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T-post Tom
04-01-2009, 08:01 PM
The G-20's Hidden Issue: A Global Trade Imbalance
By Michael Scherer

No one asked President Barack Obama directly about the elephant in the room on Wednesday. But he brought it up anyway, during a joint press conference with British Prime Minister Gordon Brown. A British reporter asked Obama about the proper size of government stimulus spending, and the U.S. President decided to talk about the perilous balance of global trade.

"In some ways, the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide," Obama said, hinting that this position may not be sustainable. "We're going to have to take into account a whole host of factors that can increase our savings rate and start dealing with our long-term fiscal position as well as our current account deficits." (Read "The G-20 Summit: Can This Group Save the World Economy?")

The comments were filled with economic jargon but pregnant with meaning. "If there's going to be renewed growth, it can't just be the United States as the engine. Everybody is going to have to pick up the pace," Obama continued. He went on to say that the world would have to shift away from the situation where other nations are "only exporting and never importing" to a "balance in how we approach these issues."

The words did not make zippy sound bites, so they won't be making a heavy rotation on cable news. But they struck to the heart of an often ignored cause of the economic crisis now gripping the world. For weeks, world leaders have been blaming the crisis on the immediate villains: banks, investors and derivatives traders who took on more risk than they could handle. A regulatory structure that failed to notice the problems. A global consumer delusion that the bubble could expand forever.

Largely left out, however, is the vital role that trade balances played in igniting the crisis in the first place. Since the late 1990s, the U.S. has been spending far more than it has earned, sending huge sums of capital overseas, a dynamic measured as the current account deficit. This "giant pool of money," as the radio program This American Life described it, did not stay in low-spending surplus countries like China or oil-producing states. Instead, much of it came back to the U.S. in the form of cheap credit. "Like water seeking its level, saving flowed from where it was abundant to where it was deficient, with the result that the United States and some other advanced countries experienced large capital inflows for more than a decade," explained Federal Reserve Chairman Ben Bernanke in a March 10 speech.

The glut of investment led to what economists call an "underpricing of risk," as lending standards were weakened and leverage grew. Economists now widely agree that the systemic sloshing about of capital was a recipe for disaster. If a lack of regulation allowed the fire to spread quickly, the global trade imbalance provided the dry kindling to start it.

Over the past year, government officials have been somewhat hesitant to bring the issue of trade imbalances up because it isn't as pressing as getting people back to work and restoring confidence. At the first meeting of the G-20 last fall, it was hardly mentioned at all. But as former Treasury Secretary Hank Paulson said in November, it cannot be left untreated over the long term. "The pressure from global imbalances will simply build up again until it finds another outlet," he explained. (Read "The G-20 Summit: Obama Can Stay Home.")

That is why Obama's comments on Wednesday were so notable. The issue of imbalances is not expected to play a big role in the coming G-20 communiqué, which focuses on regulation, aid to developing countries, protectionism and stimulus. But Obama clearly signaled that the issue is on his radar, and that policy shifts may be coming. In practice, this means measures in the medium term that will encourage greater consumption and spending in developing nations like China, and more saving and less debt in the U.S. Although he was vague, Obama discussed what would amount to a reworking of the basic economic physics that governs our world. It's a delicate balance, however, because too much savings in the short term could delay an economic recovery.

This issue popped up again, in the most oblique way, later on Wednesday, when Obama met with Chinese President Hu Jintao. Although the issue of imbalances was not raised directly by either man, according to a senior U.S. Administration official, the joint statement released by the two nations said both countries want to deal with the underlying causes. "[Obama] underscored that once recovery is firmly established, the United States will act to cut the U.S. fiscal deficit in half and bring the deficit down to a level that is sustainable," the statement reads. "President Hu emphasized China's commitment to strengthen and improve macroeconomic control and expand domestic demand, particularly consumer demand, to ensure sustainable growth and ensure steady and relatively fast economic development."

In other words, China will seek to spend more, and the U.S. will seek to spend less. Many economists are critical of the lack of specific policy solutions beyond these acknowledgements, saying the imbalances and the resulting distorting effects on currency exchange rates should have been a central agenda item at the G-20. "Unless and until surplus countries recognize that this cannot continue, no durable escape from the crisis will be achieved," Martin Wolf, author of Fixing Global Finance and the Financial Times' economics columnist, wrote in Wednesday's edition. "Understandably, but foolishly, they are unwilling to do so." But as Wednesday showed, the issue is not entirely unnoticed by senior leaders. The elephant in the room, after all, is large, threatening and unlikely to go away on its own.

