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On the Debt Ceiling

Uncle thinks it’s going to get raised. I agree. I have one more prediction for the next several years as well: we’re going to raise taxes. The fundamental problem is that the baby boomer generation didn’t have enough kids and didn’t save enough of their income for retirement, yet they expect the same cushy retirement their parents had (who did often save, and had plenty of kids). Given that the politics of this country has typically tracked the boomer generation, there’s no way we’re getting over this hump without more taxes to cover social security and medicare obligations. This problem is only going to get worse as more boomers retire and end up on the dole.

The only way this is not going to happen is if we have substantial entitlement reform now, which isn’t likely, and whichever party tries that will likely get eviscerated at the polls. Unless Gen Xers and Gen Yers can basically become a unified political movement, and essentially gang up on the boomers and say no to taxes and yes to entitlement reform, we will have more taxes to finance baby boomer retirements.

I don’t believe financial sense will come to the government until both sides come to an understanding that the current path is unsustainable, and the Democrats agree they’ve run out of other people’s money, and stop with the stimulus, bailouts, high speed rail, green jobs, and all the other bullshit they like to waste money on. Republicans need to focus on balanced budgets, and sometimes that’s going to mean you need to get voters to face the true costs of the programs they are demanding from government.

We not only need to reduce the deficit, I think we need to pay down debt. The current world financial system is precarious. Europe is on the verge of plunging off a cliff. I think China is a giant bubble waiting to burst. The Islamic world is brewing, and God knows what is going to come out of there, and God help us if it has nuclear weapons, and the means to deliver, on top of that. Historically, all this would mean there’s a large, bloody war coming. What money will we use to finance that if we’ve maxed out the credit card?

I’ve joked with my father that we’ll have to draft baby boomers to fight the next war, so we fix the social security and medicare liability problem at the same time. That generation has already fought a war, but this one we’ll let them win. They can drive the tanks, man the ships, and ferry supplies. We’ll let the kids who are good with video games control the UAVs, the high-powered space lasers, and giant killer robots.

16 Responses to “On the Debt Ceiling”

  1. aeronathan says:

    The house of cards is rapidly approaching collapse.

    You can’t finance everything the population at large wants gov’t to do on the backs of the rich, and the middle class won’t stand for their taxes to be raised to cover it.

    Unstoppable force meets immovable object….

  2. David says:

    The only foreseeable way out the entitlement mess is to ether give people the option to opt out of social security and reduce the benefits to match what is coming in – this will kill the program due the exodus of the working. Totally do away with social security – not too likely. Or, to confiscate 401k and private retirement plans and roll them into social security – like was done in Hungary, Bulgaria, and Poland. Either option is likely to produce Greek like chaos in the streets.

  3. Sebastian says:

    I can tell you this, if they took my 401K… well, let’s just say they won’t take it… because if the political winds start to blow that way I’m withdrawing everything and stuffing the cash in my mattress. I’ll take the tax penalty.

  4. kenno271 says:

    Raising taxes would bring the economic house down a lot faster than debt. In the medium to long term, it won’t even be necessary. Technology will continue to raise incomes. People would realize this if it weren’t for the fact that one ideology believes in environmental whacko neo-Luddism, and the other is at least influenced by millennial fundamentalism. The future is not this gloomy black hell, regardless of what people tell you to think.

  5. David says:

    But Sebastian, when hyper inflation hits that mattress money will be worthless. I’m glad we have a mix of dollars, pounds, and rands in the safe. The pounds and rands have more than made up for the falling dollar. Also, all those silver half dollars I have been collecting are at about the point where I should cash them out and buy some Canadian loonies. Don’t worry, they’ll tax the shit out of your 401k and take 90% of your investment if you don’t roll it into their ponzi scheme.

  6. UncleFred says:

    I’m within a decade of retirement; I agree that Medicare and Social Security require reform. Now lets discuss who is to blame.

    Social Security is bankrupt; Or more accurately, the government is not going to be able to redeem the notes that are held in the “trust fund.” It’s not the boomers. It’s not the WWII generation. It’s not the X’rs or the Y’rs. It’s the fraudulent management and plundering of trust fund by the politicians and the failure to actually invest the surpluses in a fashion that produces a reasonable return.

    When I hear that the problem is that people get more in benefits than they contributed, I get a bit testy. Lets say that someone is retiring today at age 65. Further we’ll only look at his contributions over 40 years. Say that he earned 20K in 1971 and ended up earning 50K in 2011. Take his contribution for each year, and his employer’s matching payroll tax. Invest it conservatively each year in conventional T-bills. Roll interest back in each year and let it compound tax free. This is not a “high earning” individual. If his contribution to social security had been properly managed he’d have around $480,000. Now lets say that he buys an annuity with his $480,000. He can expect to get about $30,000 a year for 25 years. If he had made the maximum taxable amount all of those years, with his salary topping out at $108,000 (a tad more than 50,000) would receive $28,392.00 a year. Now multiply this plunder by the total surplus each year. Instead of trillions of dollars of obligations backed by nothing but the taxing power of the government, there would be three or four times as many trillions in real assets.

