Obama’s tax cut may not work out well for U.S GDP and debt

The U.S. has gone way to far to “create jobs” without running up the debt so high that no matter how many jobs they create, we can no longer grow real GDP.

Government “takes” from the economy. It has grown so large that even when we have full employment, we no longer can grow GDP faster than debt. That means there is only one way to stay ahead of debt and that is with devalued dollars but, that kills the buying power of workers. That is why inflation is called the hidden tax (not price inflation though that comes from monetary inflation at some point). The dollar is now devalued 95% from the 1913 value and the American worker can no longer pay all the taxes government needs AND have good standard of living. So, the government tries to give low and middle class workers more tax breaks but, that means we dig our debt hole deeper.

Add more tax on business and the wealthy and it gets passed on in prices even much of the tax on “wealthy” ends up being paid by consumers. The turning point was in 1968 when we started borrowing $1 for each $1 in GDP growth.

Read Denninger’s article on what the, spending our way out of recessions, has led to.

http://market-ticker.denninger.net/archives/730-Heh-CONgress-Wake-Up!.html

We are now at such a critical mass that he says we will have to have a “30% necessary correction in GDP,” depression, just to get back to where we should be had we not used debt to create a too-much-debt problem.

I think we need to look at the trends of depressions, not recessions to get a feel of what the market will do. Remember how much the market gained back after the 29 crash only to have 2 years of declines after that.

Financial crisis like this (global) can take as many as five years to unwind. That doesn’t mean the market goes down though. If the dollar is devaluing it can go up.

In the 30’s FDR devalued the dollar 40% to try and end the depression sooner. I think Obama’s advisers will recommend that too. It won’t work but, they will try because they have only one other choice and that is to let nature take its course.

Also, Obama is trying to do all the things Hoover did and that FDR continued with (works projects like Hoover Dam), and they tried tax manipulation but, I think that unlike Hoover and FDR they won’t raise taxes much on any but a few and that won’t work either. The other big difference is debt. Hoover and FDR didn’t have the debt problem we have now where we depend on foreign lenders for virtually 100% of public debt that now even exceeds intra-government borrowing.

That debt too, like from the FDIC and other trust funds is a problem because we pay interest on that debt and then borrow the interest we paid and then pay interest on the interest. However, that debt can be eliminated with just one piece of legislation they say, so they don’t count that as part of the deficit. Yet, if they tried to end that debt, you would see a revolt in this nation from all the people who paid into those trust funds for their future needs.

It doesn’t matter who is President or what he does if he doesn’t reform the principles and policies that for 95 years have been dragging us down. The best he could do is delay it one more time and make things worse just like every Congress has that has minimized recession to keep them from being “painful.”

Related Posts:

• Trying to bail out housing is a nightmare.
• The cause of the depression in the 30’s vs. 2008-2009
• American Is transforming from debt spending to saving and paying down debt.
• U.S: Borrowing $1 doesn’t add to $1 of GDP growth
• The real 3Q GDP growth is ONLY 0.75% (without Cash For Clunkers)

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