Direckshun
04-01-2009, 08:25 PM
I think it's GOT to be a part of our intermediate-term plans. Our short-term plans obviously have to be recovery, recovery, recovery. Then after that, probably some time towards the end of Obama's first term or the start of his presumed second, our plans must be to fight inflation with every ounce we've got.

That WILL create a gap in global capital that other countries must step up to meet.

I don't know enough about the economies in other countries to comment about how realistic it is, but the more I read about it (and Scherer's as good a source as any, all of Salon tends to be), the more I grow convinced that this is our blueprint for the short- and intermediate-term future.

T-post Tom
04-01-2009, 10:13 PM
I think it's GOT to be a part of our intermediate-term plans. Our short-term plans obviously have to be recovery, recovery, recovery. Then after that, probably some time towards the end of Obama's first term or the start of his presumed second, our plans must be to fight inflation with every ounce we've got.

That WILL create a gap in global capital that other countries must step up to meet.

I don't know enough about the economies in other countries to comment about how realistic it is, but the more I read about it (and Scherer's as good a source as any, all of Salon tends to be), the more I grow convinced that this is our blueprint for the short- and intermediate-term future.

Agreed.

patteeu
04-01-2009, 10:35 PM
"In some ways, the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide," Obama said, hinting that this position may not be sustainable. "We're going to have to take into account a whole host of factors that can increase our savings rate and start dealing with our long-term fiscal position as well as our current account deficits."


This is an excellent statement from our President. Unfortunately, his policies are at odds with it, AFAICS. In particular, his tax policies encourage consumption and discourage savings. He wants to increase taxes on savings while decreasing taxes on people most likely to spend. Exactly the opposite of what we should be doing. He can't have it both ways. Apparently he knows what is good for America and he knows what is good politics and he's picked politics over good policy.

banyon
04-01-2009, 10:39 PM
This is an excellent statement from our President. Unfortunately, his policies are at odds with it, AFAICS. In particular, his tax policies encourage consumption and discourage savings. He wants to increase taxes on savings while decreasing taxes on people most likely to spend. Exactly the opposite of what we should be doing. He can't have it both ways. Apparently he knows what is good for America and he knows what is good politics and he's picked politics over good policy.

Did I miss this tax policy? Which one are you referring to?

patteeu
04-01-2009, 11:01 PM
Did I miss this tax policy? Which one are you referring to?

It was in his budget proposal. Here's a commentary that discusses some of the changes he's proposed:

Obama Budget's Tax Proposals: Wrong and Risky (http://www.realclearpolitics.com/articles/2009/03/obama_budgets_tax_proposals_wr.html)
By J.D. Foster

President Obama's budget outlines sweeping changes for federal tax policy. A few of these changes are good policy that ought to be accepted by Congress. However, the net effect of these radical tax policies would be devastating tax increases and a permanently weaker economy.

These policy proposals would be wrong-headed under any conditions, but to suggest them as the domestic economy is contracting as part of the Global Great Recession at best signals an extraordinary indifference to current conditions.

In total, over 10 years President Obama proposes $593 billion in tax relief and $1,961 billion in gross tax increases for a net tax increase of $1,368 billion.[1]

Raising Taxes, Manipulating the Economy
The budget envisions the enactment of a cap-and-trade policy effective by 2012 to address climate concerns. As portrayed in the budget, this policy raises about $80 billion a year through 2019. However, the footnote to the table indicates that significant additional amounts are expected to be raised as the policy is further defined.[2]

While raising income taxes generally, the Obama budget would also significantly shift the distribution of the tax burden. It proposes to raise taxes very significantly on upper-income families and small businesses by raising income tax rates, increasing tax rates on dividends and capital gains, preserving the death tax at onerous levels, restoring the previous phase-outs of the itemized deduction and personal exemptions, and creating a new cap on the rate at which individuals could deduct itemized deductions.

