations of the Simpson-Bowles deficit commission (and the other private bipartisan proposals). But if I were a Congressman and Simpson-Bowles was put in front of me, with my choices being yes or no, I would have voted for it in a heartbeat and tried to get enough votes to “fix” it later. There is NO bipartisan compromise solution that will make any of us happy in its details, no matter what your political views. That is why it is called a compromise, and that is what is needed.
  1. Never let a good crisis go to waste. The tax code as it currently stands is just unworkable. There are too many special interests and it is too complex. It assumes government knows best how to allocate capital by all the “tax expenditures” (tax breaks) that are in it. Let’s use this crisis as a perfect time to radically reform the tax code.

Taxing Consumption

So let’s get down to details. I met with Marc Sumerlin for breakfast a few weeks ago, and he later sent me a book he coauthored back in 2007 with Larry Lindsey, called What a President Should Know … but most learn too late. Both men are serious economic thinkers, and Lindsey is a specialist in tax policies. They both worked as economic advisors in the White House, and Lindsey was on the Board of Governors of the Federal Reserve. They do understand some of the mechanics of politics and economics. They now work together at The Lindsey Group, an economic advisory service based in DC. They do excellent work.

Marc outlined to me their thoughts on reforming the tax code. I read the chapter in the book on reforms, and like it better than anything else I have seen.

What they suggest is to tax consumption with a 20% Value Added Tax (VAT). There would be no taxes for incomes under $100,000. None. No Social Security. No Medicare. If you make less than $100,000 you pay nothing.

All income over $100,000 is taxed at 20%, no matter what the source. No capital gains rate or dividend break. I assume that also means no municipal bond exemptions. No exemptions for anything. Every last tax expenditure goes away. Corporate tax rates would be 20%, and again I assume no exemptions. If you make a profit, you pay taxes.

Although they did not say it in the book, they essentially agree with Hobbes that income measures what you contribute to society and spending measures what you take from it.

What society wants (and needs) is more income, as that grows tax revenues and general wealth. Consumption – what you get from society – is taxed. We don’t just need to tax millionaires more, we need more millionaires that we can tax. And you get that by encouraging growth in the economy.

They also note that their proposal was revenue-neutral in 2007, and included a $2,000 per child tax credit. Every worker would get an approximate 7.5% pay raise from the removing of Social Security and Medicare taxes. While businesses would also get that same tax break, they would have to pay a VAT on salaries, which would be an increase in cost. Welfare, the social safety net, and health care would all be funded.

As the VAT would not be paid on exports, it would put us on a more even ground with those nations that have a VAT and certainly lower business taxes, both of which would make us more competitive and increase exports and thus employment.

While they did not suggest it, I would change the tax code over four years, although phasing out tax expenditures faster to help the current budget crisis. A sudden change might be disruptive, and it would take time to get the mechanism in place for collecting a VAT. States with individual income taxes would need to adjust the sources of their incomes. (It would also give my tax-accountant and tax-lawyer friends time to find a different career focus.) Businesses would need some time to adjust their costs and sales.

This is different from the so-called “Fair Tax,” which is essentially a national sales tax. While I like the idea of taxing consumption, a 20% sales tax on top of state and local sales taxes of 8-10% would encourage much of our economy to move to either a barter system or a cash economy. A VAT might provoke similar reactions on a smaller level, but I think overall it is more readily collectible.

One can adjust the levels of both the VAT and income taxes to match the desired level of government spending. I might prefer less, but that is not the point here. Match these taxes (along with the normal excise taxes) with entitlement reform, a properly structured health-care system, and some cuts in other areas, and you are close to a balanced budget.

One caveat. It may surprise a few readers, but I met with David Krone yesterday for a long breakfast in Washington, DC. David is chief of staff for Senate Majority Leader Harry Reid. He is passionate, articulate, savvy, and an all-round nice guy. We found many areas of common ground and concerns. When I broached the idea of the tax proposal above, he seemed open to it, but came back with one thought.

“It has to have a trigger.” I must admit, I had to ask what a trigger is.

“A trigger is a pre-agreed-upon outcome if the desired budget outcome does not happen. Either spending cuts, tax increases, or some combination, but it must be automatic.” Quite a reasonable suggestion.

I readily admit there is something for everyone to hate in a VAT tax. It would raise my costs for employees substantially. I would lose several nice deductions. But given our current tax code, I think it would be the better of two evils for the economy.

Do you hate the idea? Then come up with an alternative that collects enough revenue and doesn’t have the problems of the current structure, and can get the votes. As I noted above, I would vote for something like Simpson-Bowles if that was my choice. I think Reid and Boehner should introduce Simpson-Bowles for an up or down vote before the next election. Let’s see what happens.

An Update on My Daughter

I want to thank all of my readers who sent me very kind notes about my daughter Melissa. As you might have read here, she had her thyroid removed last week, along with some rather large growths. We were quite worried. It turns out that a very small part of the tumor was actually malignant, but it was totally surrounded by benign tissue, and all the growths were removed. The doctor tells us if we had waited a year it would have spread and become a real issue. A random test looking for something else led to the discovery. We were very blessed to catch it very early. We will of course pay attention, but it looks like Melissa dodged a very large bullet.

