American Elephants

The Edge Of A Fiscal Cliff? How Did We Get Here? by The Elephant's Child

The Phrase “The Fiscal Cliff” has entered the public dialogue, but it is uncertain that very many have any understanding of what it is. Just something scary that might happen because the Republicans are blocking whatever President Obama wants to do, or something like that. According to a new CNN/ORC  poll, 45% say that they would blame Congressional Republicans, while just 34% would blame the President.

You probably remember when the economy took a terrible fall in 2008, when the “Financial Crisis” hit. The financial crisis was the collapse of the housing bubble. It was not caused by the Iraq war, nor by the Bush Tax Cuts, nor even by the Drug program for Seniors.

The Community Housing Act  in the Carter Administration attempted to get more poor minorities into their own homes. It was believed that  people who owned their own homes took more pride in their neighborhoods, and worked for improvements in society like better schools, better community regulations and laws — that sort of thing. Statistics seemed to prove it.

Democrat efforts to provide housing for the poor had often ended up in crime-ridden ghettos — the projects. So they increased pressure to get more poor minorities into their own homes. The Clinton administration gave that a big boost, and  Barney Frank and Christopher Dodd signed on. They put pressure on banks to grant more loans. Banks cited the rules of prudent banking. You can look at household income and expenditures and the payments needed to service a loan, and tell who can and who cannot pay back their loans. Democrats pushed banks, suggesting that they were “redlining” and discriminating against black Americans.

That’s a favorite trick of Democrats — to accuse anyone who disagrees with being “racist.” Community organizers encouraged their people to protest and picket banks.  And yes, that’s what our well known community organizer was doing, but nobody mentions that.

These questionable loans were sold to mortgage giants Fannie Mae and Freddie Mac, who sold them in bundles to Investment Banks, who further bundled them and sold them as investments all over the world. Fannie and Freddie had sorta/kinda guaranteed them as good investments, but nobody knew which parts were good and which bad.  Because mortgages were easy to get and home prices were climbing so fast, many people saw a dandy get-rich-quick scheme and bought up quantities of houses for little down, expecting to flip them for a quick profit. Overblown bubbles collapse, and houses aren’t worth as much any more.

That put the economy in the tank. General Motors was about to collapse, they were almost out of cash. Chrysler was not in much better shape, nor was Ford. George W. Bush, at the advice of his economic experts, signed a check for TARP (Troubled Asset Relief Program) which allowed the Treasury to purchase “troubled assets,” allowing the institutions to stabilize—the institutions had to pay the money back. This was October, 2008, after Obama was elected, but before he took office.

That, of course, did not keep Obama from blaming the financial crisis on Bush. He continued to do in every speech for the next four years. You repeat anything often enough, and at least some  people will believe it. Thus freed of any responsibility for the financial crisis, but free to take full credit for “saving GM,” Obama took over the auto industry, put his own people in charge, ordered up the all-electric Volt, shafted the legally entitled bondholders, fired dealers and their workers, and gave the unions full benefits and seats on the board.

That disposed of, Obama got a huge “stimulus” bill passed by the Democrat-controlled Congress. A stimulus seldom works to rescue an economy, yet this Keynesian remedy is a favorite of the Left. The funds were wasted, and most of it went to cronies. That taken care of, Obama embarked on health care, which he turned over to Congress to put together in back rooms, and turned his attention to doing fun things like picking favored industries to support and selecting the environmentalists’ favorite kinds of energy to support.

There is no such thing as “government money” there is only taxpayer money. And when that doesn’t seem to be enough, you borrow from China. Mr. Obama has had a wonderful time spending. It’s great fun. You get to throw fancy dinners in elaborate tents on the White House lawn ($4,000+ a plate), support $100,000 Fiskars electric sports cars, reward all your bundlers from the campaign, and go around to the factories making interesting new stuff, for photo-ops. No benefit for the taxpayers whose money supported this nonsense.

And when you rack up $1,000,000,000,000 every year added to the national debt, the debt ‘unexpectedly‘ gets very large. Business is not hiring, too much uncertainty and new regulation. The debt is downgraded. The rolls of the people who have dropped out of the labor market are soaring. The numbers on food stamps now exceed the population of 24 states. Poverty is increasing.

With an economy in such a really dreadful state, Mr. Obama wants to raise taxes on “the rich”— those with incomes of $250,000 or more. But some of those same people are Americas’ small businesses. Over 900,000 businesses with more than 50 employees, whose owners file their taxes as individuals, have been soaked with rising energy costs, drastically increased regulation, and all the new costs coming January 1, from ObamaCare. Small business is not hiring, as the rolls of the unemployed attest. President Obama wants to make it worse so that he will have more revenue to “redistribute.” He believes in a big active government and what an active government does is spend money.

Republicans fear that the President is initiating a second, deeper recession, if not collapse. On November 17, Treasury Secretary Tim Geithner told Bloomberg that “we ought to just eliminate the debt ceiling.”The debt ceiling is the only thing even vaguely resembling a control on the runaway government. On November 17, the national debt was $16.28 trillion, only $113 billion short of the national credit limit. But eliminate the debt ceiling as a restraint on Presidential Spending sounds — um, unwise.

Will Congress and the President act to avert disaster and another recession? After much posturing, there will probably be a deal of some kind. Obama is determined to tax the rich, because he has talked about that for months. It’s because of “fairness.” If he succeeds in increasing taxes on the rich,  it will do essentially nothing to reduce the deficit, and do a lot of damage to the economy, but it isn’t about reducing the deficit nor about increasing revenue. It is about “fairness” so the President can say to the poor — see, I took more money away from the rich to redistribute to you—and then he’ll spend it on a some useless new green project.

