My Conversation With the Next President

The "script" that follows assumes the highly unlikely situation (actually downright improbable) that Bonddad becomes the Treasury Secretary in the new administration. The script makes no points regarding who will win, because frankly it doesn't matter. The next president -- whoever that is -- faces a daunting federal fiscal environment.

BD: Wow -- this room really is shaped like an oval. Who would have thought that.

Pres: Welcome to my new digs, BD. How was the confirmation hearing?

BD: Next to visiting my proctologist I can't think of a better time.

Pres: Great to hear it. So, as you know BD, I made a lot of promises about what to do. I want to start in on those promises right away.

BD: Mr. President, you won't be able to do much of anything except raise taxes and cut spending.

Pres: Why is that BD?

BD: Let me walk you through be basic logic, Mr. President. First, let's start with a question. If you really think something is a good investment would you buy more or less of it?

Pres: I'd buy more of it.

BD: And what would that do to the price?

Pres: That would send the price higher.

BD: Do you think the converse is also true -- that if you don't like something you'll buy less of it and that will send the price lower?

Pres: Yes.

BD: Congratulations Mr. President, you have just passed supply and demand 101. Now -- let's take a look at a long-term chart of the dollar and see what it says.

Pres: that sure looks like no one likes the dollar. Why is that, BD?

BD: Because the US' books aren't even close to balanced.

Pres: That's not what the press reported! They said the budget deficit was coming down!

BD: Look! Monkeys are flying out of by butt!

Pres: You mean the budget isn't balanced?

BD: Let me answer that with another question. If you balanced your books every year would you have to borrow money?

Pres: No.

BD: Then why has the Federal government had to borrow at least $500 billion dollars per year since 2003? Here's the information from the Bureau of the Public Debt:

09/30/2007 $9,007,653,372,262.48
09/30/2006 $8,506,973,899,215.23
09/30/2005 $7,932,709,661,723.50
09/30/2004 $7,379,052,696,330.32
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/30/2001 $5,807,463,412,200.06
09/30/2000 $5,674,178,209,886.86

Pres: Wow. That's a lot of debt. How is it there was this huge divergence between the debt issued and the reporting on the deficit?

BD: Because the nation's press is full of a bunch of no-thinking idiots. Anyway - the bottom line is we owe a lot of money. And currency traders are starting to look at that mountain of debt and our lack of dealing with it in any meaningful way and they are thinking, "I'm not sure the US is serious about dealing with this debt. Let's start to sell the dollar."

Pres: But isn't a cheap dollar good for exports.

BD: Yep. It's also a great way to manufacture inflation.

Pres: Inflation?!?!?!?! How's that?

BD: Most of the world's commodities are priced in dollars.....

Pres: And a drop in the dollar's price is the same thing as an increase in the price a commodity priced in dollars, right?

Pres: Put a gold start by the president's name.

Pres: And that's a reason why oil prices are spiking, isn't it?

BD: Yep. Welcome to the world of inter-related markets.

Pres: So, we've got to do something about the dropping dollar to slow down inflationary pressures before we do anything else?

BD: Only if you want to help out the country. Otherwise, do what the last President did.

Pres: Why do we have to deal with the dollar now as opposed to later?

BD: Two reasons. First, every time a politician says, "I'll deal with that later" he never does. Secondly, there is growing talk in the world about various central banks dropping their pegs to the dollar. There is also talk about moving away from the dollar as a reserve currency and moving into the euro. If that happens, expect the dollar to drop more. If that happens we approach a "Katy bar the door" scenario". In other words, if we don't deal with it now, the financial markets may deal with it for us. And that would really suck. Think Argentina in Engllish.

Pres: Wow - that sounds pretty bad.

BD: Not if you think an 18% drop in your country's GDP and 60% of your population in poverty is a good thing.

Pres: So BD, what should we do?

BD: Raise taxes and cut spending. How you do that is your business.

Pres: I think you're right.

BD: Wow -- you actually listened. Color me impressed.

The point to the previous script is plain: whoever gets elected faces a terrible fiscal situation. It also means that a lot of the campaign rhetoric is, well, rhetoric meant to get someone elected. When whoever wins gets into the job, a hard reality will set in.

Comments

[GreedyOldPsychopaths]

BD,

One glaring reality issue with your "script": your presidential character actually asked intelligent questions and had reasonable responses.

One potential oversight in your analysis: "Raise taxes and cut spending. How you do that is your business." If you don't advise your fictional president to address income disparity before raising taxes, then you both should prepare for repercussion from the masses. A "targeted" tax increase is far more sensible considering past tax breaks granted to certain income brackets.