Some Thoughts on Writing and the Future of Employment

As a side note, Melissa has been looking to change her work career, and in the process recently took a series of tests that helped her look at her aptitudes and what she actually would be happy doing. Not surprising to Dad, her top areas were marketing/advertising and writing. (Dad had always known she could write very well and suspected that would be where she ended up.)

“But Dad, how can I do that? I don’t have any experience or education for that.” Writing and marketing happens to be something I know a little about. I pointed out that normal university education is not necessary to be a writer. Like any craft, it is one of those things that you have to do in order to learn it. And the more you do it, the better you will get. As Malcolm Gladwell says in The Tipping Point, practice something for 10,000 hours, whether it’s playing music (as the Beatles did) or writing software (as any number of successful entrepreneurs did, long before they became rich and famous), and you can get good. Rarely can you just get lucky. That is not the real world. As the saying goes, the harder you work the luckier you get.

I often get asked by young people how they can become a writer. My answer is that you start writing. Put it out there. Keep writing until you develop your own voice and style, and then keep on writing some more. I look back at what I was writing 40 years ago and it is embarrassing to me now, although at the time I thought I was rather clever. (Ah, the hubris of youth.) My early offerings of this e-letter, which are still posted, make me cringe when I get up the nerve to go back and read them. Not the actual ideas and forecasts, but the writing style. Even so, over time, people responded and forwarded them and the subscriber base slowly grew. I must admit to still being amazed at it all. When I left college I wanted to be a writer. And after 40 years, I think I am getting there.

I have never found writing easy. It is hard work. But I hope in ten years my writing will be better than it is today and that I will still have an audience. I never take for granted that you will still be here with me, taking your precious time to spend a few minutes with me at the end of the week. But I write with the same audience in mind today that I did when I started this letter. In my mind, when I write, it is to a small group of friends like you. That is just the way I write. Not better than any other style, just me.

So that is what I told Melissa, along with a few other insights here and there. “If you want to be a writer, then write.” Of course, it helps to have some understanding of techniques from people with experience. If you want to learn to write persuasive copy, then there are places and people who can help you. I know of a number of people who have gone to the Copywriting Program created by American Writers and Artists, and went on to successful careers writing marketing copy. Randomly, there is a small, intensive workshop next week for web copywriting, a little advanced for a beginner, but I’m sending her because I think it is best for her to just plunge in. There are a few spots still open. You can learn more about it here: www.awaionline.com/web-intensive.

Writing is not brain surgery. You can become a professional by just writing. If you wait until you think you are an expert, you will never get started. Melissa can go back and take some of their other programs to help, but the key is to start writing. While she has the basic talent (at least Dad thinks she does) it takes a lot of work to get to where people will pay you for your efforts.

I will help, of course. And frankly, it is a lot less than a college degree would cost, so if she can do it it will be a good investment for me. One less cost center (we love our children but they can be cost centers for longer than we would like to admit) and hopefully one more adult launched into the world, on her own, doing what she wants.

You can sign up for American Writers and Artists’ free letter, The Writer’s Life (which sounds easier than it is but is a lot of fun) at www.awaionline.com/signup/the-writers-life/.

I will let you know from time to time how Melissa is doing. But for this week, Dad is content that she is healthy, as happy as I have seen her in a long time, and has a new focus. Life doesn’t get much better than that.

And in closing, I’ll mention that I read a report by Thomas Frey that over 2 billion jobs will disappear as new ones appear. I don’t know about his numbers, but I do know the world is changing rapidly. I think about that a lot.

My early writing mentor (and former business partner) Dr. Gary North (www.garynorth.com), in his Reality Check column, wrote today:

“The secret of lifetime success in your career is to combine a core skill with new marketing techniques. Your markets will change. But if you can reach customers by means of a core skill, you will improve your output. You will stay ahead of the competition.

“If you plan to be in the labor market in a decade or half a century from now, you must begin to adjust to the reality that is 120 years behind us already. The cost of information will fall next year and the year after. This is a good thing for us as customers. It can be painful news for us as producers.

“This is why we must continually work on our core skills. We must match these skills with the market. We must pay attention to what customers want, why they want it, at what price, in what quantities, and in what format. This is the law of the free market: customers’ authority. They can change their minds at any time. You had better perceive how and when they will do this, and then be in front of them at the time when they pull out their credit cards.

“Work on your core skill. Work on your marketing. You are in the business of selling yourself. Do not take this task lightly.”

I hope to get my kids to read and heed those words.

It is late and time to hit the send button. If you are in the US, enjoy your long President’s Day weekend.

Your hoping for my kids’ sake we solve the deficit problem analyst,

John Mauldin

John@FrontlineThoughts.com

Source: JohnMauldin.com (http://s.tt/15KlC)

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

49 Responses to “The Cancer of Debt and Deficits”

  1. Francois says:

    “Income Measures What You Contribute to Society”

    Yup! A great teacher that changes kids life contributes so much less to society than someone who code algorithms for HFT traders.

