Fascinating to read from our contributor Alan that one of the biggest and most important financial events is about to happen in the US with world changing effects and this is the world’s finest news organisation’s analysis:
‘Sorry, there are no results for ‘taxmageddon’ in the category ‘News’.’
In the US in January 2013 there looms a massive financial decision….a ‘cliff edge’ moment, when the realities of the US economy will strike home.
‘Policymakers are facing difficult trade-offs in formulating the nation’s fiscal policies. On the one hand, if the fiscal policies currently in place are continued in coming years, the revenues collected by the federal government will fall far short of federal spending, putting the budget on an unsustainable path. On the other hand, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion. ‘
The US has been running its economy on Plan A….which is the Ball’s Plan B here…..it is based on tax cuts and stimulus spending. Now those chickens are coming home to roost and a decision has to be made.
All that spending hasn’t really worked, it gives the illusion of growth but based on massive debt, now they must decide either to continue down that road and grow the deficit further or raise taxes and make cuts in spending…..to reduce the deficit by 60% by 2014.
The BBC have avoided all talk of this as far as I can see, at least in the UK. Why?
The BBC love a good stimulus on the quiet.
The fact that the Americans are in such a dilemma, are panicking about it, tells you everything…..the ‘stimulus’ programme hasn’t worked…the massive government subsidies haven’t worked….if they had the answer would be easy….change nothing…keep on with the low taxes and high borrowing (half US government spending is borrowed).
But no…..the economy is at the ‘cliff edge’…and that doesn’t sound like a good basis for an economic plan unless you dated Ed Balls and now work for the BBC.
Subsidies produce growth and jobs….really? Well yeah….look at all those Green jobs from wind farm development and solar panels.
Let’s look how that went…..every so called green job cost 3.7 real jobs as money was diverted from the real economy….and look what happened when the subsidies were cut….the solar panel firms went bust….because their business was unsustainable in the real world.
That’s the key word…sustainable…once the subsidies are withdrawn can they continue to trade?
And of course the subsidies have to come from somewhere…Balls is yet to quantify exactly how he intends to fund his Brownian Motion where the money supply mysteriously moves money around in an expansive and random manner in the economy with no apparent relation to any outside influences at all.
The US Congressional Budget Office states in clear language the options……continue with the stimulus and you will get 4.4% growth in the first year, make cuts and increase taxes and you will have 0.5% growth in year one and 2.3% in year two and the deficit will be cut enormously. Carry on with the stimulus and it gives good apparent ‘growth’ but that is unsustainable…..‘Such a path for federal debt could not be sustained indefinitely, and policy changes would be required at some point. The more that debt increased before policies were changed, the greater would be the negative consequences—for the nation’s future output and income, for the burden imposed by interest payments on the federal debt, for policymakers’ ability to use tax and spending policies to respond to unexpected challenges, and for the likelihood of a sudden fiscal crisis.’
In fact we have experience of that already…Gordon Brown did exactly that…borrowed large in the hope that growth would come to his rescue….unfortunately events and a financial crisis(much of his making) meant there was no growth…..he was as much playing the ‘Casino’ bank’s game as he was taking huge financial risks that didn’t, and in all likelihood never would, pay off.
So years of massive stimulus and tax cuts have had little effect and indeed there has been neglible growth for a decade, and now they must choose to continue down that road and keep racking up the debt or to raise taxes and make massive cuts but deal with the deficit.
It’s a shame the BBC cannot, or will not, explain the options so lucidly and simply as the CBO does. Of course if they did Balls and Miliband would have to dream up a ‘Plan C’ as the Public would be on to their scam….and I don’t think they have it in them.
No doubt Stephanie Flanders can guide us onto the right path and enlighten our thinking.
Where does the debt come from? Which organisation or country is going to provide the money that creates the debt?
If the answer to either of those questions is ‘China’, then what happens when they decide they want their money back now rather than later?
Is China playing a waiting game only to pounce when the time is right?
WW3 coming to an economy near you some time soon.
Actually, there are two looming disasters for 2013. One is ObamaCare, as rules and real costs start to kick in. The other is the fact that the economy will take a hit because of that half-assed debt relief deal we got in 2011 which nobody liked. They agreed to raise the debt ceiling while putting in automatic spending cuts (especially on defense) which would kick in unless the special committee came up with a better plan. And no new taxes to pay for the debt increase. The Stimulus (which didn’t) has run out, tax breaks are set to expire, and more and more States are trying to raid the small-business cookie jar, which kills employment more than just about anything else.
At the time of the crap deal, Mark Mardell was livid that the President was unable to continue spending us into oblivion, and more or less blamed the Tea Party movement for being extremists and trying to destroy the country.
Of course, as I predicted, nothing got done, and those cuts will kick in, and we’ll still have to face the consequences of the increased debt with the burden of ObamaCare piled on top of it.
My posts at the time on this matter can be read here, here, and here. See how I did and let me know how it compares to BBC reporting.
I caught a little bit of Paxman while channel hopping yesterday ABD listened to snow Nobel winning economist saying the only way out if Labours depression is to spend, spend ABD spend a LOT more. I’m assuming the woman who rubbish this so called Nobel winning economists idea was a conservative because she politely pointed out his ideas are what got us in this mess in the first place.
And that point I gave up as I knew exactly what was coming next!
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