While raising taxes at one end of the income scale--where the great preponderance of the tax burden already falls--the Obama budget suggests a number of provisions to further reduce the modest levels of tax paid by individuals and families at the other end of the scale. In addition, the Obama budget proposes to increase the amount of welfare payments directed to low-income individuals and families through the tax code by over $326 billion over 10 years.[3]

The Obama budget includes few beneficial tax provisions among its many harmful proposals. For example, it includes a small but notable proposal to eliminate entirely the capital gains tax on small businesses. This provision would make it easier for prospering small businesses to raise equity capital to hire more workers and reach more markets. It also reflects an encouraging understanding of the role of equity capital in business investment--and, by so doing, also offers self-criticism for the proposal to raise the capital gains tax generally. The budget also includes an important proposal to adopt automatic enrollment in IRAs and 401(k)s to expand private saving.[4]

However, the Obama budget proposes to reinstate the now-long-lapsed excises on manufacturers to finance the Superfund toxic waste cleanup program. This trust fund already has sufficient resources to finance its operations for many years, so a reinstatement of the tax largely on manufacturing concerns is unnecessary. Another bad policy recommendation is to repeal an inventory accounting rule known as "last in, first out," which would raise taxes on businesses that need to carry significant amounts of inventory. There is no policy justification for this proposal other than as a convenient means of raising taxes on businesses. These are two of the more notable of the many miscellaneous proposed tax hikes.

No Time to Threaten Radical Restructuring and Tax Hikes
The U.S. economy slid from a mild recession from December 2007 through August 2008 into a deep and rapid contraction that threatens to persist through 2009. Asia and Europe have also fallen into deep recessions expected to continue into 2010.

Matters are sufficiently dire that President Obama and the Democratic Congress responded to news of a trillion-dollar-plus budget deficit in 2009 and added to it massively through an ill-labeled stimulus bill. In addition, the Treasury and the Federal Reserve are employing a multitude of programs to restore financial markets to normal operations and begin to lay a foundation for economic recovery. This is the economic background against which President Obama has proposed to jack up tax rates on small businesses.

Higher taxes on small businesses, higher taxes on investment capital, and a massive new tax regime to finance a risky new program to drive up energy costs and restructure much of the economy according to federal government designs are all policies that would weaken the economy under any circumstances. It is extraordinarily harmful and ill-advised to propose such policies at this time.

Getting the Revenue Baseline Right
For all its problems, the Obama budget included one very important improvement in regards to tax policy: The revenue baseline presented in this budget is more reasonable, more accurate than that presented by President George W. Bush in his last budget, and far more reasonable than the baseline from which the Congressional Budget Office (CBO) continues to operate.

Revenue baselines are part of the infrastructure of the budgetary side of tax policymaking. All tax policies are scored for budget purposes relative to a baseline projection of current and future revenue streams. However, because Congress has long been in the bad habit of passing temporary tax provisions, their expiration raises important questions about how to treat these provisions in the baseline, questions the CBO has consistently answered incorrectly.

Describing the consequences of maintaining current policy is an underlying principle of revenue and spending baseline projections. To an extent, autopilot is the default. When spending programs like the highway program expire, the CBO and the Administration assume that current policy will be preserved and so continue the highway spending in the spending baseline. In contrast, when a tax provision like the R&D tax credit or the Alternative Minimum Tax "patch" expires, the CBO ignores current policy and constructs the revenue baseline assuming the tax provision will expire. This difference is illustrated by comparing the CBO and Obama baselines and the scoring of Obama's policies.

In constructing its revenue baseline for 2009 and beyond, the Obama baseline reflects the revenue effects of expiring tax provisions as though they were permanent, while other tax provisions that Obama would allow to expire are properly shown as tax hikes.

For example, the 15 percent and the top 35 percent income tax rates were both enacted in 2001, and both expire at the end of 2010. President Obama has called for extending the 15 percent rate and raising the top tax rate to 39.6 percent. President Obama's revenue baseline correctly assumes the extension of the 15 percent rate, and it shows the revenue increase from raising the top tax rate.

In contrast, the CBO shows the revenue losses from extending the 15 percent tax rate and subsumes the revenue gains from raising the top tax rate into the baseline. Whereas the CBO baseline is its negative image, the Obama revenue baseline is true to the intent and meaning of the baseline and is consistent with how the spending baseline is constructed. Congress should direct the CBO to correct its methodologies to be correct with the Obama Administration's approach.[5]

A Better Change in Course for Tax Policy
President Obama has presented a full slate of tax policy proposals in his budget. The net effect of these proposals would be much higher levels of taxation and much weaker economy. A wiser course would be to jettison the tax hikes, including the jobs-destroying climate change initiative, and focus on policies that strengthen the economy such as cutting spending and cutting tax rates.