    Very persuasive indeed!

  2. Francois says:

    Hey John,

    Pardon me for asking such a silly question but why is it that Treasuries deliver so a meager interest rate if the bond market is so anxious about US debt?

    Please understand I don’t rub elbows with hedge funds geniuses, quants and billionaires, so my question may appear really basic, but still…couldn’t help it.

  3. gman says:

    Please no more on “debt threat”..not with US government debt service @ 30 year lows..unless one also bemoans the other side of the equation …THE GLOBAL SAVING GLUT.. to many global players with too much money all looking for a “safe place” to go. This dynamic has been the main reason why rates are so low. The bond market is saying the US government could be borrowing much more.

  4. MayorQuimby says:

    Hey Francois- Because people buying them think we can grow out of our mess.

    We can’t.

    Bond market will collapse before stock market next time and that will be the end of a FRAUDULENT 100 year long ponzi scam. What happens at that point is anybody’s guess but the entitlement mentality that is so pervasive in the west will look as ridiculous in hindsight as did doctors using leeches to treat maladies or flat-world scientists.

  5. cthwaites says:

    “Mauldinisms” – noun, bold stated facts with no support or data, which cannot corroborate statements.

    This week’s:

    1. “Notice in the chart below…that private (non-government) GDP has not grown for well over 10 years.”

    It shows no such thing. It shows US employment. GDP can grow or shrink without any change in employment. It would show in productivity or GDP per capita. The chart just shows that fewer people work than the pre-recession peak. It says noting about GDP, which is higher now in both nominal and real terms.

    2. “…tax consumption with a 20% Value Added Tax (VAT). There would be no taxes for incomes under $100,000. …. All income over $100,000 is taxed at 20%, no matter what the source”
    Well you can have either a consumption tax (in this case VAT) or an income tax. But not both. He’s confusing two very different forms of taxation. And, if enacted, you would have an interesting arbitrage between those earning $99k and $101k.

    3. “As the VAT would not be paid on exports, it would put us on a more even ground with those nations that have a VAT”
    No it wouldn’t. Importing nations would just impose their own VAT at point of sale.
    4. “Even a low estimate of the results of raising taxes by 10% reduces GDP by about 0.4% of the increase in taxes… tax cuts and increases have a multiplier of as much as 3”
    So in one sentence tax cuts reduce growth by 0.4% of the increase, which is the same as a negative multiplier of 0.4, then in the next sentence it’s 3. Then he plumps for 2.

    Bonus:
    “But I hope in ten years my writing will be better than it is today”
    Yes

    I read Maudlin because I want (well, feel I have to) to read people with radically different views from my own. But he massacres his facts.

  6. Futuredome says:

    The US could run 3 trillion dollar deficits to the market so no mas. Paying down debt is a function of growth.

    The 236 trillion dollar surplus in 2000 will become a trillion dollar surplus in 2030.

  7. MayorQuimby says:

    Second reason: The Fed and the primary dealer network (scam) who are artificially holding rates down.

  8. Union Agitator says:

    You want to cut the deficit? End War, and oil subsidies. That should just about do it. If not, think about making insurance illegal. God forbid people have to think about what could go wrong. If that sounds too harsh for you, think about medical bills being cut 20% – that’s the insurance companies take on most every dollar spent on health care.

  9. johnhaskell says:

    Mayor Quimby- given that the Ponzi has run for 100 years already, isn’t it rather foolish to predict that it will stop working in the next year or so? Especially considering the remarkable robustness of this particular Ponzi, with people like you running around yelling, “it’s a Ponzi! It’s a ponzi!” while the Treasury calmly auctions more 10 year paper at 2%.

  10. johnhaskell says:

    Comparing the current deficit to “cancer” is so idiotic that it doesn’t merit discussion and I’m glad no one on the string did so. Can anyone provide us a history of Mauldin’s track record on his interest rate calls?

  11. MayorQuimby says:

    John- I didn’t say year but it will end soon.

    Proof is that the Fed Funds is at zero and they have taken on many Trillions n to their balance sheet (that we know about). The problem is trajectory. The Fed will have to exponentially print/backstop etc even with certain budget cuts.

    How many rounds of QE do you think people will take at these rates? Anyone who thinks the Fed is omnipotent is nuts. In the 1987 crash bonds got whacked. They will get whacked again. The Fed can only make things worse at this point and it is.

  12. MayorQuimby says:

    Gman- I got a chuckle out of your savings glut theory. Thanks! There ‘ain’t no savings glut in America I can tell that much. Our savings rate is in the neighborhood of five percent and millions of people are delinquent on their mortgages, 46 million are on food stamps and tens of millions more subsisting on soon to be bankrupt social programs!

    Savings glut?!!!!

    Hahahahaha…..

    A savings glut is when people have a house paid in cash, enough interest income to pay their bills and live and THEN hoard cash above and beyond that.

  13. MayorQuimby says:

    Cth- you’re wrong on most of your points. When you strip out debt/deficits GDP has NOT grown for decades. That should frighten you because it actually did occur in the 50′s through the 70′s (growth sans deficit spending).

