Budget Deficit

CBO: America Faces "Fundamental" Budgetary Challenges That Will Require Big Changes


Want to fix the nation's budget problems? You can't tweak your way to fiscal stability. Small changes just won't be enough.  

That's one of the core messages of the new Congressional Budget Office (CBO) report on deficit reduction, which reads like a fiscal wake-up call to the nation's newly elected and reelected federal legislators.

The report warns of "fundamental" challenges to the future budget, and repeatedly describes the nation's current mix of spending levels and tax rates as "unsustainable." The problem, in a word, is debt: Under our current policy trajectory, debt held by the public is set to his 90 percent of the economy in a decade and "continue to rise rapidly thereafter." If that should happen, "the United States would quickly head into fiscal territory unfamiliar to it and most other developed nations." In short: Congratulations to Congress and President Obama: You've just been elected to budgetary hell.

Avoiding the worst won't be easy. "Making policy changes that are large enough to shrink the debt relative to the size of the economy—or even to keep the debt from growing—will be a formidable task," the report says. And transforming the entitlement system will almost certainly need to be part of the mix.

The CBO, a non-partisan office that doesn't published policy recommendations, doesn't say exactly how to change course. But it does make clear what won't work: tiny tweaks.

Entitlements, especially Social Security and Medicare, are the biggest drivers of the debt. The CBO reports that it would be possible to leave them essentially unchanged—but "only by raising taxes substantially, relative to current policies, for a broad segment of the population." Raising taxes on high earners, in other words, wouldn't fix the problem. Raising tax revenues just a little wouldn't fix it either: To close the gap with tax hikes would requiring raising tax revenues "significantly above their historical average as a percentage of GDP."

How big a tax hike are we talking about? Big. Very big. 

Historically, tax revenues average roughly 18-19 percent of gross domestic product. And they don't usually rise much higher: Since World War II, the government has never collected more than 20.9 percent of GDP in revenue. But on a current policy trajectory, the federal government will spend about 23 percent of GDP over the next decade and about 24 percent after. That means we'd have to hike tax revenues by about 26 percent above historical averages in order to match revenues to spending, which as the CBO suggests would mean raising taxes on the middle class as well as high earners.That seems neither desirable nor politically likely. 

Those numbers also make clear that small spending reductions aren't going to do the trick either. That's especially true given that changes will have to focus on popular entitlements like Social Security and Medicare. The CBO report makes clear that those ever-growing programs are biggest drivers of the long-term debt and the most in need of serious revamping: "Without significant changes in the laws governing Social Security, Medicare, and Medicaid," the report says, "those factors will boost federal outlays as a percentage of GDP well above the average of the past several decades—a conclusion that applies under any plausible assumptions about future trends in demographics, economic conditions, and health care costs." 

So here are the two takeaways. First, minor adjustments aren't going to be sufficient. Second, either entitlements will have to be substantially changed or we'll have to have a huge and historically unprecedented hike in tax revenues.

That explains a lot about why the nation's budget problems are so hard to fix. The public doesn't support higher taxes, except on a small cohort of top earners. Yet it's wary of big changes to the entitlement system as well. 

Something has to give. And both politics and economic history point in the same direction: Entitlements have to change. Politically, raising taxes on the middle class is a no-go in the United States. Republicans are adamantly opposed to tax hikes on anyone. And Democrats, led by President Obama, have repeatedly promised to not raise taxes on the middle class. Even if Democrats get their way and raise taxes on the rich, major fiscal adjustments will still be necessary.

That leaves overhauling the entitlement system and cutting spending down to size. As Reason has noted in the past, countries that successfully reform their budgets tend to do so by focusing primarily on spending cuts.

Polling suggests that there's more support for cutting the size of government than widespread taxes increases. There's very little support for higher taxes on the middle class: just 13 percent of the public says it wants to raise taxes on everyone. But there is widespread support for reducing the size and scope of the government: This week's election exit polls report that 53 percent of voters say that the government is doing too many things better done by businesses and individuals. 

Is the public ready for what's coming next? Neither party has done a good job of preparing the country for its fiscal challenges. They'll have to start soon. Big budgetary troubles are on the way. And big changes will be necessary to avoid them. 

NEXT: U.S. Moon Base Coming Soon?

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  1. This is going to be delicious. The Dems built a coalition made up of mostly people wanting free shit. There isn’t enough money for free shit for everyone. Someone is going to have to go without. But who? The old people? Minorities? Women? Defense contractors? Government workers? The poverty industry?

    They are going to turn on each other like wolves fighting over the elk carcass that is our republic. It is a tragedy it has come to this. But every tragedy does have its comedic elements and this is one of them.

    1. Someone is going to have to go without. But who?

      John – THE EVUL RICH!!111! And Kochporashunszzz, of course.

      1. That might be the average Obama voters answer but of course as the article points out taxing the rich won’t do it and corporations would simply leave the country leaving nothing left to tax and all of us jobless.

        1. it may also force secession. For example, if you’re Texas, why not start printing your own money that can only be used within the borders? Why strap yourself to the sinking ship?

        2. That’s true. However, I suspect that people won’t believe that until they get a chance to experience it. I think that the only way to convince enough people will have to be letting taxes go up on the high end (I’d prefer eliminating deductions to rates; the only problem there is the same thing, that average Obama voters won’t believe that deductions have really been eliminated and will focus on rates.)

          1. Experience is the best teacher

    2. I think you’re wrong. There will be no changes to the current unsustainable path until it all just blows up.

      1. It is about to do just that. And you have to understand, the status quo isn’t good enough for these people. If the Dems just kept spending where it is at, these people would turn on each other because there wasn’t any increase. The Chicago teachers struck because they were only getting a 16% raise. You can’t buy these people enough free ponies.

