Praying for the Fiscal Cliff

I think that the chart on the right will explain why I hope for a fiscal cliff. If we go off the cliff, the US government deficit goes down a lot. If you want more information, you can read about it on Wikipedia. 

While the fiscal cliff will not solve all our fiscal issues, it will solve many of them. The main issue I have is that next year’s estate tax will force many family farms and business to be sold to pay the death tax. I do not think the world will come to an end if the tax structure reverts to what it was 10 years ago, plus an additional  3% increase in the tax rate if you have a large capital gain. We have to take our collective medicine. Yes it will taste bad—no cherry flavoring for us! The automatic spending cuts associated with the "cliff" may be the only way to actually "cut" spending. (Remember that there are in fact no cuts, just a decrease in planned increases.) 

We will still need to reform Social Security. This will be relatively easy. A modest change to a cost of living calculation from the current wage increase method to determine the cost of living increase is needed. This is rather arcane, but the bottom line is a smaller increase in the increase of the social security checks every year. We can also gradually raise the retirement age more than the current law does, and we move the coming Social Security bankruptcy from 20 years from now to 50 years from now. 

Not the medical dog I have in mind.No doubt there will be some sort of deal next year to snatch defeat from the jaws of victory, but until this happens I have switched from guardedly pessimistic to guardedly optimistic. I expect I will switch back next year. 

The main issue that will dog the US until it is solved is the US medical system. It has reached the point that for me, I have more confidence in the Russian medical system than the US system. The system is so bad that a single payer system would be better. I do not think this is by design. Never underestimate the power of stupidity. I would prefer a free market approach, but that seems unlikely. 

So get out of debt, and pray that Obama and Boehner will not come to an agreement. 

My Future's So Bright: 80% Cut In Spending?

When I wrote an introduction to the Grant interview I posted Saturday I mentioned that the federal government being forced to cut expenditures by 80%. I said it was not a good thing. My friend Doug Young said this in the comments.

Wow! And 80% cut in federal spending? Something a libertarian can only fantasize about. If that happened, the greatest economic boom in American history would result. Just look at post-WWII. No one would go hungry. No one would go without decent medical care. Old people wouldn't get kicked out of their homes. Rather, with government out of the way and prosperity abounding, charity would be widespread, and less needed. One can only hope.

While I would in the abstract agree that transitioning to a smaller government is desirable, and inevitable, the path to get there is dark. For while I postulated a scenario with 80% spending cuts, this same scenario says that there will be no tax cuts. So the result would be like this.

A senior now receiving $1,000 a month social security and having 90% of their medical bills paid would now get a check for $200 and only have 20% of their medical bills paid. The federal government has turned seniors into dependent clients of the government. The effect would of such cuts would force most seniors back to living with their children. Think about it. You are in your 50's, your kids are finally gone and suddenly up to four people suddenly move in. In our divorce ridden society the parents might not even be married anymore, or worse the now divorced parents might have to live in the same household with their ex spouses new spouse!

No, it will not be pretty.

The difficulty is the libertarian expectation that the current working generation will simultaneously support the current retirees while saving for their own retirement. Most people would not be able to do it. Factor in student debt, oil prices skyrocketing, and state government pension costs, (I read that Illinois that each household owes $50,000 in costs for this expense), and we are truly ******.

Sorry for making you think a bad word, but I could not think of a word strong enough to replace it.

I have been told I am pessimistic. Maybe. I have even said I am guardedly pessimistic, as I still hope we can limp our way through this.

I remember the pop song from the 80's, "Our Futures So Bright, I Gotta Wear Shades."

The song is actually a portrayal of a quite horrible future. I did not get the point of the song in the 80's. I do now.

Your Partner

I have two videos for you today, the first is the government as your partner. 

Interesting that a group of political junkies who attended this Republican debate booed the Golden Rule. 

A Coup?

Looking at what may happen in Greece, a coup is not out of the question. The same is true in Argentina. A million people apparently protested the government. Could the same be true in America? There have been several such threats in America’s history. Here is the Wikipedia summery of one such plot. 