    Reagan set us on a frightening path of deficit spending stupidity but I give him half a pass since it helped us win the cold war. But every president and congress since then has been bankrupting us.

  14. DeDude says:

    There is no way a person could build a business like Mauldin’s in Texas if he actually told people how things work. The rich southern investor class want’s to be told that they are the pillars or society and that lower taxes and more money to them, will make everything better. For people who work through logic analysis it can be painful to see some of the obvious flaws as John try to fit a square peg into a round hole, and e.g., right after raging about the disaster of exploding national debt does the mandatory bowing down to Saint Reagan who presided over the largest fold increase in debt and the highest interest cost as % of GDP of any US President. I have often wondered if John drinks his own cool aid or just serve it for others.

    The main interesting thing about his letter is that it does reveal some of the ideas that are percolating in those very influential circles funding the right wing attack on America. One interesting remark was “As a businessman, I would rather pay higher taxes on profits than to have no profits at all”. Are the southern right wing GOP millionaires finally waking up to the fact when the poor and the middle class have no money to buy products, then it hurts businesses and their rich owners as well. Yes that was just a tiny little light of insights in a sea of ignorant right wing dogma – but still interesting. Also the flat tax has all the usual trappings of a non-progressive scale but with a 100K deductible it actually changes quite a bit. It is hard to say without details but it might even accomplish some of that redistribution of money from investor class to consumer class that the economy needs so desperately before it can resume growth.

  15. gman says:

    ” There ‘ain’t no savings glut in America”

    Correct..that is why I said “global savings glut” that spills into the US. Foreign investors and central banks love US assets.

  16. MayorQuimby says:

    The only savings glut is in China that I know of. Japan’s has been tanking after being up for years.

    But their savings is spread out amongst 1.5 Billion people.

    US assets are grossly inflated across the board. No one likes to lose money. Once reality reasserts herself, they will SELL and primary dealers, the FRBNY AND the Fed itself will be sitting on Trillions in additional losses.

    Markets will tank.

    Congress will pass some law allowing them to hold losses against future tax revs as they increase taxes.

    The losses will increase. Congress will let them write off all debt just as they QE massively.

    Confidence in the system collapses further and markets crash harder.

    Oil and import prices skyrocket.

    US “sells” Taiwan to China behind closed doors. China invades, we do nothing.

    They launder debt forgiveness through UK.

    And with each step – Social and Medicaid cuts of 7% or more come swiftly.

    Pensions, ‘freebies’ and other nonsense are all eradicated into social unrest.

    This will take 7 – 10 years to unfold and I suspect it will start in a few years from now slowly at first, then with gathering steam.

    For doubters – explain to me how $54 Trillion in total debts are serviceable on $5.4 Trillion in wages and $1.7 Trillion in corporate profits for a MAX $4T in revenue.

  17. DeDude says:

    Mayor you are way overdue for those meds. The right wing has been crying about the imminent economic disaster of national debt for the last 3 decades.

    In a $15 trillion per year economy that has been growing at about 3% per year, a shortfall of $54 trillion over 75 years (or 0.72 trillion per year) is trivial. Even if the economy completely stopped growing, the problem would still be less than 5% of the total size of the economy. Our main problem is growth not debt.

  18. Greg0658 says:

    on bonds and cash being toilet paper we agree – but it is the exchange medium down the ranks

    on corporations being the be all end all – ok – but they still need cash to make transactions – further, corporations would not be required to share with market players in a breakdown of systems – so discount those figures in total net worth saved

    on foreigners in love with our continent I agree – mainly for the amber waves of gold corn

    on labor exchange for stuff – we are all working on that care angle – good

    has the world market system allowed a glut creation of children – imo yes – but that never stopped a capitalist dream of providing care – until they wish the music to stop and call the market

  19. MayorQuimby says:

    Dude-

    Knock off the insults, pretty please?

    Facts:

    $54 Trillion of total debt

    $5.4 Trillion of nominal wages

    $1.7 Trillion corporate profit.

    Now – assuming growth of 3% per year you get an average of $17.5 Trillion over ten years in GDP (NOT tax revs).

    Assuming we stop accruing ALL DEBT (!!!) and magically continue to grow at 3%, we would have $175 Trillion in gdp x say 30% tax revenues (which is unrealistic because traditionally .gov has never collected more than 25% in revs) you get $52.5 Trillion.

    That’s with:

    1. NO accounting for $400 Billion in debt interest which is GROWING each year. Take out $5T. We’re down to $47.5 Trillion.

    2. NO accounting for medicaid and social security costs!!!! $2.2 Trillion x 10 (assuming NO COST increases!!!) = – $22 Trillion. We’re down to $25.5 Trillion in debt servicing over a decade.

    3. NO accrual of debts which essentially means tax receipts CRASH because .gov is now a bigger part of gdp than ever and much of that is bond issuance (borrowed).

    4. NO interest rate increases.

    Now….you can spread that out over 20 or even 30 years (not 75) and it becomes serviceable but only IF we STOP accruing debt!!!

