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01 August 2010


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Dear Colonel, as it is a democratic administration, you, I and Alan Greenspan are in agreement.

Of course during the Bush years he never peeped about deficit spending (and allowed the big bank shenanigans that lost trillions and were enabled by his low interest policy). Of course back in the Clinton days, I recall he spoke on the evils of deficit spending, but back in GHWB, well, he is if anything consistent in a way never mentioned in the media...

One can hope no one will be listening to him in the next administration. Sunsetting the Bush tax cuts would be far more effective than cutting spending at a time when it seems only govt spending is propping up the US economy (with downside as govt spending is withdrawn).


Cynic that I am, someone should track how many wealthy elderly "pass away" between Christmas and New Year's Eve.


"The massive loss of revenue to the US Government from these tax cuts is something the US economy cannot afford."

Much of the Bush tax cuts end up being leveraged and invested in various investment vehicles. The tax cuts have contributed to the asset class inflation that has been the hallmark of the of the '00's. In other words, they have contributed to financial instability which has hurt the bottom 90% of the income pie.

It has been such bad policy, unless of course the goal has been some form of disaster capitalism.

Paul Escobar

For those who care for more information on this subject, see Martin Wolf in the Financial Times:

The political genius of supply-side economics

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

[conintues on main site]


I couldn't agree more. The tax cuts now cause a deficit twice as large as that caused by the two wars together. By 2019 the tax cut portion of the deficit will be almost 4 times that caused by the wars assuming we spend on them at the same rate as now. In fact if we could eliminate the two wars, the tax cuts, recovery spending and return to pre recession economic conditions the deficit would be very close to zero in 2019. There is a very interesting chart depicting all this in this paper:




I agree. Enough.

And anyone who thinks tax cuts for the wealthiest "trickle down" to the benefit of the rest of us, should take a look at the data offered by Prof. Andrew Sum in Bob Herbert's latest column:


(If the behavior of the bailed out bankers post-bailout wasn't enough to convince you)


The reason the "sunset" provision was in the tax cut in the first place is because the R's knew it wouldn't pass without it and was not fiscally responsible. Now they want to whine about a tax increase. What chutzpah!


This is a little off topic but not completely. It is really a question. Some folks (republicans/teabaggers)are getting exercised that out debt will soon approach 100% of gdp. See


Here's the thing--I just built a new house (my last house) and borrowed 300% of my gdp (income)at 5-1/8% for 30 years. I have no problem with the payments. If the US owes 100% of gdp and can sell a long bond (30 years) for 4 and some change % it can make it's bond repayments by taxing away 4 and some change % of gdp. This is a very much smaller debt payment % relative to income than most households in the US which carry debt experience. So why all the hysteria?



Adam L Silverman

JTCorpone: the best people to read to understand this stuff are Professor Delong, Professor Krugman, Mr. Barry Ritholtz, Mr. Bruce Bartlett, Mr, David Cay Johnson, and Ms. Yves Smith. Their websites consistently explain all of this in plain English, easily understandable by the layperson, and with plenty of links to other excellent analysis across the economic and political spectrum. Essentially this claim is a Republican canard peddled by both pundits and elected officials that don't understand macroeconomics, the actual economy, and ideologically driven econmists who refuse to accept that real world facts invalidate their elegant explanatory models.

Not only are we not approaching the point where our debt equals 100% of GDP, but your point is one I made here in remarks earlier in the year about how both business and personal finances actually work: no one zeroes out their balances at the end of every month. Commercial and residential mortgages carry over, student loans too, car payments, revolving lines of credit to pay for actual physical stock on the shelves and to make payrolls, etc. What the fiscal austerity, or pain caucus as they're called, want to happen is for every individual, business, and government to have a zero balance on the books as of the 1st of every month. This demonstrates the sheer ignorance of these folks in how things actually work. And while you want to minimize bad debt, good debt, properly managed, actually allows the economy to function properly.


We don't have a revenue problem, we have a SPENDING problem.
Obama has raised the baseline Federal spending by nearly 20%, in his quest for socialism.
There are legions of useless federal employee/parasites with significant pension liability.
There is uncontrolled Medicare and Medicaid spending.
EVERYTHING the government touches turns to crap.


"The reason the "sunset" provision was in the tax cut in the first place is because the R's knew it wouldn't pass without it and was not fiscally responsible..."

another reason for it was that this "sunset"provision allowed the Bush economics folks to avoid including the massive long-term deficits these irresponsible tax cuts would cause in their long term budget "forecasts" . (I use the term loosely). IN other words using Clinton era tax reciept data after 2010 to show the 'salutary' effects ...of these cuts. Making all of the Bush II economic projections...bullshit. Oh, and war on a credit card!