banyon
04-02-2009, 09:27 AM
It was in his budget proposal. Here's a commentary that discusses some of the changes he's proposed:

Oh, I see, you're trying to argue that stock speculation and traditional "savings" are the same thing. I can see how glossing over that with the vague term "savings" could confuse some elderly or thrifty working class families into thinking you're attacking their CD's, bonds, or savings accounts. And of course even with the stocks, the rates would be progressive (as they are now) and I don't think the raised dividend/CG rate would fall on people earning under $250k.

patteeu
04-02-2009, 09:32 AM
Oh, I see, you're trying to argue that stock speculation and traditional "savings" are the same thing. I can see how glossing over that with the vague term "savings" could confuse some elderly or thrifty working class families into thinking you're attacking their CD's, bonds, or savings accounts.

Obama taxes CD's, bonds, and savings accounts even more heavily than he wants to tax dividends and capital gains. FWIW, Republicans have advocated expanding IRAs, MSAs, and other forms of tax advantaged savings for a long time. And of course, the FAIR tax effectively eliminates taxation on all savings which is the real "right answer" here.

BTW, it's not "glossing over" anything. Investments are savings just as much as a passbook account at your local bank. I'm surprised that anyone would need to have this spelled out to them, especially someone as intelligent as yourself. (And I'm not being sarcastic here).

Garcia Bronco
04-02-2009, 09:33 AM
Oh, I see, you're trying to argue that stock speculation and traditional "savings" are the same thing. I can see how glossing over that with the vague term "savings" could confuse some elderly or thrifty working class families into thinking you're attacking their CD's, bonds, or savings accounts. And of course even with the stocks, the rates would be progressive (as they are now) and I don't think the raised dividend/CG rate would fall on people earning under $250k.

He's going to raise federal income tax on everyone, and interest on savings accounts are treated as income.

banyon
04-02-2009, 09:52 AM
Obama taxes CD's, bonds, and savings accounts even more heavily than he wants to tax dividends and capital gains. FWIW, Republicans have advocated expanding IRAs, MSAs, and other forms of tax advantaged savings for a long time. And of course, the FAIR tax effectively eliminates taxation on all savings which is the real "right answer" here.

BTW, it's not "glossing over" anything. Investments are savings just as much as a passbook account at your local bank. I'm surprised that anyone would need to have this spelled out to them, especially someone as intelligent as yourself. (And I'm not being sarcastic here).

Yeah, he's raising income taxes on the wealthy, so the wealthy won't have a tax shelter to run to of any kind if that's what you wanted. Of course if the wealthy receive income in any form, whether that's savings or gambling winnings, it will be taxed at the same rate as the rest of their high income over their marginal lower taxed income.

banyon
04-02-2009, 09:57 AM
He's going to raise federal income tax on everyone, and interest on savings accounts are treated as income.

No, only the upper two brackets are raised. Lower brackets are getting cuts.

patteeu
04-02-2009, 10:13 AM
Yeah, he's raising income taxes on the wealthy, so the wealthy won't have a tax shelter to run to of any kind if that's what you wanted. Of course if the wealthy receive income in any form, whether that's savings or gambling winnings, it will be taxed at the same rate as the rest of their high income over their marginal lower taxed income.

Like I said, he's raising taxes on savings and subsidizing those most likely to consume. That's the opposite of what he says America needs to do for our future economic health.

Stewie
04-02-2009, 10:46 AM
Many economists are critical of the lack of specific policy solutions beyond these acknowledgements, saying the imbalances and the resulting distorting effects on currency exchange rates should have been a central agenda item at the G-20. "Unless and until surplus countries recognize that this cannot continue, no durable escape from the crisis will be achieved," Martin Wolf, author of Fixing Global Finance and the Financial Times' economics columnist, wrote in Wednesday's edition. "Understandably, but foolishly, they are unwilling to do so." But as Wednesday showed, the issue is not entirely unnoticed by senior leaders. The elephant in the room, after all, is large, threatening and unlikely to go away on its own.

This paragraph cracks me up. What stupidity. The last thirty years of "prosperity" in the U.S. has only been gained through the Forex. It's smoke and mirrors. The only reason it became viable to move mfg. overseas was the exchange rate. The "imbalance" they talk about is the exact thing the present administration is trying to continue via economic engineering. They don't want a level playing field when it comes to currencies, they want leverage and they want things as they were during the "boom." Of course, the economic boom was nothing but a shell game of currencies and trade and currencies coming back to fuel the trade. The game is over. As I've said before, there will be no recovery. There can't be. It's a new game and China holds all the cards. China's gov't makes economic plans for the next 50 years, our gov't can't make a plan for the next 50 days.

banyon
04-02-2009, 11:32 AM
Like I said, he's raising taxes on savings and subsidizing those most likely to consume. That's the opposite of what he says America needs to do for our future economic health.

