Bernanke's Real Message About Budget Deficits
Has Ben Bernanke suddenly become a deficit hawk? In remarks to the House Budget Committee he sounded like one -- calling on Congress to come up with a plan to restore fiscal balance over the long term. "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth." This from a Fed Chair who's loosened the money supply more than any Fed chair in recent history, printing money as if it were going out of style. What's going on?
Begin with the fact that Bernanke is working more closely with the Treasury any Fed chair since the Second World War. It's doubtful that Bernanke would make a statement like this without it being at least tacitly approved by the White House. Second, Bernanke and the Treasury know that investors are getting antsy about inflation down the road; yields on long-term bonds are increasing. Third, the White House is having trouble getting Congress to come up with some $600 billion it needs to finance universal health care.
My guess is Bernanke is trying to reassure investors he won't let inflation get out of control in coming years. If he has to, when the economy is safely out of the morass, he'll crank up short-term interest rates and squeeze the money supply.
But Bernanke also wants to deliver a message to Congress, a message the White House doesn't want to deliver because it's politically awkward: Congress will have to raise taxes on the wealthy in order to finance universal health care and reduce looming budget deficits. Such tax increases won't slow down the economy because the wealthy don't spend that much anyway (that's what it means to be wealthy -- you've already got most of what you need), but may be necessary, at least to ward off inflation fears.
What sort of higher taxes on the wealthy? Bernanke didn't say, of course, but the White House has already floated limits on deductions and seems willing to consider taxing employee-provided health benefits for employees over a certain income. And maybe lifting the cap on Social Security payroll taxes, at least for workers earning over $250,000 a year.
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In the case of mortgage-backed securities, explain how the existence of the security has caused this?
It didn't.
It was the origination of bad mortgages that caused this. When George Bailey kept all of the mortgages he originated in the drawer of his desk at the Bailey Savings and Loan, there were housing bubbles. The movie was loosely based upon the housing bubble in the mid 1920s.
You're so protective of these scams. Try to make them sound legitimate and forget about all the perversions that snarled them into a tangled worthless mess.
Credit Default Swaps.
Unregulated off track betting on everything from mortgage-backed securities to the weather,
Insured by AIG without reserves to pay claims.
Now TARP pays them off.
And they continue.
The Hedged funds insured the Auto Bonds with AIG, so TARP will pay them off again.
See my profile for complete details and links.
Derivatives aren't being outlawed. Scams like this are always coming along and being called "innovation". The ideas are sold as being good for the economy but ultimately are only big money makers for the Wall Street gamblers.
This is the wealthy segment of the population that needs to be taxed mercilessly. They need to pay for all the regulatory effort the taxpayers pay for and for all the damage they cause to the economy.
Why would you outlaw derivatives? They are perfectly good financial tools that didn't cause any problems. What caused the problems we are in, right now, was good, old fashioned, bubbly amateur trading. You know... people who invested money according to the old and wrong formula "real estate always goes up".
The rest of your post is the verbal expression of the "I will get you all, one day" daydream of the loser. I would suggest you dream less about getting them all and think more about how you can improve yourself.
You must be kidding.
Credit Default swaps are the very core of the crash.
Please read my profile for evidence.
Thank you for your analysis of my loserlyness and for your suggestion to improve myself. I know you mean well but you come across as a name caller and as pompous and patronizing. Hey, none of us are perfect.
The intention of my comment was to point out that derivatives are being kept alive without any consideration of their cost to the public. They are only being kept alive because a few well-connected people make ginormous profits from them. I also wanted to point out that the responsible people, who rake in the big bucks with these scams, should be the ones who pay for their damage.
This theme, where a few people make the easy money and cause a lot of damage to millions, is a recurring one. It's time for true costs to be paid by the responsible parties.
Bernanke is "printing" money like it is going out of style because that's what is is supposed to do when the economy has fallen off a cliff.
I have zero problem with that. That is a temporary situation. Going forward he is saying government spending and tax proceeds have to be better balanced. I have zero problem with that. That is why they are looking at a national sales tax.
