Time to stop scoffing at those who worry about the budget deficit

How bad is the U.S. budget deficit? It's so bad that I've lost sleep over it during the past year, even though the extent of the deficit rarely makes any local news. Here's how Brett Arends of the Wall Street Journal summarizes the situation:

The federal government is expected to borrow $1.6 trillion this year, or about $15,000 for every household in the country. Over the next 10 years it's expected to borrow a total of $8.5 trillion. And the government was already deeply in debt to begin with. . . Remarkably, the Treasury market has not yet panicked about the deficits: Yields have barely risen this week. Embedded in the market is a long-term inflation forecast of about 2.5 percent. I call that a dangerous complacency.
After giving the bad news, Arends gives some advice on how to protect your savings, though he doesn't sound optimistic.

Continue ReadingTime to stop scoffing at those who worry about the budget deficit

Cost of our new high-speed trains is dwarfed by the tax dollars we waste in our Afghanistan and Iraq “wars.”

President Obama has recently announced that he will allocate $8 billion ($4 billion each year, over two years) to develop a new system of high-speed passenger rail service. This is an excellent idea. The new rail lines will be created within 10 geographical corridors ranging from 100 to 600 miles long. Note, however, that the high-speed rail line system will be an extremely expensive project, and that the $8 billion bill will need to be paid by 138 million tax-paying Americans. Dividing the $8 billion cost by the number of taxpayers, we can see that, on average, each taxpayer will pay almost $60 ($30 per year, for two years) to support this massive new high-speed rail service. Again, this high-speed rail project will cost an immense amount of money. Consider, though, how small this pile of rail money looks when compared to the amount of money we are wasting in the "wars" in Iraq and Afghanistan. For 2009, the United States spent approximately $87 billion for Iraq and $47 billion for Afghanistan. The fiscal 2010 budget requests $65 billion for Afghanistan operations and $61 billion for Iraq. the cost of these two "wars" together is $126 billion for 2010. Compare these expenditures on a bar chart: Graph by Erich Vieth

Continue ReadingCost of our new high-speed trains is dwarfed by the tax dollars we waste in our Afghanistan and Iraq “wars.”

Pics or it didn’t happen!

Image by Rohan Kar, courtesy of Wikimedia Commons I was mulling around the Lincoln Park Zoo today with a friend when a man stepped on me. He was filming a Siberian tiger with a high-end digital video camera, which he held on an expensive mounting. He was fidgeting with all of the camera's features, backing up to get the perfect shot, and he stepped all over my feet. The foot-stomping didn't bother me so much as the man's intent focus on something other than his present surroundings. A beautiful creature stood before him, but his attention was directed at the camera and the filming of the tiger more than it was the tiger itself. Not much later, something similar occurred in the Tropical Birds House. As I was watching the bleeding-heart pigeons, a man, family in tow, came around the corner with a massive video camera. He also had it placed on an expensive mount. Obliviously, he nudged forward until his lens nearly leaned on the display's glass. He fiddled and fidgeted. He zoomed on the critters for a moment, and left. "Do you think he'll ever watch that footage?" my friend asked. "No," I guessed. Without much thought I noted, "It isn't about the footage. He probably just bought that camera, and is filming because he wants to play with it." "So the actual footage is useless," he observed in return. I intuited that the man's camera was a new purchase because I've done the exact same thing with a fresh 'toy'.

Continue ReadingPics or it didn’t happen!

Simon Johnson finds tax-the-banks solution laughable

Barack Obama recently announced that the way to prevent future economic collapses is to put a new tax the big banks. For me, this was just one more in a long line of dreadful responses out of the White House. Who does he think is going to ultimately pay that tax? Further, how could a tax possibly keep big Wall Street banks from taking reckless gambles, and how is it that having a pool of tax money would mean that Washington DC wouldn't again jump in to "save the banks" with huge doses of tax dollars during the next cataclysmic crash? As long as there are banks that are "too big to fail," the federal government will jump in a most co-dependent of ways. I just read an FT.com article by economist Simon Johnson, who reassured me that my instincts were on target.

This week, the US Treasury pulled its latest rabbit out of the hat: a tax on the liabilities of large banks. The Obama administration argues that, by penalising large institutions with such taxes, we can limit their future risk-taking. This logic is deeply flawed. Why would higher funding costs mean you gamble less? If you know Tim Geithner is waiting to bail you out, you may gamble more heavily in order to pay the tax. The UK “reforms” look equally unpromising.
Johnson also spells out what IS needed:
First, we must sharply raise capital requirements at leveraged institutions, so shareholders rather than regulators play the leading role in making sure their money is used sensibly. This means tripling capital requirements so banks hold at least 20-25 per cent of assets in core capital. Second, we need to end the political need to bail out every institution that fails. This can be helped by putting strict limits on the size of institutions, and forcing our largest banks, including the likes of Goldman Sachs and Barclays, to become much smaller.
For reasons I truly don't understand, Obama is refusing to stand up and use his magnificent eloquence to make a case for meaningful financial reform. This has been a slow-motion train wreck for the past year, and he's about to allow the chance to create a CFPA slip away. He needs to join Elizabeth Warren in an almost constant assault on these highly monied amoral corporations (and their enablers in Congress) that it's time for real reform. As Warren (who IS out there fighting a good fight) says, "The problem is that a strong CFPA directly threatens the banks' ability to sell confusing, deceptive, fee-heavy financial products that generate huge profits, Warren said."

Continue ReadingSimon Johnson finds tax-the-banks solution laughable