    Simply put – your math doesn’t add up.

    Mind you – all of this is unrealistic. Reality will assert herself much sooner. Clearly we are broke already and I hope we DO keep running deficits if only to silence the cake and eat it too crowd forevermore.

  20. MayorQuimby says:

    Short version – gdp is not tax revs and doesn’t finance debts or interest (duh).

  21. DeDude says:

    If the only modeling you can do is a linear extrapolation from here to infinity; then even the slightest little problem becomes a terminal disaster, and any tiny little uptrend becomes a sure ticket to Nirvana.

    For some that may work emotionally, but it’s just not going to help predict anything about the future.

    So if the economy grow 3%/year it will be at $175 trillion in 75 years. So at that time for a single year we tax 30% of GDP and “puff” – the whole thing is gone. And why are we in such a huge panic ??

    Yes you can do all kinds of playing with assumptions about the rate of inflation, rate of interest on debt etc. etc. and all depending on those assumptions you can either face “terminal disaster” or “Nirvana”. Fact is that economic growth rates are the major assumption that changes the picture drastically. So if we try to solve the national debt problem with any kind of “solution” that has a serious negative impact on growth – then we will have shot ourselves in the foot (just like the Europeans).

  22. MayorQuimby says:

    Huh? I just gave you facts and data – the money simply isn’t there to pay for anything. That is reality!

    You can’t refute this or you would!

    Even IF we could grow forever (we can’t), our debt interest and unfunded liabilities are WAAAAAAY too big to be serviced!

    I gave you *examples* and *facts* showing this is unaffordable over TWENTY YEARS which means EVEN IF we stopped accumulating debt (which is all your ‘growth’ really is, we would STILL barely be able to bring things into balance over DECADES.

    Your assumptions of of perpetual growth are *insane*. The natural state of all economics is DEflation not INfltaion.

    INflation is by its very nature EXCESS credit. And .gov has no control over inflation over the long haul (yes they can pump short term but if the economy cannot absorb the price increases you destroy aggregate demand).

    Look – you are saying there IS NO SUCH THING as going broke!

    Think about the insanity of such a statement!!!

    Now – show me NUMBERS as to how we can bring our budgets under control or I will simply accept you refusal or inability to do so as an admission that you are just full of it.

    We are BROKE and you are saying we are not even close. You are many parsecs away from reality Dude and I will be hear to confront you and others’ arrogance each and every time you post it – because your ignorance and arrogance is going to bring the entire western world to its knees.

  23. DeDude says:

    These “disaster calculations” sort of reminds me of back when my wife got pregnant and I decided that I needed a little more life insurance than what my job already provided. The salesman had gotten some personal information beforehand so he showed me how much my wife would get in social security before and after reaching retirement age and how much she would need (based on current expenditures). He had used an Excel spreadsheet with certain % assumptions about inflation, COLA on the SS, and returns on investment. He ran the calculations up to when my wife would turn 85, and the goal was that she should not “run out of money”. “Amazingly” it tuned out that I needed the 250K of life insurance that someone with my income reasonably could afford. I questioned his assumptions and he offered to change them. He had a very uncomfortable next 30 minutes as we reached estimates of anywhere from 75K to over a million with just minor changes to the assumed rates of inflation, COLA and return on investments. My wife is an attractive woman and I figured she just needed enough money to have time to “get over it” and pick a real good second hubby, so I got the 100K I had already decided to get. But it sure was a lot of fun playing with those assumptions – at least for me.

  24. MayorQuimby says:

    Dude- I’ll make it even simpler for you.

    If you accrue debt at 6% per annum over time and grow at 3%….what happens?

    I’ll give you a hint.

    http://www.acting-man.com/blog/media/2011/02/Total-Credit-Market-debt-vs.GDP_.png

    YOU GO BROKE.

  25. DeDude says:

    “Your assumptions of of perpetual growth are *insane*. The natural state of all economics is DEflation not INfltaion.”

    I guess the past 200 years of experience should not be taken into consideration, when your “model” (or dogma) say something different???

    “Think about the insanity of such a statement!!!”

    I am, I am !!! – and my brain is starting to hurt.

  26. MayorQuimby says:

    1. You ignored nearly every point I made. Thank you for proving my points by not debating anything.

    2. You understand so little it is scary. Inflation is by its very nature deflationary over time. Always. If you don’t understand that statement, you aren’t worth my time.

    Think of a house. It is eroded by elements. It must be heated, defended, secured and repaired. That is deflationary.

    Think of a skill. Over time, economics creates new skills making old ones obsolete. That is deflationary.

    Think of mother nature and how she slowly destroys everything. That is deflationary.

    INflation is by its very nature evidence of excess liquidity. The only way you get inflation is if more money is being created by an economy THAN WHAT IS NEEDED.

    Most money goes to the top of the food chain. So those who control money always want inflation since 90% of all new money goes to them! Eventually income gaps and wealth gaps are so sever everything collapses.

    Now – I’ve addressed all of your retorts. You have ignored ALL of my points, facts, data etc.