America needs a strong and vibrant working and middle class for our economic health. Tax cuts for the wealthy and outsourcing and union busting and illegal alien competition for everyone else aren't going to work anymore.

FishingRod
04-02-2009, 12:53 PM
America needs a strong and vibrant working and middle class for our economic health. Tax cuts for the wealthy and outsourcing and union busting and illegal alien competition for everyone else aren't going to work anymore.

Henry Ford was smart enough to know it was a good idea to make his employees also his customers. I do agree with your sentiments regarding illegal aliens. They are by definition illegal and should not be employed by our business nor should they be beneficiaries of governmental handouts. The are after all illegal. With regards to the unions I just don't see how in a world economy we can compete with labor working for $00.50 and hour or less, little or no benefits and minimal environmental regulations to deal with. I do need to do some study of the Germans. They at least until recently have been the #1 or #2 exporter in the world. I'm not exactly sure how the have accomplished this but, I assume it has more to do with selling very expensive luxury cars than Shamwows. I'm afraid the days of my mother-n-law and father-n-law of working at the plant being highly paid and retiring comfortably on a pension are over.

KC native
04-02-2009, 01:34 PM
This paragraph cracks me up. What stupidity. The last thirty years of "prosperity" in the U.S. has only been gained through the Forex. It's smoke and mirrors. The only reason it became viable to move mfg. overseas was the exchange rate. The "imbalance" they talk about is the exact thing the present administration is trying to continue via economic engineering. They don't want a level playing field when it comes to currencies, they want leverage and they want things as they were during the "boom." Of course, the economic boom was nothing but a shell game of currencies and trade and currencies coming back to fuel the trade. The game is over. As I've said before, there will be no recovery. There can't be. It's a new game and China holds all the cards. China's gov't makes economic plans for the next 50 years, our gov't can't make a plan for the next 50 days.

Actually, there are a variety of reasons that mfg was moved. Exchange rate is one but also the prevailing govt endorsed low wages are another.

AFA China is concerned we actually hold the cards. They are pissing themselves over the fact that default is a possibility and that the dollar may go down in value since they peg their currency to ours. They manipulate their currency in FOREX and keep it artificially low so as their goods look cheaper relative to everyone elses. They actually piss a lot of people off in the world with what they do. If they were to allow their currency to float it would crater their mfg because they don't buy the crap they produce. Eventually China will be the dominant force but no time soon.

Stewie
04-02-2009, 01:58 PM
Actually, there are a variety of reasons that mfg was moved. Exchange rate is one but also the prevailing govt endorsed low wages are another.

AFA China is concerned we actually hold the cards. They are pissing themselves over the fact that default is a possibility and that the dollar may go down in value since they peg their currency to ours. They manipulate their currency in FOREX and keep it artificially low so as their goods look cheaper relative to everyone elses. They actually piss a lot of people off in the world with what they do. If they were to allow their currency to float it would crater their mfg because they don't buy the crap they produce. Eventually China will be the dominant force but no time soon.

Floating the Yuan is not the panacea that everyone thinks it is. Trillion$ have been spent by American companies, and others, to build manufacturing facilities over there. If the Yuan were allowed to float (rise in value) you now have facilities that are obsolete because their exports just got much more expensive. That's good IMO because it will force mfg. back to our country. We can't survive selling each other insurance, mortgages, health care, etc., we need to get back to being real producers.

Also, China just signed an agreement with Argentina that allows trade to be settled in Yuan. That's a HUGE step for China since Argentina has what China is looking for, lots of natural resources. China is slowly moving away from relying on dollars. They won't show their hand all at once because it would cause a collapse in the dollar, but over time their U.S. dollar holdings will be a smaller and smaller part of their investments.

KC native
04-02-2009, 02:12 PM
Floating the Yuan is not the panacea that everyone thinks it is. Trillion$ have been spent by American companies, and others, to build manufacturing facilities over there. If the Yuan were allowed to float (rise in value) you now have facilities that are obsolete because their exports just got much more expensive. That's good IMO because it will force mfg. back to our country. We can't survive selling each other insurance, mortgages, health care, etc., we need to get back to being real producers.