On applying the social security tax on incomes above $100,000, in the past Obama discussed retaining a window between $100,000 and $250,000 in which taxpayers would not pay payroll taxes. I think that is a sound idea as Americans who are just beginning to do well - this group consumes like no other - need the break to transition smoothly to the 39% bracket. On all income above $250,000, he would reinstate the payroll tax.
The one thing I have never been able to find out is if the people who paid this additional payroll tax on income above $250,000 would be eligible for higher Social Security benefits once they retire. If not, then I think we need to honest with ourselves that this is simply an income tax, and we would be better off raising income tax rates to raise additional revenue for the general fund, which is where all surplus payroll taxes end up anyway.
On significantly cutting defense spending, all you will accomplish is reviving the fascists.
The Chinese have a big problem with us increasing the money supply like we are currently.
Except that we are not increasing the money supply. Or do you see money popping up on the street? Me neither. What we are doing is to correct for a serious accounting problem that could very well kill our banks and take trillions in savings accounts down.
Big difference. Not easy to understand, though.
Let me guess, you gross between 250k and 100k per annum?
He makes a few valid points and then falls victim to the usual creation through consumption myth. But at least he is halfway there.
"Let me guess, you gross between 250k and 100k per annum? ...."
No, we're in the 39% bracket.
I just happen to agree with Obama's logic on the window. His logic is quite good. That is why he hired Geithner and Summers, and will retain Bernanke.
You can't solve the problem with more consumption because that money leaves the US as soon as the people in the $100k-$250k bracket hold it in their hands. We produce very few products appealing to them over here. Of course, if you want another real estate bubble and you don't care about oil prices going through the roof, again, give more money to that bracket.
You are right about the payroll taxes. And it really wouldn't help social security much if Warren Buffet became eligible for a $1 million per month social security payment. He wouldn't appreciate that, either. It just does not make sense.
As for defense spending... the only way to suppress fascism in this country is through the public school system. We can't militarize our way out of becoming a fascist country.
The biggest opening for fascism is allowing them to scare people about perceived weakness. If you want to see 55% of this country vote hard right, weaken national defense.
Let them put Majors and Colonels up on the stage to talk about sidelined airplanes and tanks with no spare parts, or rifle platoons without rifle ammunition (as was done to Al Gore), and people will flock to their side.
I'm not arguing for more consumption from that bracket, just maintaining their consumption level. If they are subject to payroll taxes, it would reduce their consumption.
I've never seen ann answer about how SS benefits would be handled for somebody like Buffett. He supports having the payroll tax apply to all of his eligible income, which is not that high.
Also, depending on the region of the country, there are huge differences between how a joint returner spends his $100,000 to $250,000. In NY or LA, the low end, $100,000, is not that much income. In Huron South Dakota a $100,000 joint filer would actually be sort of wealthy. It simply is not true that all of their spending goes overseas.
In most cities in America, their homes make up the backbone of property, school, and hospital tax collections, and the backbone of sales tax revenue.
Increasing social security wage limit from $106,800.00 to $500,000.00 / 6.2% to the first tier, 2% less SS tax per tier in incremental wage limit increases of $100,000.00. That method should yield some results. For self-employed, offer relief in the form of a tax credit taken on Schedule C each year.
Include an option to voluntarily contribute to the public health care plan on tax returns similar to the presidential campaign election fund?
Co-pays for medicare and medicaid. (Idea offered from a post from Cesar Conda on The Arena)
No more tax deferrals for foreign subsidiaries or deferrals on tax obligations exceeding a certain amount. No deferral on the first XX # of dollars in tax debt.
The reality is "something for nothing" is unsustainable. I understand that operating with a certain amount of deficit is acceptable and necessary where growth is foreseeable. However, too much of a deficit is enabling to the current generation and dangerous for future generations.
Heck in this time of SHARED SACRIFICE... We need to cap all deductions for the wealthy to the MeDIAN income.....AFTER ALL if 40% of us can take NO DEDUCTIONS, why should the wealthy get such a deal???? (We do NOT believe in TRICKLE DOWN anymore, do we Mr President?)
and not more writeoffs for companies for jets and cars and the associated expenses...and no meals over the Federal per diem in the neighborhood, that will allow them to write off 100 for a meal but not the 1000 meals in Las Vegas....
