Thursday, August 12, 2010

My View

Random thoughts from a warped and fevered mind...

In July, the International Monetary Fund released its annual review of U.S. economic policy, which can be found here. In the review, the IMF stated that "...a larger than budgeted adjustment would be required to stabilize the debt to GDP." In this rather benign statement is an ominous warning to to all tax paying Americans, and that warning is that your taxes are going up. The IMF gets more specific later in the report by saying "closing the fiscal gap requires a PERMANENT annual fiscal adjustment to GDP of 14%." That statement doesn't mean, dear reader, that taxes have to go up by 14% to close our budget deficit (what the IMF calls a "fiscal gap"). No, it means that our income taxes, business taxes, and FICA taxes all have to double. How do I conclude this? Currently, all taxes collected by the federal government total 14.9% of our current GDP. The IMF report states to cover existing and future social program liabilities (promises of Social Security, Medicare, and Medicaid, prescription drugs, socialized medicine, etc) as well as pay for past government spending, another 14% of GDP must be taken in taxes. This means money out of your pocket and the pockets of businesses to pay for our profligate spending that has occurred throughout the years. and is getting worse every year. And it will get worse every year until government at all levels begins to show fiscal restrain and the willingness to live within a realistic budget.

They say that we only use about 10% of the capacity of of our brain. Can you imagine what it would mean if we used the other 60%?

At the end of 2009, the U.S. GDP (the value of all the goods and services produced) was $14.25 trillion dollars, according to the IMF. Currently, the government "consumes 14% of our GDP, or nearly $2 trillion dollars in taxes and other revenue collections. To stabilize our financial situation, that figure must double. The majority of those revenue collections come in the form of taxes and levies on income from all sources (earned, investment, capital gains, etc.), the largest of which is individual and business income taxes. As previously mentioned, the IMF has said for the United States to pay their debts and future obligations, tax collections must double to 28% of GDP. Permanently. I seriously doubt that the folks in Washington will rely strictly on tax increases to cover this massive shortfall. Make no mistake, tax increases- huge tax increases- are on the way, but there will be other maneuvers by the government to work their way out of this dilemma. Look for  promised benefits to be cut. Expect a means test to be implemented for Social Security to go along with a rising eligibility age (which is already occurring). The means test will reduce your Social Security payment if you have been thrifty and saved for retirement and have investment income. Also look for the government to begin to print even more money to cover its debts. This will cheapen the dollar even further and lower the standard of living for all of us. Each day that Washington fiddles with substantive solutions to this dire situation, the worse it will be for us and especially for our children.

I signed up for an exercise class and they told me that I should wear loose fitting clothing. If I had any loose fitting clothing, I wouldn't be in an exercise class!

Earlier this week, the U.S. stock market took a dive on weak employment numbers which indicated that our economy is not making significant strides towards recovery. The number that is often bandied about is that unemployment is around 9.5%  of the potential workforce, or about 14.5 million people. In reality, that number is much worse. The 9.5% that is reported is a measurement by the Bureau of Labor Statistics (BLS)called the U-2 measurement. This counts people that have lost their job and are drawing unemployment benefits. The interesting aspect of government accounting is that there are numerous ways to measure the same data and produce the results that, while technically true, paint a different picture. For instance, did you know that once the unemployment benefits run out for an individual the U-2 measurement used by the BLS does not count that person as unemployed any longer. No job, still unemployed, but not counted. Why? Only the lunatic ravings of a government accountant can explain that. I can't. The BLS does count these individuals that have exhausted their benefits in a measurement that is dubbed U-6. BLS states that as of June 2010, unemployment was 16.5% using the U-6 measurement. Many economists believe that U-6 even understates the severity of the problem as it does not count the long term unemployed- those who have lost jobs and have found no comparable replacement and have been unemployed over one year. Using their estimates, unemployment rises to 22%. The highest level of unemployment experienced in this country was at the depth of the great depression at 25%. This is why I believe that it is going to take much longer than expected for our economy to recover.

A company merger between Xerox and Wurlitzer was announced today. The new company will make reproductive organs.

And that, my friends, is my view.

1 comment:

  1. the brain usage comment is a classic. are you sure you don't work in government accounting??