Also, China just signed an agreement with Argentina that allows trade to be settled in Yuan. That's a HUGE step for China since Argentina has what China is looking for, lots of natural resources. China is slowly moving away from relying on dollars. They won't show their hand all at once because it would cause a collapse in the dollar, but over time their U.S. dollar holdings will be a smaller and smaller part of their investments.

I've never said it was a panacea but it would go a long ways towards fixing the artificial imbalances we see now.

patteeu
04-02-2009, 02:20 PM
America needs a strong and vibrant working and middle class for our economic health. Tax cuts for the wealthy and outsourcing and union busting and illegal alien competition for everyone else aren't going to work anymore.

Let's stick to the point and leave the class warfare spin at the door, please. Speaking in the terms provided for us by Obama, i.e. consumption and savings, his tax code encourages the opposite of what he says we need. It encourages more consumption and less saving while Obama correctly points out that we need the opposite. In this sense, there's a huge disconnect between his words and his actions.

KC native
04-02-2009, 02:29 PM
Let's stick to the point and leave the class warfare spin at the door, please. Speaking in the terms provided for us by Obama, i.e. consumption and savings, his tax code encourages the opposite of what he says we need. It encourages more consumption and less saving while Obama correctly points out that we need the opposite. In this sense, there's a huge disconnect between his words and his actions.

So, are you trying to deny that a strong middle class has fueled our country's growth?

Stewie
04-02-2009, 02:37 PM
I've never said it was a panacea but it would go a long ways towards fixing the artificial imbalances we see now.

Who said the powers that be want the imbalances to go away? It's an easy money game.

patteeu
04-02-2009, 02:43 PM
So, are you trying to deny that a strong middle class has fueled our country's growth?

Are you trying to change the subject?

KC native
04-02-2009, 02:52 PM
Are you trying to change the subject?

No, but if you don't think that a strong middle class was an integral part of this country's growth then how can we accept your argument that he's raising taxes on those most likely to consume? Before you respond go look up marginal utility of a dollar.

patteeu
04-02-2009, 03:09 PM
No, but if you don't think that a strong middle class was an integral part of this country's growth then how can we accept your argument that he's raising taxes on those most likely to consume? Before you respond go look up marginal utility of a dollar.

My thoughts on the value of a strong middle class aren't at all related to the impact of tax code changes on savings and consumption.

KC native
04-02-2009, 03:12 PM
My thoughts on the value of a strong middle class aren't at all related to the impact of tax code changes on savings and consumption.

When you consider the nature of the changes to the tax code (I know. I know. That's context and you can't be bothered with that) it is entirely relevant. Rates aren't the only relevant factor in taxation. Beyond that, you still haven't demonstrated how his tax plan encourages consumption at the expense of savings.

patteeu
04-02-2009, 03:15 PM
When you consider the nature of the changes to the tax code (I know. I know. That's context and you can't be bothered with that) it is entirely relevant. Rates aren't the only relevant factor in taxation. Beyond that, you still haven't demonstrated how his tax plan encourages consumption at the expense of savings.

No it isn't and yes I have.

patteeu
04-02-2009, 03:17 PM
No it isn't ...

I could believe anything I want to about the middle class and it wouldn't change the nature of how the tax code impacts savings and consumption.

...and yes I have.

Obama's tax plans increase taxes on savings and on people who are more likely to save and decreases taxes on people who are more likely to consume. When you tax savings more heavily and consumption more lightly, you're bound to get less saving and more consuming.

KC native
04-02-2009, 04:05 PM
I could believe anything I want to about the middle class and it wouldn't change the nature of how the tax code impacts savings and consumption.



Obama's tax plans increase taxes on savings and on people who are more likely to save and decreases taxes on people who are more likely to consume. When you tax savings more heavily and consumption more lightly, you're bound to get less saving and more consuming.

Which is exactly what we need to get the economy moving in the right direction. For the economy to get moving in the right direction again we need people who are more likely to spend to get tax breaks to spend more. What we don't need is credit growth. If we give tax cuts to those who are not likely to consume (ie the wealthy and here's where marginal utility of the dollar comes in) then we will be no better off. BTW We've already seen an increase in the savings rate.