Higher taxes on the wealthy my @ss, higher taxes on everybody esp. via goods and services. There is just no alternative except to raise taxes significantly to pay for these programs.
The wealthy will probably bear the brunt of the rate increases, but everybody will be paying extra.
Or they will not raise taxes significantly compared to spending and monetarize the debt.
It doesn' look pretty anyway you slice it.
Under Clinton the rich was anyone making over $500K.
When Obama campaigned it was anyone making over $250K.
Well, unless you smoke, drink pop, eat fatty food, use energy, have health care, and on and on.
Get a clue people-growing government will require bigger and bigger chunks of YOUR income. It may not show up on your tax return but trust me you will pay for it.
Don't tax you, don't tax me, tax the man behind the tree!
In the end you have to pay for what you order. If you order twice as much gasoline and energy as everybody else, you have to pay for that. If you eat twice as much meat, you have to pay for that. And if you keep building useless toys that could win WW II in a week (just in case...) but can't do zip about an insurgency of your own making... well, you have to pay for that, too.
The problem here is clearly on the spending side. No amount of fiscal juggling will get us out of this until we stop ordering more, More and MORE.
Under Clinton the top bracket started long before $500,000, so I don't know where you are getting that.
Obama should appoint Robert Reich to replace Bernanke when he leaves. He will look out for working people instead of AIG execs
It is not satisfying to read how these critics and money managers complement one another. We are not receiving a free or fair accounting or discussion of the economic-financial issues. The whole debate is being filtered through the media of deep pockets.
At some point Bernanke is forced to declare his loyalty to the banksters.
I think he can see Round II coming down the pike, and they want to look for the rationale for why the banks are failing and why the markets are tanking.
Government's flagrant interventionism.
Fiscal irresponsibility.
The threat of a debt-downgrade looms not far in our future.
All those Trillions created at zero percent are going to round on up to a totally unaffordabe chit from the taxpayers to ......guess who?..... the banksters.
ladies and gentlemen, and Professor Reich with all due respect, it's the money system that is broken.
And we can either pull three generations of Americans in behind us to repay the horrific consequences of the calamity wrought by the private bankers, or we can establish a new money system.
The Chicago Plan for Monetary reform.
Milton Friedman's Monetary Framework for Economic Stability.
Debt-free money.
Government-issue.
Full-reserve banking.
Greenbacks.
Or, begin again.
Dear Secretary Reich:
Back in late 1990s, sensing that America was taking a "Hard Right" turn in economics & "moral values" issues, I reenrolled in college taking political science classes to answer what would come to be called the "WHAT's the MATTER WITH KANSAS?" question -
- "Why do Americans (especially in rural, 'red' states) SO OFTEN vote AGAINST their, & their Families', OWN ECONOMIC INTEREST?"
Fortunately in my pursuit of that education, I caught the professor of my "Parties & Interest Groups" course in his last year of a long, distinguished career as an unabashed "pro-union" academic, from the days when organizers literally risked life & limb to Unionize American workers.
I still remember one of the textbook functions of a political party enumerated in one of the 2 short textbooks he assigned our class, "The INTEREST GROUP SOCIETY" by Jeffrey Berry, where Berry declares:
#3. "Interest Groups EDUCATE the American public about issues" as they (#2.) also afford people the opportunity to PARTICIPATE in that political process.
(Berry's #1. function of an interest group or party is to REPRESENT like-minded people.)
In the case of BIG FINANCE & THE CAUSES of this economic crisis, the "Democratic" Party is SHIRKING that "educate the public" function -
- because of the Party leadership's distinctly ANTI-democratic tendencies.
not only is the Obama administration REFUSING to EDUCATE Americans about the financial causes of this crisis, by they are REWARDING, with DIRECT TREASURY & TAXPAYER "bailouts," the perpetrators of many of those financial
What's the matter with people in Kansas? Well, we recently learned they don't like abortion doctors and they probably don't like gays. By voting as they did in recent elections, they helped make a lot of rich Democrats even richer (from the Bush tax cuts) and have threatened their own retirement years. That's what happens when you mix religion and politics.
He didn't mention religion a single time in his post, his points were limited to fiscal and domestic policy. Neither did you refute his claims.