      2. I agree. The fact that they can’t even bear to cut $10 out of any Federal program means systemic changes are impossible – everything is essential, especially FREE SHIT.

      3. I’m with Joe M on this. There was no move to fix it before, so why now? Is there some ‘new’ Obama in office who actually will be responsible?

        1. Two things, as I said above, these people can’t be satisfied. And Obama can’t spend money he doesn’t have. He can print it sure. But the more he does that, the less it is worth.

          1. it hasn’t stopped them yet. They will print and continue to do so…

          2. They will eventually try to inflate their way ‘out of the problem’. But for those of you who remember the 70’s, inflation is like having termites in your house.

            1. Most voters don’t remember the 70’s. People who could vote for Reagan are 46 now. When you talk about the ’70s, you sound like people talking about the Depression did during the ’70s.

              People are going to have to see things fail.

          3. Obama doesn’t give two shits about devaluing the dollar. Not like he would notice, being that he’s not exactly paying for room and board or groceries or his private jet. As long as food stamp recipients get continual cost of living increases to compensate, then dollar printing only affects rich people like the Koch Brothers or suckers who actually work for a living.

            1. Sure he doesn’t care. But his supporters who he is paying those dollars will sure as hell care. BigT is right. They think they can inflate their way out of it. And that is fine so far as it goes. But the survival of their coalition depends on all of the want free shit brigade believing that getting paid in dollars that are worth less is really not having your free shit cut. That is unlikely to work.

              And you can’t put in cost of living adjustments high enough to really make up for inflation. They are already doing that with SS and effectively cutting it. And don’t think people don’t know it. They do.

              1. The parasites who get the handouts aren’t savvy enough to understand that inflation is eating them until it gets really bad.

                The Dems will blame the banks, of course.

                Sometimes I think it’s Groundhog Day.

                1. The parasites who get the handouts aren’t savvy enough to understand that inflation is eating them until it gets really bad.

                  Oh yes they are. Not all the parasites are idiot welfare queens. Don’t think for a moment the old people don’t understand what it means not to have the SS cost of living raise every year. Don’t think for a moment the government workers don’t understand inflation. They understand it perfectly.

              2. They are already doing that with SS and effectively cutting it. And don’t think people don’t know it. They do.

                They are not effectively cutting SS. If anything, they’ve raised it by *not* cutting it in nominal figures when we had deflation.

                And it was the Democrats who tried to have out of cycle COLAs and the Republicans who resisted, saying that the inflation formula didn’t justify it.

          4. Oh, now John that’s just right-wing libertarian talking points. Everyone knows that, no matter how much the money supply expands, the dollar holds its value. The only reason prices go up is because those mean old businessmen want to gouge the little guy. Hell, just ask Chris Christie.

      4. I think you’re right. The trick for the current crop of idiots in DC is to either not be the one standing when the music stops or to be able to have a really nifty dance.

    3. As Margaret Thatcher famously said, eventually, you run out of other people’s money.

      1. Stay tuned, it ain’t gonna be long.

      2. My idiot Dem sister told me this just the other day – that she was willing to try it and see what happens.

        She’s gonna get her wish, I just wish her and her idiot Dem friends weren’t going to drag us down with them.

        1. Galt’s Gulch. We need one. Where can we establish it? NH, ID, AK?

        2. Experience is the school of mankind, and they will learn at no other.

          People really don’t want to believe that it can’t all be paid for by taxing the rich. They will have to see for themselves.

    4. At this point, this is all I have to look forward to, from a political/fiscal standpoint.

      Yes, I sound evil, but you gotta laugh so you don’t cry. Lessons will be learned.

      1. Lessons will be learned.

        But will they be the right lessons? I suspect they may learn we just didn’t tax enough, regulate enough, etc.

        1. Leeches. The answer is always more leeches.

    5. The problem is that they will take all of us down with them.

  2. Gary Johnson and Rand Paul are the only ones who’ve made realistic proposals to get the debt under control. One way or another, the spending has to stop, and it will stop. Even if the congress never gets the nerve to do the right thing, it will all come to a screeching halt when the dollar collapses.


    1. Yes it will. There is not enough money to keep those promises. Watching Obama and Reid squirm the next four years as that becomes apparent is going to be very entertaining.

      1. They won’t squirm, they’ll just blame the obstructionist republicans. And the MSM will promote that narrative. We are all well and truly fucked.

        1. I blame Bush

          1. Well yeah, that’s gotta be good for at least another four years, right?

            1. When W was in office, liberals/progressives/Dems loved to bemoan Reagan for the sorry state of tax policy, and Nixon for the unitary executive.

              Wilson and FDR are still blamed by many in these parts for the lingering effects of their crappy presidencies.

              Bush will continue receive blame for a generation, if not more.

          2. I blame Bush for being such an asshole that the country elected Obama and a Dem Congress.

            1. Whereas I blame the country for being such an asshole that it elected Obama and a Dem Congress.

              1. Whereas I blame the country for being such an asshole that it elected Obama and a Dem Congress again.


                1. +61209778

              2. Elected Bush… then Obama… then Obama again… Then probably Hillary, and then probably Bush again, and so on.

            2. I blame Bush for coopting the policies of the leftists to be “compassionate” WTF is compassionate about stealing from one to give to another?

        2. Which is why the Republicans will have to let taxes go up on the wealthy, making it clear that they know it won’t work, and then point out that it didn’t work because it spending wasn’t cut.

    2. Yes, I heard Paul on a radio show this AM just giving the business to some TV talking head who couldn’t grasp that WE’RE ALREADY OUT OF MONEY! THERE IS NOOOOOO MONEY! ALREADY! IT’S OVER.