    Yes we have to “reform” social security because they are unsustainable, but these monies were extracted from people at the point of a gun. They have been defrauded. Whatever we do about social security must recognize that by and large these people are victims. It would be nice to prosecute the members of congress that committed this fraud, put them in prison, and seize their assets, but I have no expectation that will ever be possible. Whatever we do about social security we have to get the money away from the government.

    On to medicare… This reform is simpler, because there is no moral issue related to fraud. We convert this program to a premium support program. The changes proposed in the Ryan plan is a good place to start.

  7. Carl from Chicago says:

    Of course the debt ceiling is going to be raised. Americans … citizens and governments alike … now have come to see debt as an entitlement. We aren’t going to quit living beyond our means until we are denied credit. And it’s not yet being denied.

  8. This is beginning to look REAL BAD.

  9. ecurbCO says:

    Econ guy chiming in, for what it’s worth.
    You’re right on, but the short term debt limit debate shouldn’t be confused with the long term issue, which as you say is 90% entitlements.
    I’ve been going over the numbers, and short of telling the army “you guys don’t need fuel anymore, right?”, we’re gonna need more borrowing for awhile.

    And any long-term solution is still going to involve increasing tax revenue, just to pay off what we’ve already squandered.
    We put the “public debt shall not be questioned” line in there for a reason. We don’t want to be like France, do we?

  10. Alpheus says:

    “And any long-term solution is still going to involve increasing tax revenue, just to pay off what we’ve already squandered.”

    How much tax increasing will the market bear, though? We can’t fix this on the back of the rich, because there’s not that many rich, and if we push this too hard, people just won’t become rich.

    While I don’t necessarily have the ability to become a rich person myself, seeing how much the government takes from the rich, my plan is currently this: make a lot of money; pay off my debts; get a house; become a “subsistence” employee, making just enough to pay my bills, eat, and save a bit for the future.

    Certainly, one reason why I might lack “ability” to become rich, is simply because I look at our government, and lose a desire to become rich–otherwise, I’d be funding the Leviathan!

  11. Sebastian says:

    I think it’ll end up being taxes on middle-income people. That’s where the most gain is going to come from. Unfortunately, that’s likely to be political suicide for whatever party does it.

  12. Sebastian says:

    Raising taxes would bring the economic house down a lot faster than debt.

    It would probably slow the economy in the short term. Probably even make this a double dipper (or triple dipper, if we’re heading into another recession). But over the long term, the consequences of maxing out the credit card are far greater than a tax hike would be. A government that can’t borrow is incapable of responding to crisis, like a big, expensive war. A country as large as ours that’s incapable of standing up for its interests is probably doomed as a world leader.

  13. ecurbCO says:

    Yeah,long term, raising even more revenue from the 1% of the population with the most volatile incomes is not a sensible option. Your tax receipts would shrink massively in a recession, causing even more debt. Of course, they could

    One partial solution is cutting a number of tax breaks. They cost a lot to administer, are often gimmies to politically connected groups or industries, and some distort investment in dangerous ways (like giving people tax breaks for buying homes they can’t afford…)
    Would you be willing to pay 5% more if all your taxes were as simple as the 1040EZ? I know I would!

  14. Wes says:

    I don’t know how much taxes, er, “revenue,” it would create, but at some point the 47% of people who pay ZERO income taxes should start paying at least 1% so they know what it feels like to pay income taxes. I bet we’d then have a whole lot of new people wondering how they can stop the government from wasting so much money.

    The proposed spending cuts are a joke, as usual, and not just because they’re always set to start years in the future, which never happens. Every time there’s “spending cuts,” government gets bigger anyway since it was only cuts in the rate of growth. Government math dooming us all.

  15. ecurbCO says:

    *they could be motivated to help pay down the deficit, just to keep the country stable. It’s cheaper than hiring armed guards to keep the mobs of angry plebs from trashing all their stuff.
    Of course, they’d want more of a direct say in government in return…

    (accidentally deleted part of the previous post)

  16. Lucky Forward says:

    Income is flat, good jobs are scarce, more gadgets than ever (smartphones, etc.) are required to be socially appropriate or environmentally ‘up to code.’ Many of us wish to have kids, etc. Education costs continue to skyrocket; many public schools are increasingly uninhabitable. People are maxed out on credit.

    More Taxes = The Proverbial Straw That Broke the Camel’s Back

    I never used to heed ‘conspiracy theories,’ but Cloward-Piven is one of the few notions that can explain why anyone (i.e. Socialist Democrat) would ever dare to raise taxes on today’s society.

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