This is really bizarre, to suggest that limits on deductions, taxing employee-provided health benefits and lifting the SS payroll cap will cover the deficit disaster. Taking all the money of the top 5%, every penny, wont even touch it, not even close.
In 2008 the wealthiest 400 Americans (Forbes List) were worth an estimated $1.57 Trillion. The top 1% of the U.S. population is worth tens of trillions. Consequently taxing this group at a higher rate would probably go a long way at deficit reduction. It is also better fiscal policy than printing money.
I hate to say this but the top 1% of the U.S. population work for AIG and Citi. The Feds are bailing out the top 1%, not going after them. Who do you think your Congressmen are hanging out with on the weekends? They sure aren't hanging out with me. While the top 1% could conceivably pay for a lot of things, they aren't under the status quo in government. And don't expect them to as tight as they are with your elected officials.
Well, taxing the top 1-5% (up to 39% as in Clinton's times on everydollar after 250K) will help but not solve the problem. Budget spending for military - 650bln per year!? INSANE. Why do you need to spend that much? For defending americans from who? Canadians? Mexicans? Russians? Iranians? Or maybe from american themselfs? From their dreams? From their fears? From better health? From better education? Universal Health Care costs 60bln/year. No wonder why americans hate paying taxes...
Over 50% of the income in this country is NOT subject to income taxes...and 95% of that is going to the top1%, So they are paying Capital Gains while we are getting screwed...time to the income tax to be applied to all income over 250 grand....That will fund Public Health CARE....
>Such tax increases won't slow down the economy because the wealthy don't spend that much anyway<
This is a crock. The wealthy are responsible for 30% of the economic activity in this country. Where I live in Colorado the wealthy drive the economy of the whole county.
Yeah, and if you raise their taxes 5%, they ain't going to suddenly ditch their condo. Nor their car. Nor will they start dining at McDonald's.
Don't worry, your county will still be successfully milking the wealthy, even after their taxes are hiked up - BACK TO WHERE THEY WERE UNDER REAGAN.
The U.S. is in the middle of a monetary financial derivative debt based global economic collapse. The present administration has communicated through actions and statements that it will do anything to re-inflate the bubble. Mr. Reich and colleagues will hve to mention the impact of this poicy on the population as well as inflation. We have an economic and population contraction policy in force. The global debt based economic engine is accelerating the contraction through speculation, usury, perpetual war, forced trade, unemployment in the millions, low wages, no benefits, cost cutting in healthcare, access to medical treatment, medicine and education. What good is the Fed? The bailouts are not working. The monetary financial system must be terminated. the crisis is reversible: Create the U.S. National Bank. Credits and currency will be issued into the population's physical economy. Confront and arrest the unemployment crisis. If it continues, a recovery will not happen. Stop the foreclosures. enact the Homeowners' and Bank Protection Act. Expand Social Security and Medicaid. Start the construction of 100 nuclear generating and distribution systems. Food producers are under market pressure to close their operations. Food, water,and energy production and distribution levels must be maintained at present levels and increased wherever possible. It is time our political leadership started thing in these terms.
Thank you for your input.
"What good is the Fed? The bailouts are not working. The monetary financial system must be terminated. the crisis is reversible: Create the U.S. National Bank. Credits and currency will be issued into the population's physical economy. Confront and arrest the unemployment crisis. If it continues, a recovery will not happen."
Pretty much says it all, but few can see and understand this for what it really is. Far to often they become entangled in striving to repair problems caused by a "ripple" rather than trying to find out what caused the "ripple" in the first place and FIX THAT. I dare say that it will be far too late when, and if, the populace "wakes up" and realizes just how much their government is involved in this.
So how much is the government involved in people not being educated enough to understand the risk of buying into a home they can't afford under the best of circumstances?
I would say "Not at all.". Once you turn 18, you are responsible for making sure you can cover for the consequences of your decisions. Sadly, few people in this country are. The rest is history.
Like in totally managed, toss out the rule of law, revolution terms?
This place would be more depressed than Bulgaria.
Oh yeah, and while you're at it build utopia too, okay? This real world sucks.
Actually, this real world is pretty good. You can find tons of worse ones in the history books.
Again, you had me until the hundred new nuclear plants thing.