      So, most people think Ron Paul is a moobat, and his followers are worse (Paultards, anyone?), which I think tells us all we need to know about the “public’s” knowledge and acceptance of the “burning platform” to change.

      Most people are in denial – or, if they’re REALLY uninformed, don’t think/know there’s any problem.

      1. Paul is right. The money is gone. And sure we can borrow and print for a few years. But even that won’t satisfy these people. They are going to start turning on each other. You watch.

        1. yeah, i know he’s right. I’m just stunned at how few other people get it, and how he’s mocked for getting it. “Look at the loonball!” “Um, he’s right?” “Lol wut?”

          I shouldn’t be stunned any more, but I am…it’s gonna be fun to watch the blowup, although not fun to be part of it…

          1. The quickest and best way to make enemies is to be right about something, especially if that something is bad news.

  3. Suderman: “Winning alt text is just how I live. It’s what I do – it’s who I am.”

    1. If you’ve got some sweet alt-text, you didn’t write that. Somebody else made that happen.

      Unfortunately I’ve only made it happen half the time.

      Suder, what happened to you, man? You used to be cool!

    2. I’d just as soon not have anymore pictures of O right after lunchtime. I’m going to have to see him for the next four years, a break of a week here at Reason shouldn’t be too much to ask for.

      Just substitute a giant pile of burning money instead.

  4. It’s not hard. I could solve it in about 10 minutes. I’ll start with eliminating the TSA and work my way down from there.

    1. Can I help? Or at least watch?

        1. u want pics?

          1. only if that Penn State cheerleader is involved. or this one:

            she’s apparently good with books

    2. I’m personally in favor of the Rockwell 30-day plan.

      1. I’ll second that.

      2. Too slow

        Why wait 22 days to abolish the EPA?

        I’m not crazy about selling the federal land part (some certainly, like military bases), but other than that, it works

        1. You want the government to sell military bases, with defense being one of the few legitimate functions of government, but you want it to hang on to the rest, which is primarily used for innumerate illegitimate functions of government? Makes good sense.

    3. Actually your choice of where to start tells me you are doomed to fail.

      You’re talking about eliminating a $4 a day starbucks fix and ignoring your $1000 a day coke habit, your $500 a day spent on Hookers, and $300 a day bar tab.

      1. My first thought too. A quick search returned the TSA’s 2009 budget: $8.1 Billion. Roughly 0.8% of the 2012 deficit, or .05% of the national debt.

        Sure it should be on the chopping block, but as an afterthought, not a centerpiece.

        1. Bottom line, if you propose a budget fix that doesn’t include cuts to Medicare, Medicaid, Social Security AND defense, it’s not worth the paper it’s printed on.

          1. While this is true, there’s a bit to be said for low hanging fruit. Aside from idiot airport screeners who get a thrill feeling up grandma, there’s not a huge constituency that really, really love the TSA.

          2. You don’t exist.

        2. It’s more symbolic than anything else. The TSA says we are subjects, not citizens.

  5. “Raising taxes on high earners, in other words, wouldn’t fix the problem.”

    Obama will raise taxes. And neither the Democrats in the Senate nor John Boehner will stop him.

    But cut spending? Just because of a dire warning from the CBO?

    I think I see the problem here. Some of us think that the there’s someone in charge in Washington that cares primarily about effects of spending on the economy. But that is completely false.

    They care primarily about maintaining power. The way even Boehner–the opposition–maintains power is by spreading taxpayer money around! …not by cutting spending.

    You understand? There isn’t anybody in charge of budgeting that cares about cutting spending. No one. Not Obama. Not Harry Reid. Not Boehner.

    They will never stop spending until the world refuses to loan us any more money at reasonable rates.

    Right now, they can get more money and only pay 1.6% annually!

    No one that matters in the decision making process cares what more spending and more debt will do to the economy. Why would they–when the 47% just voted this bunch in to keep the money taps flowing?

    1. They will never stop spending until the world refuses to loan us any more money at reasonable rates.

      Right now, they can get more money and only pay 1.6% annually!

      You do realize that this means that we’re not likely to get double-digit inflation in the short run, right? I agree that debt crises start suddenly, but we’re much more likely to lurch on like Japan (which has even more debt that we do) than get double-digit inflation.

      Japan’s stagnation is what awaits us, and the spending is contributing to it. That’s what the market’s view of interest rates is predicting. Libertarians shouldn’t make predictions that the markets are contradicting.

      I agree with you on policy, just not on likely bad outcome.

      1. more of a meh than a blowup?

      2. Yeah, I mentioned that before.

        By saying that they won’t stop spending until the world will no longer hold our debt at reasonable rates, I didn’t mean to suggest it’s all gonna go to hell shortly.

        No one knows the day or the hour. And I certainly don’t know more about what’s going to happen over the next four years than the bond market.

        If the yield on treasuries with a five year maturity didn’t spike today, then what do I know that the bond market doesn’t know?

        I just meant that they’re not going to accept the budget cuts already built into the fiscal cliff. They were there in the hope that Romney would be president. Now that he’s not, there’s no way Obama is going to abide by those cuts. And neither Reid nor Boehner really wants them either.

  6. That means we’d have to hike tax revenues by about 26 percent above historical averages in order to match revenues to spending, which as the CBO suggests would mean raising taxes on the middle class as well as high earners.That seems neither desirable nor politically likely.

    And what you’re leaving out here is that increasing federal revenues by 25% is considerably harder than “just” increasing tax rates by 25% across the board. As all of us are aware, increases in tax rates and the money being stolen from the economy by the govt has a profound effect on overall economic activity and therefore the taxable base. The tax rate that would be required to produce the revenues necessary for closing the budget gap this year (which pales in comparison to the taxes necessary to closing it in future years) is so onerous that once it was enacted the tax compliance rating in this country would begin to drop precipitously, thereby nullifying any chance of it working.