Stewie
04-02-2009, 04:22 PM
How can people spend more money? They're tapped out times 10. This pie-in-the-sky recovery talk is nonsense. Look at foreclosures. Look at the people in homes worth less than what they owe. There are no more mortgage/refi dollars for the unqualified. The new loan requirements eliminate a HUGE portion of buyers. Those were the people (with no money I might add) that were driving the market. Now you have people with $400K loans sitting in a $230K home. They may pay the mortgage, but it's a net loss for as long as the eye can see.

Look at unemployment. Look at the lack of savings. Where is this money coming from for a recovery? This phony baloney economy was built on cheap imports, worthless "service" jobs, and cheap liquidity due to foreigner's appetite for returns on our debt. Well that game is up, it's over, it's kaput. The Fed is buying treasuries for Christ's sake. If that doesn't hit you up-side the head like a skillet then you're denser than dense.

And now Obama's a hero? This Administration has sold the role of the United States out to international needs. It's a great day to be an American.

KC native
04-02-2009, 04:29 PM
How can people spend more money? They're tapped out times 10. This pie-in-the-sky recovery talk is nonsense. Look at foreclosures. Look at the people in homes worth less than what they owe. There are no more mortgage/refi dollars for the unqualified. The new loan requirements eliminate a HUGE portion of buyers. Those were the people (with no money I might add) that were driving the market. Now you have people with $400K loans sitting in a $230K home. They may pay the mortgage, but it's a net loss for as long as the eye can see.

Look at unemployment. Look at the lack of savings. Where is this money coming from for a recovery? This phony baloney economy was built on cheap imports, worthless "service" jobs, and cheap liquidity due to foreigner's appetite for returns on our debt. Well that game is up, it's over, it's kaput. The Fed is buying treasuries for Christ's sake. If that doesn't hit you up-side the head like a skillet then you're denser than dense.

And now Obama's a hero? This Administration has sold the role of the United States out to international needs. It's a great day to be an American.

FWIW I don't see any recovery until 2010 at the earliest. I really think a meaningful recovery won't happen until 2011. That being said we don't have much further down to go. This coming quarter is key to gauging how much longer we will see declines.

How has Obama sold us out to international needs though?

Stewie
04-02-2009, 04:47 PM
FWIW I don't see any recovery until 2010 at the earliest. I really think a meaningful recovery won't happen until 2011. That being said we don't have much further down to go. This coming quarter is key to gauging how much longer we will see declines.

How has Obama sold us out to international needs though?

There won't be a recovery until housing stabilizes. It's still falling like a rock, no matter what they say. The headlines crack me up.

"Existing homes sales rise!"
"Pending home sales are up!"

It's ****ing stupid. A foreclosure is a sale. A transfer of deed is what constitutes a sale, not someone buying a home and moving in.

As for Obama, what he did was agree to pay off foreign interests and the IMF for a good feeling. I'm sure Brazil et al are really happy about the free money. Ya know, it's how we work now.

KC native
04-02-2009, 05:08 PM
There won't be a recovery until housing stabilizes. It's still falling like a rock, no matter what they say. The headlines crack me up.

"Existing homes sales rise!"
"Pending home sales are up!"

It's ****ing stupid. A foreclosure is a sale. A transfer of deed is what constitutes a sale, not someone buying a home and moving in.

As for Obama, what he did was agree to pay off foreign interests and the IMF for a good feeling. I'm sure Brazil et al are really happy about the free money. Ya know, it's how we work now.

Yea, it's still falling. The year over year numbers are what matters for housing. It still has a way to fall to reach traditional affordability metrics but we are nearing that very fast.

patteeu
04-02-2009, 05:21 PM
Which is exactly what we need to get the economy moving in the right direction. For the economy to get moving in the right direction again we need people who are more likely to spend to get tax breaks to spend more. What we don't need is credit growth. If we give tax cuts to those who are not likely to consume (ie the wealthy and here's where marginal utility of the dollar comes in) then we will be no better off. BTW We've already seen an increase in the savings rate.

We've seen a small recovery of the savings rate from the infinitesimal to the anemic, but we have a long way to go if we want to get on the right track in the global economy. We aren't even back at the levels of savings that we had 20 years ago and we were low then.

If Obama's consumption subsidizing tax changes were just supposed to get the economy moving in the right direction, he would have proposed sunsetting them so that the code would revert to a form that is more favorable to long term growth and healthy savings instead of continued consumption. Instead, he wants a permanent transformation that is at odds with the statement he made at the G20. Not terribly surprising.