Unless, of course, you meant the nuclear fusion thingy up there at the center of our solar system, of course.
If so, left-on!
The bailouts are not working, President Obama's plan is a disaster. The stock market is up almost 40% from the first of the year, and a depression worse than the 1930s seems to have been averted. It's nice to be able to hold conflicting facts in your head and not have it explode.
1) Raise the Capital Gains tax to 40% - and make it retroactive to 2000 or at least 2004 - when that 30-40% Goldman Sachs/Paulson leverage ratio was increased. Cause that's when the Really Obscene gambling by Bankster CEOS began.
Add a Capital Gains OIL Speculator tax - like 20% per bogus trade. We will All benefit from that one.
2) Then Hire more IRS Auditors - because Bush fired a bunch of them. "The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others."
Yep - Bush made sure there was no auditing those wealthy.
3) Audit the Tax Cheats - close the tax cheat loopholes (we'll need to get a new Senate Not-Owned_By-Banks to do most of that one - but we're working on that). Start the Audits anyway.
4) Fine Halliburton, KBR and the other corrupt DODs - that should get back a few billion.
5) Oh yeah, stop the Billion-Dollar Lie in Iraq now.
And you might need to get rid of Geithner, but definitely Summers - to accomplish 1, 2, & 3.
RetroaCtive taxation... isn't that forbidden by the Constitution? Oh, my, what do we care... it's all good once you acknowledge that the document allows torture.
:-)
didn't bush/cheney say that those Signing Statements could make any law go away . . . or make anything unlawful work in our favor.
Many Americans would vote to repeal large portions of the Constitution if they were given the ability to. Voters in a majority of states have already voted to deny equal protection to their gay neighbors (twice in California).
Right-wing repubs think government should only help big buisness and as for the rest of us, they think we should be happy with whatever few crumbs trickles down!
Yep, it's the old trickle down, Reganomics.
worse we have some DINOs, especially in the Senate who think like that - ugh!
That sounds more like Congress to me. Granted, a significant number of Congressmen are indeed "right-wing Republicans."
In Dec. 1923, it took 4.2 trillion (with a T) German marks to buy $1 US vs. about 4 marks in 1913. In practical terms, it meant that most Germans were wiped out financially in the space of a decade, with most of the damage done from 1921 on. Their faith in democracy plummeted. When the Great Depression hit after the 1929 stock market collapse, it was all down hill from there for Germany and soon for the rest of Europe. In recent years, the US seems to have copied the German playbook for how to finance a war. The results for Germany were disastrous, especially for its Jews. Let's hope the politicians in Washington are able to pull the country back from the brink in time. Recommended reading: pages 61 and 62 of "The Rise and Fall of the Third Reich " (no pun intended) by William Shirer.
In the meantime, I would not recommend investing in fixed rate, long term bonds at current interest rates or in fixed rate annuities. If long term Treasury yields increase to 12% or 15%, where they were around 1980-82, you will not be a happy camper. I wonder who was buying 30 year Treasury bonds at yields of under 3% at the end of 2008. What were they thinking? If long term Treasuries go to 30% or 40% yields, all bets are off.
You are right on the money, my friend. The dollar is entering a serious bubble situation. Consider the Chinese and Japanese who have piles of U.S. dollars stashed away due to years of trade surpluses with the U.S. Well, they are getting ANTSY, especially the way we keep borrowing and printing money for bailouts and foreign goods and what not (strange how they complain about our rising debt, but keep on selling us stuff). It stands to reason that one day they will say enough, you're cut off. You have maxed out your credit card so to speak. When that happens, expect a deluge of U.S. dollars, that everyone has so fearfully horded in the past year or so with the credit crisis, to hit the markets. That's stock markets, real estate markets, commodities, you name it. In other words no more credit crunch. Only, interest rates will sky rocket (obviously, as the Chinese and Japanese sell off their dollar denominated debt securities in droves), home prices will sky rocket, food, oil, cars, etc. will sky rocket. In other words GM will be back in business. Only thing is, your dollar will get more worthless everyday. You'll be working 80+ hours a week just so you can take your plunging dollars to the grocery store before the next guy does. It's just like you say, don't buy any fixed rate securities because they've bottomed out and they are already starting to come back up.
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