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Thread: Peter Schiff - Paying down personal debts = being in even more debt !

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    Banned Melonie's Avatar
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    Default Peter Schiff - Paying down personal debts = being in even more debt !

    spoken like a true 'ex-pat' ~

    (snip)"This brings up an oft-repeated, but oft-forgotten, point: government does not have any money of its own. It only has what it takes from the rest of us. If individuals repay their debts, but their government takes on additional debt, we are all simply swimming against the tide. All forward progress is lost as private debt is replaced by public debt, which must be repaid by private individuals. Whatever gains individuals hope to achieve are negated by the higher taxes or increased inflation necessary to repay their share of a larger national debt.

    Obama claims that much of the additional debt is not going to finance consumption, but rather “critical investment.” This is a vain hope. In the first place, much of what he categorizes as investment, such as additional spending on education, is not investment at all. Yes, an educated workforce is important, but throwing more government money at education will do nothing to achieve this goal. Spending money on education and calling it an investment squanders resources that otherwise would have financed real investments. In the second place, to the extent some government money is invested, those investments will likely be less efficient than those the private sector might otherwise have financed. There is absolutely no evidence that governments have the foresight or incentives to make investments that facilitate real economic growth. “Five year plans” didn’t work in the Soviet Union and they won’t work here. If the government simply builds bridges to nowhere, society gains nothing.

    If we are going to rebuild our economy on a solid foundation, the market, not the government, needs to draw the plans. When private citizens invest their own capital, those who invest wisely are rewarded with profits, while those who do not are punished with losses. Bad investments are therefore abandoned, with capital reallocated to more successful ventures. Conversely, when governments invest money, these checks and balances do not exist. There is nothing to correct bad investments, as losses are endlessly subsidized by taxpayers. In fact, the more a government plan fails, the more it tends to be funded in the hope that additional resources will finally achieve success. Obama himself proves this by allocating still more funds to government-run schools and student loan subsidies. Other examples, such as Amtrak, the New York MTA, the U.S. Postal Service, Fannie/Freddie, and countless others, prove this process is never-ending – until perhaps the bureaucracy collapses under its own weight.

    When it comes to government making tough choices, Obama talks a good game, but refuses to actually make any. However, once the dollar finally begins its collapse, he will have no choice but to match his rhetoric with action. It’s unfortunate that we cannot make these tough choices on our own terms, rather than waiting for our creditors to force our hand."(snip)

    from

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    Default Re: Peter Schiff - Paying down personal debts = being in even more debt !

    Either you believe government has an important role to play in the lives of citizens or you don't. If you don't, every nickel spent is just money pissed up against a wall and wasted. If you do, then you consider the benefits that you or your family get from that government spending.

    You don't have to think of taxes paid and spent as debt, you could think of it as a service charge. It's a high charge in the States because you are living in the high rent district of the world...like, Park Place or Boardwalk. You get a lot for what you pay though, for instance, you get to live in one of the top ten countries in the world by most reasonable measures.

    Here's a related story (with a positive spin rather than negative) about the effect of taxes and government spending in Canada:
    http://www.cbc.ca/money/story/2009/04/14/tax-study.html

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    Default Re: Peter Schiff - Paying down personal debts = being in even more debt !

    ^^^ two separate points really. The arguments over the virtues of high government spending can only be made when that spending is actually paid for by tax money, with resulting ramifications. This is the case in Canada, but it is clearly NOT the case in America. In America all new gov't spending is being paid for by a combination of ever greater debts being taken out in the name of future taxpayers, and ever greater numbers of US dollars being printed up out of nowhere ( which devalues every US dollar denominated savings / investment).


    an oldie but goodie about Ridardian versus non- Ricardian gov't tax and spend politics



    (snip)"Economists who study fiscal-policy history divide the world’s governments into two categories. There are the so-called Ricardian governments, which wisely plan their taxes and spending so that they balance over time. Then there are the Nonricardian governments, which spend and borrow until they collapse.

    Ricardian governments borrow in bad times and lend in good. Nonricardian governments look like a Madoff investment pool and borrow themselves into oblivion.

    The category names refer to the 19th-century economist David Ricardo, who pioneered the study of government finance. His ideas have such resonance that they continue to animate one of the hottest corners of economics.

    The bottom line from the latest work is simple: economies of Nonricardian governments can malfunction in bizarre ways. If capital markets lose faith in a government’s long-run commitment to fiscal discipline, it’s the economic equivalent of a meteor strike.