That’s just what you voted for, isn’t it?


The White House Didn’t See the Downgrade as a Wake-Up Call! by The Elephant's Child

The reaction of the White House to the downgrading of America’s credit rating from AAA, a rating it has held since Standard and Poor’s began, to AA+ was twofold. The financial team, Treasury Secretary Geithner and White House Economic Adviser Gene Sperling attacked the credibility of Standard and Poor’s while the political team blamed Republicans.  This was a “tea party downgrade” said David Axlerod on “Face the Nation.”And Obama notably consulted Warren Buffett who said the U.S rating should be AAAA. Nobody seemed to consider it a wake-up call to slash spending.

Obama has mentioned several times that there’s “not much further we can cut.” His “balanced approach” envisions cuts in Medicare (not raising the eligibility age) and raising taxes on the rich. The suggestion that there’s not much further we can cut doesn’t pass the laugh test. The Daily Caller expanded on that a little more”

“Not much further we can cut” seems like a hanging curve ball, an open invitation for ongoing ridicule–the sort of naive assertion that might come easily to someone who had never worked in the federal government, who only realized after promoting his half-trillion-dollar public works-based stimulus plan that there was “no such thing as shovel-ready projects.” Or someone who doesn’t want to know. Or who wants to act as if he doesn’t know.Here is the official list of federal job openings. They are still hiring. Sure, big enterprises keep hiring essential employees even in tough times. But these aren’t essential jobs. Many of them seem like the sort of job a private firm, in a financial crisis like the feds are in, would consolidate with another job or leave unfilled. (The first one that jumps out is the “Associate Administrator for Administration” at the Department of Transportation, which pays $119,554 to $179,700. It seems that this person will do administrative work to maintain the layer of bureaucracy that “coordinates” the DOTs research programs. The new hire will also give “advice and assistance in directing, coordinating, controlling” etc. this little fiefdom. You don’t have to be Peter Drucker to realize that this position does not have to exist.)

Part of the problem, of course, is that since it is virtually impossible to fire an actual underperforming federal employee, conscientious administrators have to hire new people (or consultants) to actually do the work the unfireable employees aren’t doing.

Liberals have long been obsessed with equality.  A poll from Zogby International back in 1998, commissioned by the leftist New World Foundation that asked 1,800 rank-and-file progressives what a progressive agenda should look like. The country’s single most important social problem was racism, followed by poverty, corporate power, jobs/economy, environment, moral decline and education. Over a decade later, it doesn’t seem to have changed much, in spite of all the changes in the country.

We have done about all we can, legally, to eliminate racism, and the fact that we have a black president, we have had two black, much admired, Secretaries of State, Supreme Court Justices, CEOs of some of our largest corporations, would seem to indicate that there aren’t many barriers for qualified people.

It is a basic liberal belief that there is a finite amount of money in the world, and that if some —the rich — get more, the poor will get less.  This is incorrect. The world economy expands as more wealth is created, and the poor get richer too.  Liberals counter that inequality — the difference between rich and poor — has increased dramatically in recent decades.  The poor can’t get any poorer unless government transfer payments are removed, so that end of the distribution tables doesn’t change. But the rich can certainly get richer.  Call it the Bill Gates Syndrome, although it applies to a lot of people who have become fabulously wealthy in very recent years because computers went from being a curiosity for geeks to being a necessity for everyone.  So you have the top end of the distribution tables expanding — a lot.

Liberals hate the rich. not just anyone who is rich, for most of their support comes from the rich (that “small donations from millions of ordinary people” is bunk).  They don’t mind George Soros’s Democracy Alliance (billionaires for big government), they mind the Koch Brothers, libertarian businessmen who support some Republican causes among all their charitable contribution, and just now, hedge-fund people.  Selective hate.

The statistics compare households, and earnings largely reflect how many members of a household are working. Single mothers, largely black and Hispanic, are at the bottom of the earnings distribution.  You cannot take enough money away from the rich to make the poor not poor.

If you could make the poor equal, some people are lazy, some are ill-educated, afflicted with drug addiction, some are highly educated entrepreneurs, some are aggressive in their desire to make money, some are savvy investors, some have outstanding ability at a popular sport.  If you could make everyone equal, they wouldn’t stay that way.

Revenue to the government is not down because of the Bush tax-cuts — the CBO has shown this to be demonstrably false. The budget arm of Congress looked at the changes in their baseline projections back on May 12.  They predicted, for 2011, a surplus of $889 billion, instead it expects a deficit of $1.4 trillion.  The combined 2001 and 2003 Bush tax cuts contributed roughly $216 billion — only 9.5 percent of the $2.29 trillion budget reversal.  Obama’s payroll tax cut was sold to stimulate growth and hiring, yet the economy has grown more slowly this year than last.

The tax cuts that work are permanent, take effect immediately, and hit at the next dollar of marginal income.

Studies show that higher income people respond to changes in the tax code.  This is common sense. They are less dependent on salary, and have more options to avoid taxes. Tax-free municipal bonds, IRAs and 401Ks, or not taking capital gains are just a few of the options. The income tax brought in less revenue when the highest rate was 70% to 91% than it did when the highest rate was 28%.  Pundits cling to the myth that lower tax rates mean lower revenues.

Income tax rates have become far more progressive. U.S. rates are the most progressive in the OECD. And the tax rate on our very richest is the highest individual tax rate.  When you cut the capital gains tax, you get more revenue, because people are more willing to move from one investment to another, to sell their home with an appreciated value and buy a new one. It really is common sense, but you have to take of the partisan blinders.

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