    Your turn!

  27. MayorQuimby says:

    So – inflation means more money is out there than what is needed and most of the EXTRA money goes to the top who then buys commodities, housing – everything and makes things tougher for the bottom. This eventually leads to a credit crunch and is deflationary.

    You need BALANCE for economics to work over time. And YOUR delusional and distorted versions of what you THINK can be called economics cannot mathematically work over time.

    HENCE the following MANDATE from the Federal Reserve Act itself:

    http://www.federalreserve.gov/aboutthefed/section2a.htm

    “shall maintain long run growth of the monetary and credit aggregates *commensurate* with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, *stable prices*, and moderate long-term interest rates”

    I ONCE AGAIN refer you to this chart which shows clearly that the Fed has NEVER lived up to its mandate and was perverted from day one.

    http://www.acting-man.com/blog/media/2011/02/Total-Credit-Market-debt-vs.GDP_.png

  28. MayorQuimby says:

    Hahahaha…here’s your ‘government has to step in and keep the perverted ponzi going!’

    http://3.bp.blogspot.com/-PgYBh2_wpYU/Tm-NI-iKRjI/AAAAAAAAAvQ/gbppuuo2fJI/s1600/deficit.png

  29. DeDude says:

    Actually you have ignored the things I said and rambled out a bunch of irrelevant things.

    The fact is that by playing with assumptions about tax-rates, inflation, economic growth, interest rates, etc. you can either create a model that show the way to Armageddon or Nirvana – you have failed to respond to that simple fact.

    The main parameter that (when manipulated within reasonable historic limits) changes current economic models predictions toward Armageddon or Nirvana is “economic growth” – you have failed to respond to that simple fact.

    Yes a simple linear projection of current levels of taxing, spending, debt, and budget deficit will eventually be a disaster – but what idiot would just use a line through 2 points to predict the future?

  30. DeDude says:

    If you presume no economic growth, no inflation, no new taxes and a budget deficit of 1 trillion per year for the next decade – then we are in huge trouble – but what moron would predict the future based on those assumptions?

  31. MayorQuimby says:

    “The fact is that by playing with assumptions about tax-rates, inflation, economic growth, interest rates, etc. you can either create a model that show the way to Armageddon or Nirvana – you have failed to respond to that simple fact.”

    Negative. I gave you numbers which show that our revenues over TWENTY YEARS don’t even come CLOSE to supporting EXISTING debts much less new debts!!!

    Please respond to *this point*. I want numbers not bullshit. Debt interest is at $400 Billion and rising and with $1.3T deficits adding to debts even IF rates remain stable, debt interest will grow. In fact – it is crucial that debt interest not grow faster than the 3% growth rate you are presuming. Please tell us what happens if we have another recession, or rates go up.

    “The main parameter that (when manipulated within reasonable historic limits) changes current economic models predictions toward Armageddon or Nirvana is “economic growth” – you have failed to respond to that simple fact.”

    Huh? You’re saying that the future is fine *no matter what* and why even debate it because one can drum up any numbers to fit any theory. How ridiculous. I gave you facts. We earn X in receipts and owe Y in debt. The two are DIVERGING EXPONENTIALLY which means we are on the road to BANKRUPTCY. I gave you numbers. You respond in kind.

    Here’s another answer:

    http://www.acting-man.com/blog/media/2011/02/Total-Credit-Market-debt-vs.GDP_.png

    “Yes a simple linear projection of current levels of taxing, spending, debt, and budget deficit will eventually be a disaster – but what idiot would just use a line through 2 points to predict the future?”

    Um, what idiot *wouldn’t*? How do you even balance a check book?!!!! You base your costs and expenditures on anticipated revenue. When your calculator flashes back the phone number of a bankruptcy attorney after you’ve inputted your data points, it is game over.

    Now – please respond to MY points which are:

    1. What happens when you accrue debt at a 6% rate but your growth rate is only 3% over time?

    Here’s what happens:

    http://market-ticker.org/uploads/2010/Feb/exponent-2.serendipityThumb.png

    You go broke eventually. You will argue that we can somehow magically reduce what we owe and grow faster than our debts. Really? We would need to literally double our economic output over 10 years WITHOUT the accrual of debt. WHAT YOU DO NOT SEEM TO GRASP is HOW MUCH OF OUR GDP is BASED UPON DEBT!!! You’re trying to eat yourself skinny! Not only are you wrong but you are embarrassingly wrong!

    The two parabolic lines are diverging (gdp vs. debts) but the GDP IS NOT EVEN REAL!!!!!

    2. Explain to the class how inflation works. In fact – let’s hear you explain where money comes from. If there’s inflation, there’s new money entering the economy right? Where does it come from and who controls it?

  32. MayorQuimby says:

    “If you presume no economic growth, no inflation, no new taxes and a budget deficit of 1 trillion per year for the next decade – then we are in huge trouble – but what moron would predict the future based on those assumptions?”

    That’s NOT what I wrote. Thank you for LYING.

    “Now – assuming growth of 3% per year you get an average of $17.5 Trillion over ten years in GDP (NOT tax revs).