    As bad as things have gotten, the good news has been that the world’s investors have been lining up to purchase U.S. Treasuries. The problem for American taxpayers is that the world’s investors have been doing so because they believe the U.S. government is a Ricardian one. That means markets expect U.S. taxpayers to pick up the bill for this mess. Anything else would, of course, be unthinkable.

    But oh, what a bill it will be.

    Dream On

    When the stimulus package, the SCHIP expansion and whatever else our representatives in Washington dream up are on the books, it seems likely that the deficit for this year will approach $1.7 trillion. This is an enormous swing in the U.S. fiscal condition.

    Under President George W. Bush -- a big spender in his own right -- the federal budget deficit reached a record $455 billion in fiscal 2008, more than double a year earlier. Government bailouts of banks and other industries that started under Bush, and may accelerate under President Barack Obama, will help push the deficit toward that $1.7 trillion mark.

    That is $1.7 trillion in future taxes. Nobody knows exactly when the tax hike will come. It might even be that we shall try to foist the costs on our children. Still, those planning their financial futures should account for the dramatically higher taxes that will be the result of this year’s policies.

    Check the Numbers

    Suppose the government eventually decides to allocate the bill according to the latest distribution of taxes. In 2006, for example, people with incomes between $50,000 and $75,000 paid about 10 percent of all income-tax revenue. As a thought experiment, how much would those people’s taxes go up if Uncle Sam raises 10 percent of $1.7 trillion from them?

    If you run the numbers for that and other income brackets, you’d better sit down. Our spending policies are not digging a hole, they are conjuring up a Stygian abyss.

    If your family income in 2006 was between $75,000 and $100,000, the extra taxes that you will have to pay at some point in the future add up to about $14,000.

    If your income was between $100,000 and $200,000, your future tax hike will be about $28,000. If your income was between $200,000 and $500,000, then your future tax bill just went up by $90,299.

    Everybody Pays

    While our tax system is heavily tilted against the rich, even those with relatively low incomes will eventually have to pay. The extra tax bill for someone with 2006 income between $25,000 and $30,000 will be about $2,500.

    These numbers are in present value. If government puts off sending you the bill -- and thus must pay interest between now and then -- the bill will be higher. How much higher? If the government waits 10 years to collect the $14,000 from the person with income between $75,000 and $100,000, the bill a decade from now will be about $22,800."(snip)

    of course this article, and the projected levels of Obama spending it referred to, are out of date ... the projected Obama deficit spending and future tax consequences are now about double !!!

    ~!
    Last edited by Melonie; 04-19-2009 at 09:30 PM.

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    Default Re: Peter Schiff - Paying down personal debts = being in even more debt !

    For this latest doomsday scenario to occur one must presume not a single dollar of any bailout loan will be repaid, and the gov't stakes (assets) in these companies will be worthless.

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    Default Re: Peter Schiff - Paying down personal debts = being in even more debt !

    actually the links are referring to amounts that are actually being spent i.e. stimulus money, SCHIP money, and already budgeted spending ... versus actual tax revenues received. If you do add TARP, Fannie / Freddie, FED guarantees etc. going bad, the amount increases to something like 9 trillion dollars.

    You don't have to think of taxes paid and spent as debt, you could think of it as a service charge
    this was my point about an essential difference. If gov't spending and tax revenues are indeed equal, then yes the service charge analogy is legitimate. But if gov't spending in excess of tax revenues is being financed by the issuance of ever higher numbers of 7year-10year-30year gov't bonds, this is analogous to taking out a second mortgage to make the payment on the first mortgage. The debt service cost (which was already some 10% of total federal spending BEFORE these recent spending increases) does not fit the category of a service charge as the only 'beneficiaries' are the foreign owners of the US treasury bonds and the uber-rich Americans who buy US treasury bonds to avoid having to pay taxes on the interest earnings at ever increasing gov't tax rates.

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    Default Re: Peter Schiff - Paying down personal debts = being in even more debt !

    Quote Originally Posted by Melonie View Post
    The debt service cost (which was already some 10% of total federal spending BEFORE these recent spending increases) does not fit the category of a service charge as the only 'beneficiaries' are ... the uber-rich Americans who buy US treasury bonds to avoid having to pay taxes on the interest earnings at ever increasing gov't tax rates.
    U.S. Treasury Bonds are only state and local tax exempt, not federal. Further, if the taxpayer is subject to the Alternative Minimum Tax, the value of that state and local exemption is included in federal taxable income.

    HTH
    Z

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