WMD,...Economic data, ...what's the diff?

Patrick Lang


A bit doctrinaire R. They appear to think that H Hoover had it right. No regulation of any kind and the recent crisis was merely a business cycle.

But, IMO we have both too much spending and not enough revenue. Hey, I will have to pay more tax if these rates go away. pl

robt willmann

The Bush jr tax cuts should certainly expire, in part for the reasons given by LJ and Rider in comments above, and because they are tax cuts for the wrong people.

Proof of cause and effect is nonexistent; to show that the tax cuts have led to investment in productive jobs requires tracing the money produced by the tax cut for each person and entity and showing where it was invested. The chattering class on television (a name originated by the writer Gore Vidal), talk radio people, and economists have presented no such evidence, yet we will hear them jabber incessantly that the tax cuts have been job creators. Talk is cheap, as the saying goes, but is lucrative for hosts on broadcast media and so-called economists unencumbered by facts or reality.

Tax cuts should begin on income from wages and labor, starting at the bottom of the amount that is taxable. You then work up the wage scale with each subsequent tax cut, making larger and larger amounts of wages earned from labor tax free. People who live from day to day and week to week, who now include most Americans, need the relief first. They can then work on freeing themselves from debt bondage, spend some discretionary money here and there, and try to save a few dollars.

Back in the 1980's when I was representing people in divorces, I saw first hand the deterioration of the economy. By the end of that decade, savings were basically gone, debt was escalating, and items bought through debt were more numerous and had greater balances. In the 1990's, during Bill Clinton's administration, when I would tell people that the economy was in serious trouble and was going down the rat hole, they would look at me as if I had just gotten out of the mental hospital. They had been fooled by the likes of the oily Alan Greenspan and others that it was a time of unprecedented prosperity.

Those of us who are "middle age" and above remember when prosperity was taking hold in this country. It was a time when one person in a family could work, support the other spouse and children, have a house and one or more cars, save money, and send the children to college. I repeat: all on one person's income. And I'm not talking about rich folks. This was the plain vanilla middle class.

All of the wealth and capital and savings built up during incredibly hard times in this beautiful country by our parents, grandparents, and great grandparents has been destroyed in about 20-25 short years. It began in the early 1980's. The shorthand version is that it was killed by some changes in the law (including the deceptively named "free trade agreements"), by the failure of the Justice Department, the Federal Trade Commission, and the Federal Communications Commission to enforce the antitrust and related laws to maintain competition, and by the monetary and interest rate policies of the Non-Federal Reserve Bank, which also helped a propaganda campaign to shackle individuals, businesses, and government itself with massive debt.

I am (perhaps obviously) one of the people who believes that government deficits do matter. Just like the sophistry that the deficit doesn't matter because "we owe it to ourselves", the comparison of the deficit to the Gross Domestic Product (GDP) is a dangerous fallacy. Figuring out what the GDP is and how it is calculated is an amusing exercise in itself.

The deficit obviously means that taxes are not covering spending. The huge sum of tax money needed to pay the interest on the deficit and its principal is not only not being used to fund productive activities, it is not even being used to fund government services.

Spending is the issue, and the wars in Afghanistan and Iraq, being wholly unnecessary, are the items to cut first.


EVERYTHING the government touches turns to crap.

Including your beloved Marine Corps? Last I looked, the US Treasury pays your retirement.


Is it only us here in the US or is it a universal phenomenon that those that have been egregiously wrong repeatedly and have a track record of poor judgment keep "setting" policy? Why would anyone knowing what we know now want to listen to Greenspan or Bernanke or Rubin or Paulson or Summers or Geithner? The architects of our escalating financial crisis.

On taxes many people that I speak with are shocked that around 47% of Americans don't pay any Federal taxes. And that the top 1% of Americans own around 35% of the national wealth. Its the middle class that gets squeezed. They have less wealth producing assets relative to income which are taxed at a lower rate. So a hedge fund manager who make a billion dollars a year pays only capital gains as its considered as "carry". At the end of the day our tax code has enough loopholes that the wealthiest can drive a semi through it and our politicians love it as it provides the pay to play. I am in the small minority that believes we should have a simple (no deductions, credits, etc) tax code and everyone should contribute.

There can be no discussion on taxes without a serious look at spending which has grown under both parties (despite the rhetoric of some). Then of course we should also look at all the off-budget expenditures like our wars and all the accounting shenanigans that we have and have some clear rules and transparency on how our government expenditures are accounted for. Now we all know that none of this will happen in the near future. The political kabuki will continue as the cronyism and looting grows.

In the large scheme of things the elephant in the room is our balance sheet - the debt and all the other unfunded liabilities including all the Wall Street guarantees handed out by Paulson, Bernanke and Geithner.

