The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

About the debt increase deal…

Posted by iusbvision on August 1, 2011

Please forgive the lack of updates as I described in our previous post we have not been in a position to do a lot of blogging lately. A new web site is coming as well for the editor.

As far as the budget deal we thought we have a few comments.

1 – We were never in danger of a default. The government brings in almost 200 billion a month in tax dollars which is more than enough to service the debt. Anyone who said that the August 2nd date would result in default is just lying straight up. Judging by how the elite media has been repeating this it furthers my personal observation that journalists are lazy and are, as a collective, the most uninformed people I have ever encountered.

2 – These polls that you here about in the news saying that the people want “republicans to compromise” are polls like the CBS News poll that had a sample which included only 25% Republicans, so the sample was rigged. Notice how the Democrats are not asked to compromise in the press? When the people were stone against Obama Care by a 60% margin where was the press pounding the polls than? Where was the compromise when the Democrats would not allow the GOP into the room and would only see the bill a few hours before a vote?

3 – “Reagan increased the debt limit”… Reagan did not have a House controlled by his own party. During that time we had the 24/7 nuclear triangle operating at the pinnacle of the Cold War and a government shut down at such a time would have undermined our efforts to posture and beat the Soviets.

4 – “We need to raise taxes on the rich”. First of all we have been “raising taxes on the rich” for decades now so why is it that John Kerry paid 12.34% on $5,072,000 worth of income? The dirty little secret is that the tax rate that the Democrats are talking about is the wage earner rate which is paid by high-end wage earners such as doctors and engineers, but it is also the rate paid by most small businesses that have employees. Most of the income that the “rich” bring is defined by the tax code as “unearned income”, so you could raise this tax rate to the moon and the multimillionaires and billionaires will laugh as it will not be they who pay it. For more details on why this is follow this LINK.

Using static models as the CBO likes to use the Democrats proposed tax increase would pay for all of 10 days of deficit spending. Of course since people do not operate in a static universe the result would be an impact on job creators and even less revenue growth to the government. Can anyone name a mainstream economic theorist who said to raise taxes during what appears to be a double dip recession?

4 – As far as spending cuts in the “deal”, we must remember base line budgeting. If we froze spending at current levels Washington would consider that to be a $9.5 trillion dollar “cut”, so all we are talking about here is a small reduction in the typical increases in spending. As far as spending cuts are concerned this is not a serious plan as spending under this deal will continue to skyrocket. Democrats and some leftist journalists are calling these “draconian cuts” and are simply engaging in the most dishonest demagoguery imaginable.

5 – But here is the rub, when we lose our AAA credit rating, which now appears unavoidable as both Moodys and S&P have said that neither the Boehner plan nor the Reid plan are serious about getting spending under control, it will cost us more than $100 billion a year in interest alone; when that is factored in there are no reductions even in the increases in spending. It gets worse. When you add the damage to the economy that loss of AAA will bring it makes all of this worse.

The loss of AAA will impact most unsecured credit, it will impact the value of the dollar (inflation), it will impact those who use short-term credit such as farmers who use seasonal loans and import/export businesses. It is going to damage the economy in such a way that most people will feel it. We did not lose AAA even during the great depression. The “deal” which passed is also easy to demagogue because the left will say that this deal IS the “Boehner Plan” (which is largely isn’t any more do to an almost total cave on spending cuts) and HIS plan caused us to lose AAA.

[Note: The first plans that were introduced by the Tea Party/GOP were much more serious and had a real chance of preventing the loss of AAA. While this is indeed a failure of government, is there any doubt that the Democratic Party is intent on blowing up our credit rating? The first proposals from the House had a chance of preserving AAA and the media/Democrats had a conniption fit calling called it extreme. Think about this folks, preserving AAA is now an extreme position according to much of the elite media and a political party. The Constitution does have limits and the GOP cannot run the government from the House. This is why elections matter.] 

6 – The deal also includes a vote on the Balanced Budget Amendment to send it to the states. If this amendment resolution passes the Democrat controlled Senate and gets to the states it will be a great tool to begin to get this spending problem under control. If it looks like it will pass the Senate I expect the Democrat leadership will pull some stunt prevent the vote or prevent its passage. Government has a structural institutional incentive to spend more and more, so the only way to curb that is to make a structural change. Aside from a vote on this Amendment, which I will stress has not happened yet, this was not a tough deal or a Herculean compromise by any stretch.

This is a must see exchange between Marco Rubio and John Kerry on the debt limit debate. Be sure to watch every second as this is invaluable.

Kerry will think twice before trying to posture Marco Rubio again. Notice also, even though Rubio did not join the TEA Party Caucus he defends their position, which is to offer a plan that fixes the problem. Rubio uses a most interesting analogy to show why this is so important.

 

UPDATE – The latest version of the deal includes $2.1 Trillion in cuts over 10 years with half planned now and the other half planned by a “budget cut committee later”. Keep in mind that cuts in “Washington Speak” are not cuts, but rather a decrease in the increase in spending. So instead of a planned increase in spending over 10 years of $9.5 Trillion they will plan to increase spending by $7.4 trillion.  The president gets his debt increase limit extended to well passed the campaign, deficit spending shoots up, no entitlement reform, no plan to balance the budget over the next eight years. There are some actual small cuts in discretionary spending, but entitlement spending that is on autopilot. Of course even this is a fraction of the increase in discretionary spending that has gone up since 2008.

 

UPDATE

LARGEST DEBT HIKE IN HISTORY…
$32.4 billion per page?
Borrowing to surge…

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