    Assuming we stop accruing ALL DEBT (!!!) and magically continue to grow at 3%, we would have $175 Trillion in gdp x say 30% tax revenues (which is unrealistic because traditionally .gov has never collected more than 25% in revs) you get $52.5 Trillion.

    That’s with:

    1. NO accounting for $400 Billion in debt interest which is GROWING each year. Take out $5T. We’re down to $47.5 Trillion.

    2. NO accounting for medicaid and social security costs!!!! $2.2 Trillion x 10 (assuming NO COST increases!!!) = – $22 Trillion. We’re down to $25.5 Trillion in debt servicing over a decade.

    3. NO accrual of debts which essentially means tax receipts CRASH because .gov is now a bigger part of gdp than ever and much of that is bond issuance (borrowed).

    4. NO interest rate increases.

    Now….you can spread that out over 20 or even 30 years (not 75) and it becomes serviceable but only IF we STOP accruing debt!!!

    Simply put – your math doesn’t add up.”

  33. MayorQuimby says:

    Now factor in to that last part this – you have to TAKE OUT the DEBT from the GDP!

    Please respond to this FIASCO:

    http://www.acting-man.com/blog/media/2011/02/Total-Credit-Market-debt-vs.GDP_.png

  34. DeDude says:

    “The fact is that by playing with assumptions about tax-rates, inflation, economic growth, interest rates, etc. you can either create a model that show the way to Armageddon or Nirvana – you have failed to respond to that simple fact.”

    So your “response” was a bunch of bullshit assumptions for the next 20 years that you want me to take serious and respond to ???

    “The main parameter that (when manipulated within reasonable historic limits) changes current economic models predictions toward Armageddon or Nirvana is “economic growth” – you have failed to respond to that simple fact.”

    So your “response” it to make up a bunch of assumptions about future debt interest costs and deficits and call them facts ??? Then put up a straw man about things I didn’t say and demand that I defend myself ???

    REPEATING YOUR ARMAGEDDON ASSUMPTIONS IN CAPS DOES NOT MAKE THEM ANY MORE CORRECT. If you ever get interested in real facts and such, then the congressional budget office have some nice models that take things like inflation and growth and that kind of complicated stuff into account. You will like them because they do indeed point to Armageddon if we don’t raise taxes and stop wasting so much money on a bloated military machine. They even have some calculations on Medicare/ Medicaid cost that show serious problems unless we go European and stop wasting such a huge % of our GDP on medical care.

  35. MayorQuimby says:

    “So your “response” was a bunch of bullshit assumptions for the next 20 years that you want me to take serious and respond to ???”

    Negative…you are saying that data is irrelevant and reality does not exist. The only one who is bullshitting everyone (and most of all himself) is YOU.

    ONCE AGAIN…whip out a $4 calculator and DO THE MATH. We are GOING BANKRUPT.

    “So your “response” it to make up a bunch of assumptions about future debt interest costs and deficits and call them facts ??? Then put up a straw man about things I didn’t say and demand that I defend myself ???”

    Negative. While our GROWTH is based upon YOUR assumptions in this calculation – and is NOT guaranteed (by ANY stretch of the imagination), our DEBTS and LIABILITIES are KNOWN FACTS. And FOR THE THIRD TIME….much of our gdp is predicated upon MORE DEBT!!!!

    “they do indeed point to Armageddon if we don’t raise taxes and stop wasting so much money on a bloated military machine. They even have some calculations on Medicare/ Medicaid cost that show serious problems unless we go European and stop wasting such a huge % of our GDP on medical care.”

    Well we agree on something. But cutting defense is the surest way to take away gdp points. It also keeps oil cheap.

    Now – please respond to my other points:

    1. Where does money come from?

    2. Is not inflation excess money in the economy?

    3. What do YOU think the Fed mandate means “shall maintain long run growth of the monetary and credit aggregates *commensurate* with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, *stable prices*, and moderate long-term interest rates”

    4. What happens over time when you accrue debt at 6% but only grow at 3%?

    http://www.acting-man.com/blog/media/2011/02/Total-Credit-Market-debt-vs.GDP_.png

    If you guessed BANKRUPTCY, you are correct. Now that we have maxed out our ability to lower rates, we are printing and monetizing debt. Expect the Fed’s balance sheet to keep growing until the bond market snaps and you, Krugman and the rest of the cake and eat it too crowd are finally silenced forever.

    We need balanced budgets, real fiat (defaults get written down, new money is strictly backed by collateral), no more gold talk, and MATURITY from 330 MILLION PEOPLE who are used to getting their cake and eat it too.

    No more. It is time to outgrow this bullshit adolescent phase, cut UNaffordable medicaid and social security benefits by whatever it takes ALONG WITH a bloated monstrosity of a military machine. No more wars, fed scams, lies, bs pensions in the six figures and all the other bubble nonsense that has wrecked the whole nation.

  36. DeDude says:

    “Now – please respond to my other points”

    It’s hard to get a man to understand something if his ideological fantasy world is propped up on not understanding it. I will pass on the invitation to waste my time. I guess we can talk about it again in next year when your predicted Armageddon once again failed to materialize.