    Simply, we are doomed to total fiscal collapse with anything short of gutting entitlements.

    1. “Simply, we are doomed to total fiscal collapse with anything short of gutting entitlements.”

      Then we’re doomed because there is no way this bunch is gonna gut entitlements.

      And they don’t care if the economy goes into the toilet!

      Anyway, they’re just gonna borrow more. They’re going to raise the debt ceiling. Rates are cheap. That’s what they’ve always done in the past.

      Why wouldn’t they just raise the debt ceiling? Because it will hurt the economy?

      So what about the economy? No one that matters in the decision making process cares!

      1. Not to mention the fact that the economy is probably going to be fucked for the next decade+. So more people on the dole = less chance of reform = continued strangulation of the economy = more people on the dole.

        And more people on the dole means more votes for TEAM BLUE.

        We are well and truly fucked.

        1. Except that TEAM RED actually can win votes when there’s more people on the dole if they make the argument that growth can get people off the dole. They can even win the votes of people on the dole with that. They just have to make the case, both morally and economically, for the free market and make it well.

          Otherwise, how was Reagan even elected or reelected?

          1. “Otherwise, how was Reagan even elected or reelected?”

            Because the voters were different then.

            There are way more parasites than there used to be.

            That’s what the government getting bigger is all about.

            It’s invasion of the body snatchers. People are different now.

            1. Look at what the government was doing from 1930 (since Hoover was actually big gov) to 1979. Look at the Republican Presidents being big government wage and price control guys like Nixon. Look at how many more people were on the dole both during the Great Depression and afterwards.

            2. Because voters had recently experienced the pain of big government, and had someone running against it.

              If we get this big government, we experience the pain (whether it’s the double-digit inflation y’all worry about or Japanese-style deflation stagnation), then there will be room for another Reagan.

              Not necessarily another “better captain of the Titanic” Romney or GWB, though.

              But right now people don’t know. The youngest person who EVER voted for Reagan is 46 years old. Talk of the ’70s, and you might as well be talking of WWII or the Great Depression– you might as well be talking of WWII or the Great Depression in the ’70s or ’80s.

            3. Because the voters were different then.

              There are way more parasites than there used to be.

              L’sigh. It makes us sound like SoCons, which clearly neither of us are, but there has certainly been a cultural shift in this country that has manifested itself in the electorate in ways that are powerfully damning.

              1. If you think people are more pro-big government running the economy (but don’t call it Socialism!) than in the ’30s, ’40s, and ’50s, you’re crazy.

                Y’all sound just like SoCons. You really do.

                1. Y’all sound just like SoCons. You really do.

                  I don’t think one need be a social conservative to have legitimate criticisms of the society as whole. While I wouldn’t support outlawing reality tv, genres of music, video games, or anything else, I do believe that Western society has become over the years more entitled and self-centered. I think people are becoming more and more by the day concerned with “getting theirs” (whether that from govt, their own labor, or graft) than they are with the broader success and well being of the larger world. It’s the great irony of big govt, it alleges to be interested in helping the less fortunate but has over time decayed society in such a way as to make most people entirely selfish.

                  1. So you’re telling me that there’s no way people today can possibly appreciate the free market the way that the generation of Americans that gave LBJ and the Great Society a huge landslide over Goldwater did?

                    1. Obama did a craptacular job running the economy and exit polls gave Romney a slight lead or a tie on the question of “Who can manage the economy better”. The minorities voted for Obama anyways.

                      The changing demographic is becoming unflinchingly loyal to the democratic party. Latinos will support that party’s positions even if it could theoretically hurt them – opposing NAFTA, favoring unionization, banning products made by immigrant labor, etc.

                      Even If the country is totally and DEMONSTRABLY ruined by big government, they’ll be easily convinced by the narrative that it was corporate greed and the 1% that caused the downfall.

                      It’s tough to be optimistic about the future.

          2. Reagan was elected during the Cold War and in a society that was, as a whole, not nearly as pussified as it is today. The public schools have been pushing at least 20 years of hard core liberal brainwashing and they’ve won.

            1. The public schools pushed hard core liberal brainwashing for the twenty years before Reagan.

              I agree that there are more parasites; part of the problem is that the Republicans push for a different set of parasites than the Democrats, instead of the free market.

              When 53%+ of people say that they want less government, but they’re right not to trust the Republicans to give it to them, that’s a problem.

              The Republicans have mistaken low taxes for less government.

      2. Then we’re doomed because there is no way this bunch is gonna gut entitlements.

        This portion is what surprises me to some extent. While I fully understand that the Left’s philosophical interest is keeping everyone as thoroughly dependent on the state as possible, from a strictly craven political aspect, the elderly break for the GOP big time while the youth break for the Dems big.

        One would think that the Dems would lose little in the way the elderly and only solidify their advantage in the youth vote if they were to make significant reforms of the old age entitlements a centerpiece of their agenda. If they were to propose means-testing, they’d be able to keep their “progressive” bromides about caring for the poor, while still doing something to reward the sheep of my generation.

        1. Like Nixon to China, the Dems are the ones who could do it. The problem is that the kind of Dem who would do it and has the imagination and balls necessary to do it, no longer runs the party. I think Clinton could have done it. I think Hillary or Andrew Coumo could. But those are not the dems who are in charge. The Dem party today is the party of idiot hacks like Warren. Those people are too stupid and too full of hate ever to do the right thing.

          1. I’ve already heard talk of Liz running for Prez in 2016. She might be the only person I can think of that would be objectively worse than Obama.