Remember Hale, it's not just debt, but stagnate and declining median income that is at issue. An economy designed for wealth transference (income disparity), rather than wealth generation with an equitable distribution of income, is not sustainable in the long term. You can't continue to run an economy based on 2/3rds consumerism when consumers have insufficient income. Increasing the consumer tax burden will only aggravate the situation. For a primer, revisit the historic debate between Malthus and Ricardo on income distribution with an emphasis on Malthus.

Good luck in your endeavors to secure an advisory role to the new president BD. But don't hold your breath too long you might actually turn blue.

John Q. Public

[Pdubya]

reduce federal spending to the FY2000 levels, eliminate the income tax and we'll still have 62% of our federal tax revenues via tariffs, user fees, etc. btw, that means getting the hell out of the middle east.

[ErnestineBass]

Get us the hell out of Iraq, and appropriate the assets of Haliburton, Blackwater, Triple Canopy, etc., etc..

[joebhed]

"Permit me to issue and control the money of a nation and I care not who makes its laws."

Or, who is SecTreas.

[mbaty]

Raise taxes and cut spending may be the sober logical practical thing to do, but do you think Americans want to pay more taxes so that we can fight more ridiculous wars? The government has to do more to prove to the American people that their money will be invested in them--in the people who need aid in New Orleans to the people who were fooled by deceptive mortgages to simply preparing an infrastructure that allows Americans to live well. We have the technology, and we basically know many steps we can take to create a sustainable situation in this country. But until the government becomes financially transparent and accountable and responsible, they cannot justify raising taxes. And most people won't hear of it.

[zizyphus]

Good post, Bonddad! Hope you do get the job.

Most Americans have lived like royalty, compared to most of the world. I believe we Americans are ready and willing to lead more conscious, less wasteful lives on a path toward sustainability, so that our children and grandchildren will have a viable future.

I would not mind paying more taxes, if they went toward building up our people and our country, not debasing and imprisoning our citizens and citizens around the world. Close half the military bases and abolish the horrid Department of Homeland Insecurity. Decriminalize marijuana and open up thousands of new enterprises. California has new medical marijuana industries generating in excess of 2 billion a year, and that is just for medical pot. If it was truly decriminalized nationwide, it would generate an economic boom that would solve all of our economic problems, while providing a benign simple, and effective remedy for the ill, and a relaxing, social, recreational experience for the rest of us.

[olephart]

Part One:

End the War immediately. Cut War/Military/Homeland Insecurity/CIA/Blackwater spending by $500 billion. Reverse the privatization and crony capitalism deals and restore funding to all Civilian agencies to do what they were mandated to do. Broaden the tax base by cleaning up the tax code to disallow off shoring of income and the myriad of other schemes. Raise the top individual rate to 39.6% @ $350,000 with three lower rates at appropriate intervals. Lower the top Corporate rate to 20% and likewise clean up the tax code. Broaden the Social Security/Medicare tax base to include ALL UNEARNED INCOMES (granting $10,000 for single/$20,000 for joint exclusions). Remove the cap on these taxes and charge only the employee portion. Tax dividends and long term capital gains at 10% and 15% based on income. Set the single standard deduction for the income tax at the minimum wage rate times 2080 (the number of working hours in a year). Double this for joint filers. Separate the Social Security/Medicare budget from the Federal Budget and prohibit commingling or "borrowing" of these funds. Change the home mortgage deduction to a tax credit for all not just itemizers @ 20% of interest paid up to a max of $4,000 total credit. Limit the child tax credit to two. Limit the number of deductions for children to three.

[olephart]

Part Two:

Adjust the AMT for inflation and index it. Tax gasoline @ $2.00 per gallon; sequestering the proceeds from the general fund and providing tax credits for solar and wind power to both individuals and businesses from these monies. Adopt Nationwide net metering and give tax rebates for the purchase of American made plug in Hybrids. Adopt Dennis Kucinich's health care program. Adopt Ron Paul's Foreign Policies and his policies on illegal immigration. Tax all State and Local subsidies of businesses as income @ a rate of 50%.

[ErnestineBass]

OLEPHART FOR VICE PRESIDENT!!!

[outnow]

Now you're talking! Raise taxes and start to pay the debt. Cut off the bloated Pentagon budget which has tripled since Bill Clinton took office (including the present war spending). Repair infrastructure. It will take Denis Kucinich's policies domestically and Ron Paul's foreign policy to get America back on track. This is the "medicine" that American must take. Single payer health care is absolutely mandatory. Obama will have to go so far to what is called "the middle of the road" as to ensure failure. Clinton and her husband already proved that they would keep to the status quo during the eight years they had in office. That is why neither Ron Paul or Denis Kucinich could ever get into the Whitehouse - the Whitehouse has already been sold to the highest bidder - and that is the multinational corporations that control the Pentagon and the media. Alternative energy such as solar and wind are best. nationalize a few key industries just to send a message. Insurance is a big offender. Energy another. Otherwise we will continue going down hill.