  37. MayorQuimby says:

    I thought so.

  38. dougc says:

    We have created 4 trillion in fed debt and created 1 trillion in GDP. Our real GDP grew 0,7 % in the last quarter. We are going to add 1,5 trillion in debt this year and hopefully we get 1.5 % GDP growth.
    What happens if we have another recession? We can’t significantly reduce short term rates or raise taxes, so the alternative would be to increase deficits to 3 trillion or 4 trillion. What are we going to do if we have 3 recessions in the next 10 years, this would be the historical average? Sometimes I am glad I am too old to see how this works out.

  39. MayorQuimby says:

    It doesn’t.

    By americans are teenagers and don’t want to hear any truth or facts. They want what they want and throw tantrums when you tell them they can’t have their cake and eat it too. Deficits are $$$$ we do not have. That “prosperity” comes at a COST. The cost is the FACT that you have to remove not ony the same amount of prosperity from the future but add interest payments on top of it. Ultimately, you are making things worse.

    America is trying to eat itself skinny. If we just borrow a METRIC TON of money we can increase GDP above and beyond the cost of having borrowed it! Um, no. The world does not work that way.

  40. wally says:

    That’s probably the last Mauldin sermon I’ll bother to read. It seems to me he used to present some points based on logic, but now he just preaches his opinions, whether founded in fact 0r not. I can find guys who do that at work and in every bar… I don’t need to waste my time with another one.

  41. Greg0658 says:

    “throw tantrums” .. thats what we do to get stuff .. to find the correct price point of labor for stuff to survive

    I hope its a cake walk .. Mayor I hear ya on sticking to austerity .. money has value and damnit – it should keep that value .. and Wally sermons are the solution before all out chaos (close at hand me thinks) but there’s hope

    Credit has been the method to provide for the masses (some masses anyway) .. to skip over the step of financial engineering and divy out .. its an interesting time in my understanding of the big picture .. everything seems to get done (ok sorta)

  42. Greg0658 says:

    ps – I downgraded to IE8 and things are working much better … SO many systems in this world that can go astray .. Here – this IS the newest greatest gotta have it (so we can push product – and ITS ALL YOURs FAULT)

  43. DeDude says:

    “The cost is the FACT that you have to remove not ony the same amount of prosperity from the future but add interest payments on top of it”

    And when the 10 year TIPS yield -0.56% and the 5 year TIPS -1.44% how much interest do you “add” on “top” of it? or is it called subtract from the bottom when interest rates are below inflation? How about the cost of having people who want to work and produce sit idle and live from food stamps is that huge waste of idle productive capacity added “on top of it” or added on the bottom of the heap of crap left by the failure of austerity programs?

  44. MayorQuimby says:

    Austerity will not ‘work’ but neither will more debt. You and everyone need to readjust your goals.

    By ‘work’ you mean 5 pct ue and GDP growth.

    That will not happen with monetary policy which has papered over real economic declines with funny money, unplayable debts and empty promises.

    Reality is coming and cries of austerity won’t work must be met with “spend WHAT?”

    If you suggest printing you as certifiable and need to go watch Schindlers List.

  45. MayorQuimby says:

    Yeah – THIS is going to work out well!

    http://www.marketoracle.co.uk/images/2010/Apr/us-debt.gif

  46. fuddle says:

    I agree with some of the points our Honorable Mayor Quimby makes- but I would suggest moving away from insults and harsh language if possible. Election? Again! This stupid country!

    The economy CANNOT be fixed rectified by attempting to pay a perpetually inflationary deficit paid by perpetually devalued currency.

    The only sensible candidate in the US presidential race is Ron Paul who advocates a return to sensible money and liquidation of debt. This was the path followed by the Austrians, Japan and others- to bring about a total turn around in economies post 1950.

    The most basic of principles of a sound economy is SOUND MONEY- that which the market evaluates as having intrinsic worth- gold, silver, platinum- and the ELIMINATION of FIAT currency (currency with value dictated by government and lent by omnipotent private financial institutions whose incompetence is rewarded with public money nail outs- instead of being bankrupted & punished like every main street USA business would be.

    Without SOUND MONEY- repayment and rebuilding is impossible. The US will print money, thus devaluating it, thus increasing the true cost of the national debt- thus impoverishing the middle and lower classes more.

    The only reason the US dollar has not collapsed YET- is the world is being too slow in moving to alternate currencies- but it is in the process of doing so.

    Ron Paul- not Soros-funded Obama is the only real solution to America’s problems- and the worlds.
    No more wars, no more foreign entanglements, no more funny money to club chums and good ole boys.
    Find out more: http://www.RonPaul.com

  47. DeDude says:

    “Austerity will not ‘work’ but neither will more debt”

    So we are dead if we spend, we are dead if we stop spending – you have no solutions, just doomsday predictions.

  48. [...] consider snips from The Cancer of Debt and Deficits by John Mauldin. The growing debt and the deficit is a deadly cancer on the economy. it'll deliver [...]