U.S. Debt Kerfuffle: It’s Not That We Can’t Pay…We Just Don’t Feel Like It

One of their better moments...

Somewhere in the United States, right now, a billionaire is paying his taxes. This makes some people — not naming any names — very unhappy. In our nation, it is imperative that hedge fund managers, for example, pay roughly 15% on earnings via a handy loophole, whereas someone like, say a writer-girl, coughs up over 30%. That strikes some folks as just about right. Call it pursuit of happiness.

Other people’s happiness.

So we have some disagreement there. Elsewhere, others feel that taxing the daylights out of Americans who can’t afford to pay for gas to get to work sounds about right. And that, at one of the worst moments in financial history, forcing Americans to buy health insurance they don’t necessarily want or need so that the healthy insured can subsidize the less-healthy insured is a great idea.

Not saying that insuring everybody as a solid, pie-in-the-sky ideal is not commendable but, Obama, did you ever hear of bad timing? This is why everyone in the opposition thinks you’re batshit-crazy. Why don’t we entertain nirvana after mastering the merely tolerable?

Any…way…

What we are now seeing is the culmination of the white-knuckle deathmatch between the Obama Dream of Nirvana vs. the Boehner Welfare Plan for the Wealthy.

Both sides want to win so badly and are so determined to look like they mean business, they are willing to lay our country’s fattest golden calf down on the altar and begin sharpening knives before they’ll bend. (The golden calf being our nation’s creditworthiness — the one thing we can’t afford to lose right now.)

The fact this could even happen means our once-stellar reputation is already slipping. Credit-rating agencies Moody’s and Standard & Poor’s have put U.S. credit on review for a potential downgrade. The only way to avoid a catastrophe, says S&P, is to produce a sweeping, long-term deficit-reduction plan. Fat chance, seeing as neither Obama or Boehner (or their respective et alls) can stomach it.

The rich will not suffer higher taxes and the poor will not survive without the entitlements they have been allowed to believe will keep dropping like manna.

After last week’s humiliating rounds of hand-wringing and mud-slinging in Washington, the U.S. now will have to answer to a much higher power: the global investors who have for so many years invested in its Treasury bonds.

It’s not that the U.S. can’t pay its debts. It is that some of us just don’t feel like it.

Meanwhile, investors the world over, despite being extraordinarily patient thus far, will proceed in making their final judgments. And they certainly aren’t about to take cues from the slower-than-Methuselah ratings agencies before they act.

As a result, many are bracing for a bloodbath when the U.S. market opens today.

There is a reason why Wall Street is ravenously buying gold, which now has punched above $1,600 an ounce. It is because the U.S. dollar and the flimsy foundation upon which it sits are no longer seen as trustworthy.

4 thoughts on “U.S. Debt Kerfuffle: It’s Not That We Can’t Pay…We Just Don’t Feel Like It”

  1. “There is a reason why Wall Street is ravenously buying gold, which now has punched above $1,600 an ounce. It is because the U.S. dollar and the flimsy foundation upon which it sits are no longer seen as trustworthy.”

    I respectfully disagree with the reasoning. Or maybe just a more quantified answer. the precious market leads the news. we already know that the easiest course in a pre-election year is that the taxes remain unmoved—and expenditures keep pouring out. The barometer for me about lack of seriousness of spending control is that the newspapers are daily packed with articles about new military spending on equipment to replace repait improve the material in use in iraq and Afghanistan.

    Last week it was that Republican right winger Shelby [appropriations?] and left-winger Sherry Brown D-Ohio agreed on the absolute need to keep the Miss and Ohio Abrahms tank refurbishment plants running. This was to me a powerful signal that there can be no agreed solution to political irresponsibility that smacks of Nicholas and Alexandria’s last days.

    The short answer is that Friday after the talks “broke down” –ie the theater was still playing–more acts to go, Geithner and Bernanke sat down and agreed that the Federal Reserve would buy as much treasuries as the govt needed to pay out the bills—even if Chinese are liquidating their positions. Thus the Fed will keep printing and devaluing the US dollar. So if we do the math and look at the amount of new dollars made to cover the $4-5 billion immediately, my guess is that we would see correlation between the 7% runup in gold prices from 1530 to 1618 that we would basically recognize that gold in real terms is unaltered.

    As I watch a similar dance playing in EU where ECB etc is also printing ——the two currencies are struggling to come to a similar conclusion —ie devalue by printing when it is not possible to balance the books. Im not sure if the theatrical eventss are being coordinated –or the two are dragging out separate solutions to make sure there is no large apparent change as between the 2. My guess is that there is a target that both are to print 7% or so simultaneously so that the $/EU ratio stays pretty close so that the populations of both sucker zones do not realize that they have both been devalued. That the price of gold is driven by holiday spending on jewelry in India [sure].

    Its pretty obvious really.

    Now then lets look back at my verifier–the Abrahms. This is the worst tank ever made, most expensive, worst fuel economy, most complexto repair, fastest to wear out. etc. The 1st stage of refurbishment occurs in Mississippi where a giant plant was built to strip most of the old electronic gizmos and parts that are removable –piled up in spare/broken parts warehouses for subsequent handling—[trashing]. then the main body etc is shipped to Lima Ohio where the main body is dissasembled sandblasted and rebuilt. Depleted uranium plating is added to sterilize the soldiers that sit in it. New electronics are later added etc to beef up Raytheons bottom line, and this jet engine powered fuel-guzling behemoth that cant stand sand in its turbine blades is sent back to a warzone apparently chosen to break it.

