This Is Stupid

Now Boner has changed his bill to include a Constitutional Amendment on a balanced budget so that he can garner the necessary tea party votes to get it passed in the House. Obviously, his only interest is in getting his bill passed in just the House and not in reaching concessions to get the debt ceiling raised in time to avoid default. This is totally politics at work, with nothing to do with what is needed for this country right now.

He knows there is no way a bill of this sort will pass the Senate or get signed by Obama. That has been made abundantely clear to him, so all he is doing is passing a bill that will not fly so he can stand on his political stump and point fingers at the Senate and Obama for not getting it done. If he really cared about the US he would have changed his plan to concede more to the left, get votes from the left, pass and hopefully have something the Senate and Obama can live with. I am not saying big concessions were needed but he did need to get rid of the stupid "let's do this again in six months" provision. Seriously, do we need or want to do this again in six months? But no, he gives in to the conservative right simply to get a bill passed for political points for next years election. I suspect it will backfire as we are not idiots and will not vote to return idiots to office next year.

Mind you, I am no Obama fan but think he has moved more towards concessions to get this done than Boner head and now Boner is going the opposite direction. In a negotiation, such a move simply ends the discussion.

Usual Programming

I apologize for the political bent the past few days but it directly affects the economy and if we get to next Tuesday with no approved bill, hold your hats. One last point to note. Those who might get taxed more and who are complaining about it may want to think about how much more they might make if the economy were doing better. Moreover, they should think about how much worse they will do financially if the U.S. defaults, interest rates go up and the economy goes into another recession. See, some tax increase is not looking so bad right now.

And one last political spot for the night. I am not saying this info in the Washington Post is wholly accurate, as I have no idea on how to verify, but if it is, it is very interesting in terms of where current debt arose.

http://www.washingtonpost.com/blogs/ezra-klein/post/obamas-and-bushs-effect-on-the-deficit-in-one-graph/2011/07/25/gIQAELOrYI_blog.html

But let's look at something more positive, like housing:

http://www.calculatedriskblog.com/2011/07/feds-williams-economic-outlook.html

Oops, that was a mistake. Seems the San Fran Fed President does not see it getting much better until the oversupply is taken care of 3-4 years from now, or perhaps 7 or more if things do not go so well. Yep, that's a bright note.

There were a couple of passing positive notes, like the best in four months in terms of new unemployment claims reported today, but these are highly variable so I, and apparently the markets, are paying little attention.

Disclosures: none

Let's Try This Again

I have kids, ages 4 and 7, and I am embarrassed that I am leaving them a country that is heavily in debt and it got there because of idiotic policies, rampant financial institutions with too few controls, idiot borrowers who borrowed more than they could afford simply because a bank would lend it, etc. etc. The list is very long but the bottom line is we pretty much all were very stupid financially since the turn of the millennium and the odds are pretty good that our children, grandchildren and perhaps beyond will have the suffer the consequences.

At the same time the disparity, commonly called the gap, between rich, middle-class and poor as well as between white, Hispanic and black has grown leaps and bounds. The medium net worth of Hispanics is down over 60% in the past several years with this recession and for blacks over 50%, whereas for whites it is down less than 20%.

http://pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics/

More disturbing is that the aggregation of wealth in the top 10% of the wealthy versus what the rest of us make are making is widening drastically. The top .1% of the folks making money saw incomes go up nearly 400% between 1970 and 2008; the lower 90% only 1%.

http://blog.reidreport.com/2011/06/the-rich-vs-the-rest-americas-huge-and-growing-wealth-gap/

So I say as a compromise, Obama limit his tax increase to those over $1million or so a year, versus $250,000, and limit increases in corporate tax increases or end of credits to those businesses over say $5 million. These are just ball parks that the pros can figure out. Small businesses build the most jobs and I would think most are under $5 million but someone who study this should set the bar where small businesses by and large are safe and the big boys pay the price a bit.

Now I say this with a couple of thoughts in mind. As mentioned, small businesses build the jobs in the U.S. and protecting them from tax increases makes sense so we can spur economic development. It makes sense and I am all for it. In terms of taxing the big boys, go for it. Most of big corporate America is doing pretty well and has a good amount of money in the bank. Big Ben in the helicopter rained down a lot of money on this group and a lot of it went out of the U.S. A good bit went to improving productivity so big corporations could cut jobs too. Moreover, a lot of the jobs and investments for these companies are leaving our shores, so them having to pay just a tad more in taxes to thank us taxpayers for all of our help in saving their collective arses seems pretty simple. Yes, their profits are increasingly coming from outside the country, but they need to pay their taxes and politicians need to know - despite the campaign contributions - their current status is in no small part due to the U.S. taxpayers funding a recovery from the spoils of the past.

http://seekingalpha.com/article/281944-u-s-corporate-profits-are-being-earned-offshore?source=email_authors_alerts

And for the individual tax category, who - other than those in this category, who are contributing to politicians - can complain about a tax increase for those individuals making over a million a year. Sure, the deficit reduction will be less than under the Reid proposal, but let the Republican right justify protecting individuals making over a million a year and corporations over $5 million. They will lose a lot of public support and it will still raise a lot of tax revenue. I am not saying here we should tax them at 70%, but increasing rates for these categories by say 5-10 percent should not force them to cut back too much.