            1. So you hate minorities AND women?!?!?!?!?!


              1. We love Liawatha. Honest Injun.

          2. It’s sad how right you are John. While the media fawns over Obama’s alleged intellect (which I sometimes wonder if there is some soft bigotry there, as in any black man who speaks well clearly must be a genius), I don’t think this guy has the slightest grasp on anything involving broader economics. And I should caution that by saying that I don’t think one has to believe as I do in order to demonstrate some economic intelligence. There is room for disagreement on policy and issues among smart people. But Obama does’t strike me as having what I think are the benchmarks of an intelligent mind: curiosity and self-doubt.

            1. He has an extremely limited intellect. The problem is that you have to have a liberal party that understands that you can’t have all the free shit if you destroy the economy. Democrats, even Carter and McGovern, used to understand that. Obama has no fucking clue. And that is a real problem because you can’t depend on Republicans to win every election.

        2. You’ve hit the nail on the proverbial head! The Republicans should have taken up the banner of means-testing for SS and Medicare – it would have inoculated them against being the party of the rich and made a real impact. I know that gutting the programs would be better, but realpolitik tells us that ain’t happenin.

          1. It’s just the people who are getting the handouts vs. the people who are paying for the handouts.

            It seems like you’re trying to solve the problem–and that’s just not what’s driving people’s voting right now.

            I mean, anybody that thought the state of the economy was going to dictate the outcome of this last election is completely confused right now…

            It’s real simple. The 47% don’t care about solving any problems. They care about keeping the money taps open. That’s all they care about.

            The Republicans got trounced because people thought they might cut spending. If they’d actually fought to cut spending, they might have lost control of the House.

            1. If the Republicans were smart enough to realize that low taxes are not the same thing as less government, and that you can start by being for less government in ways that aren’t low taxes (or even less spending), it would be a start.

            2. It’s real simple. The 47% don’t care about solving any problems. They care about keeping the money taps open. That’s all they care about.

              The only recourse I can see there is explaining to them how, while they may be getting the goodies now, there won’t be any goodies or any jobs a few years from now if the situation doesn’t change.

              Of course, they’re largely in the 47% because they lack a long time-horizon, so that will likely prove a futile strategy.

        3. You lose power in this game by cutting spending.

          You gain power by spending more.

          The rest is just marketing.

          1. “The government consists of a gang of men exactly like you and me. They have no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get and to promise to give it to them. In other words, government is a broker in pillage, and every election is sort of an advance auction sale of stolen goods.”

            H. L. Mencken

            1. Plus ca change, plus c’est la meme chose

    2. Was going to make this same point. The article (and the CBO) presumes that the government confiscating 2-5% more of GDP has no economic consequences. Leaving spending the same or growing it more slowly while taking an ever larger portion of a stagnant or shrinking GDP is going to constantly necessitate the taking of a larger and larger piece of GDP. “The beatings will continue until morale improves” of economic policy, as it were.

  7. There’s a simple two word solution: MASSIVE INFLATION.

    1. Well, at least we won’t need wheel barrows to carry our piles of Obama bucks to the convenience store to buy a loaf of bread, since we can pay with debit cards.

      1. Remember the calculators back in the 1970’s? You’d try to multiply a large number and you’d get EEEEEEEEEEEEEEEEEE…

    2. I lived in Brazil in the 1980s. I can see it coming here for the same stupid reasons it did there.

  8. You know else was facing fundamental budgetary challenges that required big change?

    The Lakers, who just fired Mike Brown. Kudos to Jerry and Mitch for doing this early while the season is young. Bring back Phil! Or hire Jerry Sloan.

    1. Fuck the Lakers. Enjoy Gary Payton and Karl Malone part deux.

      It’s LeBron’s league now, son.

      1. Wasn’t that John Stockton? I know they look like twins, but…

        1. Sudden is talking about the 04 Lakers who signed an aging Malone and Payton only to lose in five in the finals to the Pistons.

      2. Maybe. Hopefully it is Kevin Durrant’s league. But it is not an about to turn 39 year old point guard and 36 year old shooting guard’s league.

        1. I think Nash has got a good year or two left in him. He was still one of the best PG’s last year on my Suns.

          1. He is really good. And it could work in LA. But for it to work, they need a good backup so they can manage his minutes. Pretty hard to expect him to play 36 minutes a game at his age.

            1. Nash is good, but in a way that is completely foreign to the Lakers. Nash has always been a full court, run and gun type of PG who would get fast breaks and distribute well in transition. The Lakers for the last decade have been a half court team that doesn’t play the transition game. They further solidified that with the additional of Howard. They’re too big and lumbering to be a transition team.

              No matter how gorgeous a circular piece is, it will still never fit into a square hole.

        2. And the second Dwight Howard started wearing the hipster glasses I knew he was soft and would never be the Shaq-lite big that Lakers fans sought. Hell, Bynum will probably turn out better of the long haul.

          While I have not been able to sustain myself on the tears of sadness from Matthews, at least living in L.A. I get the tears of sadness from Lakers fans, as meager a consolation prize as that is.

          1. I will tell you what, if he can stay healthy Bynum is a monster. Bynum has a no shit straight from the 50s back to the basket game. Howard even at his best has the worst post game of any all star big man I have ever seen. He is a total liability in the half court offense.

  9. We are all saying that fiscal collapse is coming, just like Peter Schiff has been predicting for several years. It’s just a matter of time.

    My question is: How best to survive the fiscal Armageddon? Gold? Real estate? Guns n ammo? Energy stocks?

    1. There are big question out there still about how bad it’s going to be.

      We may see double digit inflation again in our lifetimes. We may see inflation only go to 4%.

      We’re not talking Armageddon yet. With the rest of the world in the state it’s in, they may be more than willing to carry out debt until we get a different bunch of leaders.

