Congressional Republicans have offered to increase tax revenue by nearly $300 billion over the next decade through an overhaul of the tax code, a significant concession aimed at breaking a long-standing impasse in negotiations over the federal debt.Read the rest here.
The offer envisions a tax code rewrite that would lower rates for everyone while raising overall tax collections by $250 billion, mainly by limiting the value of itemized deductions such as write-offs for home mortgage interest, state and local taxes and other expenses.
In addition, Republicans are offering to use a less generous measure of inflation to adjust formulas government-wide, a proposal that would push people more rapidly into higher tax brackets. That would generate an extra $40 billion over the next decade, according to several people with knowledge the discussions.
What a surprise! Government resorting to manipulation of statistics. This will do more than push people into higher tax brackets. It will affect how much money is paid to people on programs that are indexed to inflation, like Social Security. And the poor fools who bought US Government Bonds that are supposed to be inflation protected (TIPS) seem to have forgotten that the same entity they lent their money to, also happens to control inflation (the printing press) and how it's officially calculated.
All of this however is meaningless. As bad as it is (and it really is bad), the debt (now $15 Trillion) is not the problem. The problem is forward projected unfunded obligations. In other words, it is what we have promised to spend in the future, mostly on entitlements, but don't have the money for. In 2004 the unfunded forward obligations of the United States amounted to $50,000,000,000,000 (that's what 50 Trillion dollars looks like in numeric form). In 2011 it is estimated that our forward projected unfunded obligations now amount to $100 Trillion.
How do you find that kind of money in any combination of spending cuts and or new taxes? You can't. What Congress is doing is rearranging the deck chairs on the Titanic, and hoping nobody will notice the water coming over the bow. Here is the bottom line.
We are broke.
How long will it be before this fiscal house of cards comes crashing down? I don't know. There are a lot of variables that could delay or advance that unhappy event. But it is coming. John Williams, a renowned statistician, has been crunching the deadly numbers for years and has reached the conclusion that a major, and potentially catastrophic, fiscal crisis is likely to strike the United States no later than 2018. You can read his analysis here.
Fasten your seat belts folks. We are going over the cliff.
4 comments:
What do you think individuals, especially those of modest means, should do in the meantime? Besides pray, of course.
LV
That's a very good question. My first suggestion is don't panic. Other countries have experienced severe fiscal crisis before and the sun still rose every morning. That said some prudent precautions would be in order if you accept that a serious crisis is at least possible.
First live below your means and start salting money away. Pay down debt aggressively. If/when a major crisis does occur it could destabilize our currency. So I would suggest keeping at least 20% of any investments you have in some combination of so called "hard assets." This would include things like Real Estate and precious metals. Both of which can be bought using ETFs though I suggest keeping at least some physical gold or silver in the form of 1 oz. coins lying around.
Gold in particular is an excellent hedge against monetary crisis since it can't be debased, unlike paper money. If you have never read any of his books I would suggest reading Fail Safe Investing by the late Harry Browne. It was an eye opener for me. Read that book and do some online research into the Permanent Portfolio concept. There is quite a bit of good material available online on the subject.
Whatever you do, be sure to carefully research anything you are thinking about first. Drop me an email if you want to discuss this in anymore detail.
Many people have argued against paying off your debts at this time, since the dollar is going to fall in value and you'll need as much cash as possible on hand to survive in the future. I've read that perhaps just paying off the minimum monthly payments so you stay legal and out of trouble, and try to squirrel away as much cash as possible (and get gold and silver...but not certs...get the real thing).
Don't forget to buy arable land, if you have a chance to do that. I've heard you can get an acre of arable land in Paraguay for $25 right now. As we saw during the Great Depression, those with land to grow food were the ones who survived best. At least you can feed your family.
Post a Comment