    It really defies common sense.

    The priority of expenditures remains unchanged. Pay bonds [of course] then keep burning money on useless military adventurism. The folks like Ron Paul and Dennis Kucinich are derided as extremists because they suggest that the military expenditures should be cut –that the newest warzone Afghanistan is a stupid place to spend money. The concept that the military contractors like to advance is that if they can manage to put US soldiers on the ground, then its a sure fire bet that they can pour unlimited and uncounted amounts of money into that area to”support the troops”. Basically the military contractors are using our children in the military as hostages to force the purchase of military junk.
    Note that the US population says stay away from Libya!!!

    So next thing we need to worry about is the military trying to slip trainers into Libya—to pave the way to more equipment contracts,

    So long as this sort of thing continues then you can be sure the whole US budget thing is just theater to justify more military spending. And the Federal reserve is going to print$$$$ –no need to worry about budgets—the runaway budget EU countries have enabled this by forcing EU to print also—so US can keep on course to reduction in standard of living to average global standards–and prifits up at the military contractors. About all we can say positive about this is that it seems this military stuff is about the only manufacturing sector that is still done in the US.

    Now, the Afghan thing is even testing even this proposition. ALL these supersecret hyper priced semi-functional helicopters that the military loves to buy do not work in afghanistan–air too thin–elevation too high—aside from the sand that screws up those turbines. So the military RENTS helicopters from Russia. They need these Russian choppers to protect the fuel trucks running diesel/jet from Russia to supply Afghanistan. So we are supporting a lot of the Russian economy by supplying the Afghan war via Russia. The big focus has been to keep the old mountain dams and power generators running. GE turbines to upgrade hydro-electric plants that get power to the areas of the country that do a lot of critical agricultural irrigation using electric pumps. The fields that need this irrigation are critical to all Afghnans including Taliban–and there is a truce for supply of poer here–ie the taliban does not blow up these power lines. The fields grow opium poppies. THE EXPORT CASH CROP. This production is necessary for taliban to get its funding. And we seem to agree with the need to keep up the flow ——–Again it defies common sense–so there must be corruption here somewhere –and not just the Afghan govt—–

    I am hearing on TV the pols talking about the need to prioritize spending et etc———–but I know that so long as there is one soldier in Afghan or Iraq that its really all about feeding corruption.

    Now lests get to tax rates: why would a hedge fund operator want to pay a full 30-35% to fund the crap above?
    NOT!
    So they dont–if you tax them, they will point out that ithe spending is ridiculous–so really the govt is buying their silence while the private party continues. Simple really.
    Now I really wish that it was only 30%. But lets look at realirty for baby boomers. They are getting laid off in droves as the age bias operates in tandem with the shrinking economy and outsourcing etc. They have mortgages to pay–and kids in college. They get new jobs that put them in that 30% FIT bracket, that the writer girl pays–but she forgot the 15% FICA/Medicare payroll taxes, the workers comp 2-5%, the state and fed FUTA 3-5%. So as a practical matter a working girl and her employer are paying about 50% of the totoal pay burden to the govts. Now the baby boomer was paying that but they cant put pay the bills with this money so the pop open the IRAs tompay the mortgages ———this puts them in the 35% fed bracket–then add 10% early witdrawal penalty, then add the 5-8% state rate, a 1-3% local rate, and we are back at the 53-55% cumulative income tax rate on this incremental money. the only break for the boomer on these early witdrawals is that they are not subject to the payroll, taxes

    I think however you cut it the tax rates all things considered for any middleclass living wage is about 50%–and the 12 or 15 0r 20% which the rich pay is much lower comparatively. When we add excise taxes on consumption, and ad valorem on the house and car –we see the most regressive system ever applied in the US.

    In order to support the most corrupt govt ever existed in the US.

    Maybe thre is a connection there?

    Now we add the last straw–the backdoor inflation tax imposed by the federal reserve. When it devalues the $ or ECB devalues the EU, the effect is the consumer must pay more for bread or gold by about 7%—in order to print the $$ to pay the military contractors including the Russian contractors———tp protect the poppy fields.

    Laffer indicated that things come unraveled if rates hit 60%. Seems like we are there.

    1. A word on gold: managed money is long gold by a ratio of 22 to 1, according to the latest Commitments of Traders report from the CFTC for the week ended July 12. This means that even as the devalued dollar naturally pressures gold prices upward (read: you need more dollars to buy the same amount of gold, now that the dollar is worth even less) gold prices are already rising based on Wall Street’s sheer demand for gold contracts.

  2. Reminds me of Sir Humphrey’s words,”The ship of state,Bernard,is the only ship that leaks from the top.”

  3. Well today in lookback it appears that finacial markets did not vote favorably on the devaluation. i imagine it will be diificult to get the German voters to back the perpheral debt. EU unravels. Somebody selling gold and silver to prevent a run on metals.

    *8 congessmen——future of world on 8 congeressmen–no risk there

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