When we discuss debt many people only focus on federal government debt. But what needs to be looked at is total credit market debt. Since the financial crisis of 2008 financial debt has decelerated and federal debt has accelerated.

For those screaming for more stimulus and monetization I say we have had the greatest credit inflation in our history over the past 30 years. Our total debt/GDP grew from around 150% in the early 80s to 357% in 1Q2010. How much more debt-based stimulus does an economy need? Negative marginal rates of productivity of debt? We are probably there already. If the last 30 years is any indication there is no GDP growth we can generate that will pay off the debt.

Another argument that many of the pundits make to add to the debt load is that rates are low - we have the cash flow. For this fiscal year interest at these low rates is already $350 billion running at a rate of 30% of government receipts. What would a 100 or 200 basis increase do? Remember despite what Bernanke or Bullard or Krugman say market rates are a function of confidence. And confidence can evaporate in a HFT second. Earlier this summer we saw how quickly a sovereign credit crisis can develop.

For long time readers of SST I must be a stuck record warning about a funding crisis in our future.

Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you. Jim Grant.

R Whitman

There is no difference between 10 trillion dollars in debt and 12 trillion dollars in debt. Just numbers.

To prove it, I challenge and reader/contributor of this blog to tell me how it has made a "personal" difference. No one has missed a meal because of it.


Colonel Lang,

I think we have to be careful here.
If we allow,in policy discussions, the untaxed income of citizens to be carried as a "cost" to the Nation, we play into the hands of the Federal Behemoth/Moloch.
The true cost is the taxed income not the untaxed.

USMC 65-72
FBI 72-96

Patrick Lang


You know that I am not a fan of big government. Nevertheless, like you I selfishly do not want the economy or government to collapse. I think that is a danger. pl

Adam L Silverman


I would recommend this very informative piece by Mr. Ritholtz on David Stockman, the budget chief under President Reagan:


Col: I recommend "The Lords of Finance" about the role of Central Bankers in creating the conditions for the Great Depression.

1. Worship markets.
2. Keep interest rates low.
3. Create equity bubble.
4. Watch it pop.

Greywolf's reaction is typical of market fundamentalists. It's not the fault of markets for becoming irrational, it's the fault of government for failing to stop the markets from becoming irrational. At a certain point this worshipping of market fundamentalism--regardless of the market's failures--makes us sound like Soviet Commissars blaming the failed grain harvests on "hoarders" and "wreckers."

So who are the American Kulaks?

Patrick Lang


An army of "peasants with pitchforks?" Are we talking about the Tea Parties. pl


"I selfishly do not want the economy or government to collapse" PL

The economy already collapsed, and the government bailed it out. Of course the tax cuts should expire and unecessary spending (see Afghanistan) should be curbed, but the only way out of the hole we're in is the development of new industry (see 1990s). Unfortunately trying to get the political machine (Congress, White House, etc.) to look forward instead of backward is proving extremely difficult. Even after the worst environmental disaster in U.S. history, no one can paint a picture of a future without oil. The development of alternative energy to boost the domestic economy? Ha! A pipe dream (an exhaust pipe that is).

Adam L Silverman

Graywolf: I'd recommend this short analysis regarding tax cuts:

Mark Gaughan

Read Krugman.

Norbert M. Salamon

According to BSL while they claim inflation of approx 1%, if they would measure same as EU, then it would be 3.6%.
Considering that the Feds are lending money at .25% to big banks, the taxpayer is giving REAL NEGATIVE INTEREST TO THE ONES WHO CREATED THE MESS, thereafter they invest in TREAURIES again at NEGATIVE INTEREST, thus creating the next bubble -Treaaury prices will collapse when % rises].

whereas the real public debt of USA [Fed, State etc] is in excess of 86% -as of dec 31 2009 - and growing; therefore it seems unlikely that the Government will be capable of refinancing the next bubble [already building in Treasuries and bonds].

THE BOOKS have to be balanced before the SS payments get into negative territory [when the FUND??? has to sell its Treasuries to pay benefits] - else bankrupcy or default by USA Government.

Therefore, the Government has to increase taxes on the only ones who can afford it, those making over 250 000 per annum. The middle class is shrinking and they pay POSITIVE INEREST on their loans [%-real inflation] and their SOCIAL SECURITY receipts are shrinking by approx 2,5% in real terms [real inflation- inflation adjustment according to misrepresentaton by BSL] So the middle class is scr**ed - as well described by Ms Elizabeth Warren.

Notwithstanding the possible damage by raising the FED rate, it is imperative that the rate be above inflation, to foreclose the possibility of a TREASURY based bubble wrecking the nation for good - recall the cheap money of the pas 20 yeaars and their effect.

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