And let me note this. Republicans are running with the deficit reduction banner, but because they are not including tax increases the Democratic Reid plan in the Senate actually achieves far more deficit reduction than the Boner proposal in the House. Go figure.

At the other end of the candle is spending cuts. Reality tells us that entitlements need some work. I have plenty of relatives dependent on them but a shot needs to be shot across the bow that folks need to not depend on them in the future. I am not saying to end them or reduce them now but we need to be honest with people with the fact that at some point we will not be able to afford them and they will be reduced - probably significantly. People need to know now, so they can, if possible, prepare.

And here is the last thing I have to say. High schools and colleges need to start forcing students to take classes in personal finance, which includes managing debt, retirement planning, estate planning, and the like. This is stuff vital to someone entering the work force and we are sending these kids into the world with no understanding of how to financially survive. I know I was sent in as a:

• financial virgin



• financial idiot



• financial target



• financial failure

You pick, they all apply. I knew crap about what really matters in terms of living a comfortable stress free life. People do not need to be millionaires to achieve this status but they certainly need the tools to financially plan out what they can and cannot afford and what they need to put away for their financial future and for their kids. This is essential stuff and we really do not teach it like we need to teach it. It should be mandatory, especially for budding politicians.

Disclosures: None

What Else

Okay, all that anyone is talking about - well not all but pretty much - is the failure of the U.S. politicians to so far reach a compromise on the raising of the debt limit. There is, however, very good news on the horizon. According to an article in the NY Times, the government has all the way to August 10, not August 2, before we hit the brick wall. Well, that extra 8 days of free spending makes me fell all giggly inside personally.

http://www.nytimes.com/2011/07/27/us/politics/27date.html

There are, however, a couple of problems with this. First, some could call the failure to do it by August 2 a credit downgrading event that could lead to interest rate increases for thousands (as in 7000) municipalities, counties and states, not to mention the U.S. Many, like California, which is working out a $5billion bridge loan, are getting ready for the storm. Second, who the hell says things will be better eight days later. Seriously, call your politicians - I have - and tell them to make the necessary compromises. There needs to be some serious reductions - as in trillions - in spending, including our precious entitlements, AND there needs to be some tax increases. Both sides need to give some on their sacred cows. This candle needs to be burnt on both ends and if your politician is not willing to compromise, he or she is an idiot and will lead this country to a great deal of financial pain. We are seriously about to shoot ourselves in the foot and this is that very, very last thing we need right now.

Disclosures: I am an U.S. taxpayer and I am pissed off

I Can Still See That Can

EeeeUuuuu

Not a good kick by the EU. That heavily dented can is not much further down the road than it was. Not surprising that rates for some itty bitty EU countries like Spain and Italy have resumed their rise.

http://www.calculatedriskblog.com/2011/07/update-on-europe.html

Those who know better than me say it will not work - other than for a short while. Not saying I told you so, but . . .

http://seekingalpha.com/article/281337-kicking-the-can-down-the-road-one-more-time

Obamarama

I watched Obama tell us why we are screwed when we do not reach a deal on the budget by next week. Nice speech I thought. Better than Bonner's presentation. Obama has the advantage of the majority of Americans agreeing with the balanced approach, i.e. lots of cuts but some tax increases for those that can afford it. I think the cuts should be tailored to avoid small businesses if possible as they provide the jobs that we desperately need, but I do not see that as happening. In any event, this could get very interesting if the U.S. enters into a default situation.

This takes me back to a post I did like over a year ago. What would happen if everyone in the world, including governments, defaulted on all their risk at once and created a clean slate? Now I know a lot of the U.S. debt is owed to SS, so that would be bad, but without the $14 or so trillion in debt, we could afford SS and the other entitlements. Sure, all the big banks would fail, as would other financial institutions. I am holding back the tears. The whole world it seems is crippled with debt but if we called it all gone at once we would have a big mess but a better base from which to build (okay, not all of us, but most of us). None of us are looking at a good few decades ahead either way.

Disclosures: None.