      Until then, we’re looking at the 47% calling the shots. Democracy, this time around, was a world of leeches and you arguing about what’s for lunch. So, there won’t be anything good that happens on the fiscal front for two years.

      But Armageddon is not certain. The markets may decide to hold our debt for a long time to come. We won’t know exactly where the edge of the mountain is until we start falling over it. It may not be for a while yet.

      1. The rest of the world is already not willing to buy our debt. China stopped adding to its Treasury holdings a couple of years ago. The Fed has been monetizing between half and 3/4 of our debt for the last few years.

        When a country is monetizing debt, its not looking at moderate inflation in the mid-term. Double digit inflation in our lifetimes is a certainty, and probably within a few years.

        Here’s the problem: As inflation takes hold, interest rates go up. That means that the interest on our debt goes up, eating more and more of the federal budget unless the Fed ramps up its monetization, which just feeds inflation, until you get a Weimar style currency collapse, which takes down everything.

        Its too late to avoid severe pain, and there’s no way to put it off for more than a handful of years no matter what.

        1. At the close yesterday, ten year U.S. treasuries were only paying a 1.62% yield.

          Some of that is becasue of the crazy stuff the treasury is doing, but for whatever reason?

          The government can borrow lots of money for cheap right now. The world is happy to carry out debt–for the time being.

          And that’s all that’s going to matter to Obama, Reid, Boehner. If the alternative to cutting the spending is raising taxes and borrowing money at 1.62% today?

          Then they don’t give a shit about tomorrow.

          1. No they don’t. And the problem with the whole cheap money thing is that that is true right up until the moment it isn’t. There won’t be any warning. One day the interest rates will just skyrocket.

            1. Our future is the shitty slow dying stagnant economy of Japan, not double-digit inflation.

              1. But I admit I’m biased since I’m far more familiar with Japan than with Europe, but I think that it’s clear that’s what awaits us.

                1. Yeah, that’s where we’re headed.

                  European style welfare state with little in the way of growth, opportunity, or class mobility.

                  They say the Scandinavians are some of the happiest people on earth.

                  I left home when I was 14. I started out doing farm work, loading trucks, and working in a saw mill. I made so many opportunities for myself!

                  I’d be miserable growing up in the world Obama’s building. “You didn’t build that”? “We are greater than the sum of our ambitions”? He might as well be spitting in my face.

                  My ambition is the greatest part of me.

                  1. I left home when I was 14. I started out doing farm work, loading trucks, and working in a saw mill. I made so many opportunities for myself!

                    I’d be miserable growing up in the world Obama’s building.

                    I’d like to believe that some of that 47% would like to do the same thing. If people really believe, as I do, that big government and socialism make it harder for growth, opportunity, and class mobility, harder for people who want to leave and strike out on their own, why don’t they try to sell that?

                    Why sit back and say, “Well, that 47% will never vote for us.” What a way to guarantee that they won’t, by refusing to sell opportunity, instead just selling a different set of cronies winning.

                    1. You said it, brother!

        2. So you are making the proper investments to take care of this?

          We’re going to have severe pain, but it’s not going to take the shape of double digit inflation.

          1. Some investments do really well in inflationary environments.

            Before people put their money in on something I’m doing, they usually get vetted by attorneys to qualify as “sophisticated investors”.

            I am not a licensed investment adviser, and before you ever took my advice, you should seek the advice of a licensed investment adviser. Your situation, where you are in life, and your risk tolerance, may be very different from mine…

            But I think everybody should know about the covered call. I think they should know that selling covered calls is less risky than purchasing a stock and holding it. I think they should know that buying a stock and selling a call on it the same day is a bit like buying a stock at a discount to the market price.

            Think about that. You can pay less for a stock than other people do.

            I think they should know that when you sell covered calls on stocks or funds with high yields, that they get to keep both the call premium–and the dividends until the option is exercised. I think they should know about the beneficial tax treatment of call premiums. I think they should know that a lot of stocks that are resistant to inflation also pay high yields.

            Even if you never buy a stock in your life–and maybe you shouldn’t!–you should at least know about covered calls anyway. How they work. It’s good to learn about new things. And a great way to find out about them is to seek the advice of a licensed investment advisor.

            1. Interesting. I’ve never been able to understand options trades very well, but last night went with my mother in law to investment advisor because her husband recently passed away and she now has the unenviable business of trying to see to it that the remaining wealth left behind will be enough for her to survive on going forward. The investment advisor is actually an active manager of her account who, knowing her financial goals and cash flow needs, will in theory manage her portfolio with that in mind. I asked some fairly detailed questions about his overall investment strategies, fund choices (I’m a sucker for passively managed low expense ratio funds), and the like. He talked about covered calls and when I admitted my shortcomings in options understanding, he was able to explain it to me in a way that seemed understandable and desirable in her case (mitigating downside risk being more important than exposure to larger upside profits).

              1. In a covered call, I offer to pay you more for a stock than where it’s trading today…but you have to et me pay you a premium ahead of time for the privilege! (no typos)

                And I get to keep the dividends until you exercise your option or the option expires? And I get to keep the premium? Well that’s fantastic–especially if we’re talking one that pays high dividends.

                I can make money if the stock doesn’t increase in price a single penny just on premiums and dividends! And I can sell another call on the same stock–over and over again. Every time I sell another call, my all-in price goes down.

                Imagine a poker game, where you can take 10% of the pot off the table before seeing the last cards.

                He’s right that selling COVERED calls is less risky than buying and holding a stock outright–becasue you end up paying less than the market price! If I buy a stock for $10 and sell a call for $1 the same day, I only paid $9 for the stock, when anybody else who bought and held it paid $10.

                And they treat the premiums as capital gains, and you get to keep the dividends!