The Business Plot was an alleged political conspiracy in 1933. Retired Marine Corps Major General Smedley Butler claimed that wealthy businessmen were plotting to create a fascist veterans’ organization and use it in a coup d’état to overthrow United States President Franklin D. Roosevelt, with Butler as leader of that organization. In 1934, Butler testified to the Special Committee on Un-American Activities Congressional committee (the “McCormack-Dickstein Committee”) on these claims. In the opinion of the committee, these allegations were credible. No one was prosecuted.

General Butler is one of my personal heroes and wrote one of my favorite books on war, War is a Racket. While I think there was a plot, its chance of success was not high and may not been much more than good ole boy wishful thinking. 

Could there be a coup in the US? I doubt it. But it must be admitted that some very strange things are going on with our military. General McCrystal, Afghan commander, was removed from command because of his obvious dislike of his ultimate commander President Obama that was revealed in a Rolling Stone article.

General Petraus (who replaced McCrystal), former head of the army in Iraq and now CIA director, was forced to resign over an affair. Petraus’ replacement, General Allen, is now in trouble and will be relieved as well as it appears that Allen’s  girlfriend and General Petraus’ girl friend were in a cat fight. It really sounds like many of our top generals are part of some bizarre sex club. 

Rear Admiral Gaouette was relieved of his command of the carrier attack group in the Middle East for “insubordination,” and General Ham, commander responsible for Libya, is mysteriously retiring. The rumors he was relieved are false. 

More strangeness: Secretary of State Hilary Clinton’s chief assistant has strong ties to the Moslem Brotherhood. And Valerie Garrett was born in Iran. Garrett is the most important person in the Obama administration apart from Obama. (Garrett being born in Iran is not significant. Her father, a doctor, was in Iran to help Iran with medical issues. Both Garrett’s parents were Americans.)

Coincidence is a funny thing and does happen. That is all this may be, in fact that is the most likely explanation. I hope. 

Seven Days in May is an old movie about a potential coup of a ‘weak” anti-war president by a popular military leader. It is worth watching again for us “old folks,” and worth a look for those that may never have seen it. The whole movie seems to be available on YouTube. Here is part 1. 

Obama Crislet and the Fiscal Cliff

I thought we would see a little boom if Romney was elected, but I had not thought about the flip side—an Obama Crislet. It is interesting that before the election there was almost no talk from the punditocracy and especially Obama about the large tax increases scheduled for 2013. Now this is on the agenda for immediate action, sort of. 

So President Obama has to make a decision, almost immediately, about how to deal with continuing Republican obstruction. How far should he go in accommodating the G.O.P.’s demands?

My answer is, not far at all. Mr. Obama should hang tough, declaring himself willing, if necessary, to hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory.  

That was from everyone’s favorite Nobel prize winner Paul Krugman. 

Here is my advice to Speaker of the House Boehner: 

My answer is, not far at all. Mr. Boehner should hang tough, declaring himself willing, if necessary, to hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory.

Obviously I know that there were few Republican victories last Tuesday, but if Obama really takes the line that Krugman suggests, and since this has been his line for the last two years this seems likely, then Boehner will have no choice. Four more years of extend and pretend will lead to a catastrophic failure.  It is better to have a lower deficit now, rather than ignore spending and tax increase as an option. 

We are better off with the two trillion forced spending cut combined with a 4 trillion tax increase than to do what Washington does best, nothing. Yes, there will be a recession next year. Yes, Obama will blame the Republicans. Yes, he will get away with it. But the deficit must be cut. 

As a second best alternative, letting Obama have free reign might be the best partisan option. That way when the crisis comes, the blame will be fairly placed. The economy will get worse no matter what happens. 

The biggest risk is that blame will be put upon free market policies. We do not have free market policies, and have not for decades, if then. If that happens, then we might end up with the troika of Argentina, Venezuela, and Greece as the modern template for a “modern” America. 

I think , as Ron Paul suggests in this clip, that we are already over the cliff, the question is, how hard will we fall?