No one but you is talking about credit growth here.

Calcountry
04-02-2009, 05:27 PM
Yeah, he's raising income taxes on the wealthy, so the wealthy won't have a tax shelter to run to of any kind if that's what you wanted. Of course if the wealthy receive income in any form, whether that's savings or gambling winnings, it will be taxed at the same rate as the rest of their high income over their marginal lower taxed income.He is raising taxes on cigarette smokers.

Calcountry
04-02-2009, 05:27 PM
America needs a strong and vibrant working and middle class for our economic health. Tax cuts for the wealthy and outsourcing and union busting and illegal alien competition for everyone else aren't going to work anymore.And tax increases on gasoline and VAT and smokes on the poor.

Calcountry
04-02-2009, 05:29 PM
Oh yeah, halving the wealth of retired people by printing trillions of dollars and "injecting liquidity", we forgot about that tax that is coming.

Stewie
04-02-2009, 05:31 PM
Yea, it's still falling. The year over year numbers are what matters for housing. It still has a way to fall to reach traditional affordability metrics but we are nearing that very fast.

But who's going to sell their house at a huge loss? Most people aren't that charitable.

IMO housing is going to drop and stay down until inflation takes over. Then people can buy these distressed owner's homes with inflated dollars.

KC native
04-02-2009, 06:09 PM
But who's going to sell their house at a huge loss? Most people aren't that charitable.

IMO housing is going to drop and stay down until inflation takes over. Then people can buy these distressed owner's homes with inflated dollars.

Nobody they just let it go to foreclosure. It's the return of jingle mail. Why would anyone keep pumping money into a mortgage that is going to result in a loss even if they pay it off?

banyon
04-02-2009, 06:22 PM
And tax increases on gasoline and VAT and smokes on the poor.

what VAT?

banyon
04-02-2009, 06:23 PM
He is raising taxes on cigarette smokers.

I could give a s*** about that.

banyon
04-02-2009, 06:28 PM
Let's stick to the point and leave the class warfare spin at the door, please. Speaking in the terms provided for us by Obama, i.e. consumption and savings, his tax code encourages the opposite of what he says we need. It encourages more consumption and less saving while Obama correctly points out that we need the opposite. In this sense, there's a huge disconnect between his words and his actions.

Yeah, yeah, I know. When Rich people get ludicrous breaks, out source jobs, put money in offshore tax shelters, cut poor people's health coverage, that's just "the free market". Try to turn that back the other way and it's "class warfare".

Obama's and my point is that it's more helpful for the middle class to build healthy savings (which have largely disappeared over the last 20 years under non"class warfare" policies) than it is for the wealthy to hoard the same money. So, while savings is encouraged by the plan, no, it's not saving by the wealthy.

patteeu
04-02-2009, 07:35 PM
Yeah, yeah, I know. When Rich people get ludicrous breaks, out source jobs, put money in offshore tax shelters, cut poor people's health coverage, that's just "the free market". Try to turn that back the other way and it's "class warfare".

Obama's and my point is that it's more helpful for the middle class to build healthy savings (which have largely disappeared over the last 20 years under non"class warfare" policies) than it is for the wealthy to hoard the same money. So, while savings is encouraged by the plan, no, it's not saving by the wealthy.

Blah blah blah eat the rich blah blah. The balance of change brought on by Obama's tax proposal is away from encouraging saving and toward subsidizing consumption. You can't change that reality with class warfare talking points. This has nothing to do with outsourcing jobs or cutting people's health coverage. It has everything to do with increasing the overall tax rate on investment and decreasing it or making it negative on people who spend every dime that hits their hands.

mlyonsd
04-02-2009, 07:57 PM
I give Obama credit for warning other countries that we're eventually going to be a third world economy and don't look to us to buy their goods. He's probably laying the ground work for cap and trade to totally so decimate our citizens that we'll be lucky to have money to pay our electric bills.

I think I'm going to start stockpiling dead lumber.

KILLER_CLOWN
04-02-2009, 09:40 PM
I give Obama credit for warning other countries that we're eventually going to be a third world economy and don't look to us to buy their goods. He's probably laying the ground work for cap and trade to totally so decimate our citizens that we'll be lucky to have money to pay our electric bills.

I think I'm going to start stockpiling dead lumber.

You will be in direct violation of the oath of fealty, wood stockpiling creates ummmm greenhouse waxes or is that dallas taxes?