                And you can sell calls on index funds or ETFs of utility indexes or REITS or oil–and that gives you diversification within an industry.

                Buying a stock at the market hoping it will go up is the essence of the greater fool theory. If you buy stocks at a discount to market, you’re no longer a fool.

        3. “As inflation takes hold, interest rates go up. That means that the interest on our debt goes up, eating more and more of the federal budget.”

          That’s exactly what I’m saying when I say that Obama, Reid, and Boehner will never stop spending until the world is no longer willing to hold our debt at reasonable rates.

          But there is no telling whether that happens this year or five years from now. What we do know is that Obama, Reid, and Boehner care more about maintaining their power than they do about hurting the economy.

          And if raising the debt ceiling and borrowing a ton of more more money hurts the economy–but keeps them powerful? Then that’s a great deal from their perspective.

          We have been through this before. We’ve had double-digit inflation in my lifetime. And Democrats and Republicans managed to stay in power despite it. A few of us remember Reagan and Volcker putting that to rest and Carter losing power, but now everyone seems to have forgotten what we all used to know.

          They’ve done this before. Inflation didn’t creep up into double digits overnight and in secret last time. We went through all of this before.

      2. I partially agree with this. The US is still the prettiest horse in the glue factory, for whatever that’s worth.

      3. That’s because most people don’t have any idea that the idiots buying our debt are…themselves. They don’t realize that any portion of their retirement funds invested in bonds is in part going to buy this debt. Most of it is held right here at home.

    2. Realistically there is no reason why it would look like “Armageddon” with a total societal collapse. History rarely works that way and with no barbarians raiding our cities it is unlikely to come anywhere near that.

      What it will be more likely to look like is the great depression on steriods only with a population which has already urbanized and a preexisting welfare state.

      In that scenario there is no real guaranteed way to protect wealth and guns and ammo probably won’t help much either. Land is good as it means at the worst case scenario you could feed yourself (assuming you had the physical ability for the life of a farmer) but the best thing you could do is to diversify your skills then sell your house (if you own one) and rent so that you are not geographically tied to one location. These 2 will make it so that you are less likely to end up one of the 30% unemployed.

      1. I think you describe it pretty well. We forget how rich we actually are. Even if GNP was cut in half, we would still be richer than most of the world and a far cry away from Armageddon. Things are going to get really shitty for a while until we figure out that our current way of doing things doesn’t work.

      2. I sold my house to stay mobile.

      3. Realistically there is no reason why it would look like “Armageddon” with a total societal collapse. History rarely works that way and with no barbarians raiding our cities it is unlikely to come anywhere near that.

        While I understand what you’re saying and I often consider the same thing as unthinkable myself, a lot of it depends on how you can imagine the events transpiring when the collapse occurs.

        I honestly believe the reckoning will bear more similarity to the collapse of the Soviet Union than anything else. The govt issued currency being reject, govt employees will head for greener pastures in private sectors, and the functions that govt has been performing will lapse for a time.

        As for barbarians, we have 2 million men, mostly in a physically able-bodied age range, that are incarcerated and conditioned to behave like animals. They have pent up angst at society at large to couple their probable sexual frustrations from being incarcerated entirely with other men, and have been conditioned into an existence so tribal that Hobbes would be aghast at any modern human thinking in such terms. If the govt were unable to pay its bills and keep people employed in a fashion that could control and segregate this population from the broader world, I think the slip into barbarism is not so far fetched.

        1. Yes but these barbarians could not do to us what the Celts, Vandals, and Goths did to Rome if for no other reason then because they wouldn’t last a day in battle against even the police forces of our larger cities, forget having the national guard called out on them.

          They would at worst become violent organized crime rings that would quickly be killed off largely fighting each other, not capturing a city, killing every able bodied man, raping every woman, and then looting every thing of value inside it’s walls.

          I also think there is another major difference between us and the Soviet Union, as dependent as many of us have become on the central government it is not universal and even the worst of our state and local officials don’t approach the level of dependency on the central authority that was in place (entirely by design I should add) in the Soviet Union.

          If the dollar became worthless as toilet paper tomorrow every state would begin issuing it’s own currency the next day and civil servants would gladly accept that in the interim.

          Sure if the collapse takes another 50 years to happen it could look like the Soviet Unions collapse, far more likely however is that it resembles the Great Depression.

    3. One thing that will be very interesting to see play out is the impact that our high tech society has on the coming depression.

      Even as recently as the 30’s the country only barely produced enough food to feed the entire populace and when you threw the dust bown on top of the great depression there were actual shortages of food meaning people went hungry and in some cases starved.

      Today, that is not the case, we can produce so much food so cheaply that even with 50% unemployment there would be no starvation. The same is true of most true necessities and even some luxuries. We are a rich enough country that we could have 50% unemployment and a 30% workforce penetration rate and still provide everyone in the country with a roof, clothes, 3 hots a day, and unlimited cable and internet with little difficulty. We might even be able to throw in Heating, Air Conditioning, and hot water as well.

      The question is how would we do it? Realistically no one is going to be allowed to starve, whether government or privately provided everyone’s gonna get fed no matter how bad the economy gets but how are we going to decide who gets what in that environment and what side effects will those choices have?

    4. People. No way to survive long-term without the help of other people, so figure out which ones you know, which you trust, and which will be useful and have complimentary skills and tools.

  10. IF (a big if) we see some attempt at budget cuts (or reductions) will we see European style riots on the streets of America?

  11. I posted this in the Chuck Schumer thread, but it may be more appropriate here:


  12. First of all, I have it on excellent authority that SS, Medicare, etc., are all doing just fine.

    And second, have y’all seen Athens lately? We have a loooong way to go before anyone decides they need to actually do something about this shit.