[speakeasy]

This is unbelievably sobering, but nothing will happen and if a Dem pres even mentions more taxes he's a goner. Better wrap it up in some ultra-patriotic theme when you raise taxes or go after the defense industry. The defense industry is by far the most corrupt of anything we have ever seen. We could hire 1000 defense dept regulators and they would save us hundreds of billions above what they would cost. I'm sick and tired of seeing military contractors reporting record profits at our expense and then underdelivering about 80% of the time. Aren't they required by law to have a set profit margin? My a** is still chapped over the $10,000,000 party a contractor gave his daughter, while at the same time delivering a sub-par bullet proof vest to our military.

[Robert59]

Not to pee on your parade but at the same time he's raising taxes he's going to have a way to fund an overhaul of our entire transportation and energy industries shifting us from oil/natural gas to electric.
I'm all for cutting defense to a more realistic amount, but if you want to save even bigger money use a payroll tax to provide everyone health insurance. We spend nearly 2 trillion a year on health care; insurance companies are a hefty part of that cost, but they don't actually deliver anyone health care. Pharmaceutical companies are making a killing thanks to Medicare Part D which doesn't allow the government to negotiate price.

Get rid of one and fix the other and I bet you save 400 billion annually.

[WharfRat77ch]

Absolutely agree with wldnswmmr. The next president should cut the defense budget by 50%, which will require closing lots of our overseas bases. We can no longer borrow from China to maintain our worldwide empire. We will also need to wind down the Iraqi occupation as quickly as possible. The only problem is that President Obama will need a huge mandate to govern and the Democrats also need to expand their control of the House and Senate.

Normally, I would not like to see such a situation as the potential for abuse is massive (see the Bush years), but the changes that are necessary to address the problems are so great, that we'll have to live with such an 'unhealthy' political situation for a few years.

[drblack]

I can cut a few hundred Billion right off the top. Repeal Drug prohibition and end the most failed policy in history The war On Some Drugs.
It is a luxury that we no longer can afford and it actually makes the problem worse. In fact it creates most of the problem.
Good post Bonddad.

[marinade]

We need a president who can deal with the truth and who can get the American people to deal with it, too.

[wldnswmmr]

Judging from the hip tone and the quick uptake, I think I know who the President is in your scenario, BD. That's a good start. Someone who can actually process data. And the other point about those deficits is that the national debt number (which is now considerably worse if you look at a National Debt Clock, it's about $9.3 trillion) contains within it all those Social Security surpluses which have been "swallowed" by the govt. since about 1983, and we are fast approaching that "turnaround" date of 2017 or so where the so-called mythical "trust fund" full of IOUs reflected in the debt number will have to be "redeemed" in order to cover shortfalls in SS payments. A further argument for why taxes, realistically, have to be raised. The only place where serious savings can be effected is in the defense and intelligence budgets. It will be interesting to see if any new President really has the nerve to take that one on, or whether this business of spending as much as the next 15 countries spend combined (including Russia and China) will be continued, mindlessly, forever and ever, until we go Argentina.

[Bonddad]

While you are entitled to your opinion, there is no particular candidate in mind. The point is that whatever either candidate says they're going to run into a buzz saw of reality when they get into the job.

[ErnestineBass]

Hard to believe anybody would want the job, Bondad. :-/

[MilwaukeeDan]

wldnswmmr,Bonddad, I think we are going "Argentina" because the only reality Americans can handle is on TV(as in Real World, which isn't real). Reagan started the slow distruction of the American middle class that continues to this day. What the next president needs to do is command the airwaves, sit down with charts(Bonddad has good ones) and explain to the American people where we are and how we got into this mess, the masses will need to be educated. I would also like to have him explain why NATO still exists. With McSame, forget about it, and Obama, I doubt it. Adios America.

[elpollo]

"and we are fast approaching that "turnaround" date of 2017 or so where the so-called mythical "trust fund" full of IOUs reflected in the debt number will have to be "redeemed" in order to cover shortfalls in SS payments."

I turn 62 in August, so this is of immediate interest to me. The "turnaround" date is based on certain assumptions including about a real 3% growing economy. A minus 5 percent economy (we are there already if the BLS reported inflation honestly) will move that date up big time due to lagging receipts. So even though I am not fully retired and will take a tax hit, I am going to take my 80 percent this summer and put it in my own "lock box" while it lasts. And since el Helicóptero has decided to monetize the debt to bail out his buddies in the banks and investment banks, it won't be in USD.