    1. Oh, don’t even.

    2. Greece has a slightly different problem from us. OTOH, Argentina’s problems are **exactly** like ours, with our problems exacerbated by the dollar being the reserve currency. I.e., what happens when people decide that they’d rather hold renmibis?

      1. I still argue that Japan’s problems are more like ours.

  13. This week’s election exit polls report that 53 percent of voters say that the government is doing too many things better done by businesses and individuals.

    Yet a good portion of those 53% probably voted to re-elect the biggest big government fluffer of all time. Does not compute.

    1. Is it as silly as the even larger portion of those 53% that voted to reelect the previous biggest big government fluffer of all time, George W. Bush?

  14. I think Obama is hoping to kick the can down the road for four year, blaming it all on Bush. Then, if a Republican president wins in 2016, it will be deemed all their fault.

    1. I wish he were that smart. At least then he would understand there is a problem. He is way farther gone than that. He honestly believes his policies are working. He fully expects the economy to turn around. I am not kidding. There was an article in WAPO this summer talking about how he just knew the economy was going to turn around in a big way in 2013 and he didn’t want Romney winning and getting credit for his work.

      Sleep on that tonight.

    2. never forget, these idiots still think that FDR got them out the depression…stupidity has no expiration date, imagine how long public schools are gunna be preaching obama?

  15. As Bowles & Simpson discovered, the problem is that everyone wants the other guys entitlement to be cut and they are not willing to support cuts to their own. Thus, regardless of that 53% poll number, there is a lack of political will to do what is necessary to avoid the cliff/crisis.

    There will be blood.

    1. Well, when Bowles & Simpson was released I said I thought it was the best opportunity to actually cut spending. But of course even most people over here complained because it raises revenue (even while dropping rates, because of eliminating deductions).

      I care more about cutting spending and regulation. Spending now means taxes later if its not taxes now.

  16. Fiscal Cliff? Budgetary Challenges? Entitlements like SS and Medicare unsustainable? Not a problem once Obamacare is in full force and doing what it’s supposed to.

    1. This is sarcasm right?

      1. Not at all, once they can kill off granny by neglecting her (ala “Death Panels”) it all amazingly becomes sustainable. Word of caution… When you reach 70, Dont EVER get sick or injured….. Not much ROI at that point.

  17. Open Letter to the World,
    Stop buying our bonds, you only encourage us. And when we fall, unlike Greece et al there is no bigger entity to bail us out.

    1. The problem is if they stop buying our bonds what do they do with the dollars they would have building up from our trade imbalance? Why they’d have to open up their markets to buy US manufactured goods/services right back from us which their local protected industries wouldn’t like very much.

      remember, their politicians care more about staying in office than helping their countries too.

      1. one answer guys…bitcoin

        1. Those things are always getting ripped off!

        2. One answer…WW3.

    2. I’ve thought about this too, but if you could make money on the margins selling to the Fed the way primary dealers do here, and then all that liquidity ends up in the market and gives you opportunities to move the market as a large player, you’re just getting rich…everyone else who’s not on Feddie’s teet is getting dead.

  18. Hey guys,

    I’ve posted here before, rarely. Anyway I’ve been reading the comments and I tend to agree with the “tipping point” argument more than anything. Bit of a libertarian day dream of mine…I am in Quebec and I would LOVE it if the separatist party were more libertarian (hardcore statist unfortunately). The only shot, and it’s a long shot, would be for the libertarians in quebec to infiltrate the separatist party and break off from Canada. Anyway…not gunna happen,but I just thought I would share my “cool story bro”.

    I am very pessimistic in other words.

  19. Likely we just continue printing money and devaluing the currency. Easiest way to tax the middle class, and as a bonus, the rich have accountants to keep inflation from devaluing their assets.

    The middle class will continue to be invisibly robbed.

    1. Yes. Have you watched it happen to you and to your future already? I have. So, we’ve still got the 13th amendment; they can’t make you work.

      These idiots left a lot of american youth with nothing to lose. Sorry, boss, I know how to calculate a marginal tax rate with my income based repayment student loans, and guess what, I won’t work when there’s nothing in it for me.

      I quit! Haha! Fund your government now a-holes, we’re already used to being poor!

  20. Yeah, go ahead, raise tax rates, you’ll never get more money from me. Liberals are wrong, the cliff effect from having a 100% marginal tax rate starts a lot sooner than a 100% marginal rate. All you’ll do is drive down the ‘standard of living’, but I don’t give a shit, I’d be happy to go back to a time when I wasn’t expected to have a cell phone, let alone answer it. And workers weren’t expected to come with self-financed laptops, buy the right brands, etc. I can be poor, especially out of contempt.

    1. Even if go farm, the gov will tax the food you eat! They did back in the 1940’s with wheat IIRC. Commerce clause 1984ish.

  21. Static Man strikes! What complete b.s. The US is done in 2014 as global investors get ahead of the curve and start to unload US bonds. Interest go sky high, Congress bombs Iran as scape goat maneuver, and China and Russia invade Poland to start WW3.

  22. Cutting medicare and the like is now a pipe dream. There was a faint hope when the tea party and similar advocates were energized a couple years back, but that’s all gone now.

    I don’t think we’ll be a truly true European sort of a state, because the very “47%” who wants it will balk at 7,8 bucks a gallon of gas, general high cost of living, the government making you pay a certain amount for nationalized healthcare no matter how little money you make, and other inconveniences necessary to drive a true welfare state. American doctors and nurses will reject the government setting their working hours and wages to keep cost down, which is a reality in places like Japan.

    The good guys have to figure out quick why 2,3 million white voters stayed home instead of voting for either Romney or Gary Johnson. If and when this changing demographic does ruin America, they’ll probably flee to their country than warm up to the idea of limited government.

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