Why the government is behaving INCREDIBLY stupidly and WRECKING the American economy
The economy will NEVER recover unless the disposable incomes for ordinary people start to rise again.
Disposable incomes for ordinary people have been falling since 2001, they are now falling at an alarming rate.
The fiscal cliff deal just accelerated this trend by handing the middle class and the working poor a HUGE $200bn a year tax hike.
Government policy should be directed at INCREASING disposable incomes and getting bottom up spending going again.
It is very easy to see how to make a good start on that.
Increase the income tax allowance from $8,700 to $45,000.
That would put $500bn straight back into the pockets of the 99%, almost all of it going to middle earners and below who would spend it.
Completely reform Corporation Tax.
Set a flat rate of 25%. No loopholes or tax breaks whatsoever.
This would slightly increase Corporate Tax revenues.
Then make the first $100,000 of profits tax free.
This would give a huge tax break to small and medium sized businesses.
These two steps together would mean :-
Ordinary people's disposable income would start increasing again.
There would be more demand for all types of goods and services.
There would be more small business start ups - the risk/reward of starting a new business is now so much better.
Existing small and medium sized businesses would start hiring again. Small and medium sized business are the true job and wealth creators.
Unemployment would go down instead of up. Unemployment will undoubtedly rise in 2013 and beyond with current policies.
The cost of poverty and unemployment payments paid out by the government would start going down. They will undoubtedly rise in 2013 and beyond otherwise.
We have the makings of a virtuous circle.
Additional steps can then be taken to reduce both personal and Corporate Tax rates further, with the emphasis being on reducing taxes for the non wealthy and non giant Corporations.
This will bolster and accelerate the virtuous circle.
In order to pay for these tax reductions for ordinary people, Corporate Welfare should be immediately cut by $1.3tn a year.
It is easy to see how to do more than that -see Appendix.
With current policy, America is in an economic death spiral.
Disposable incomes of ordinary people continue to fall at an alarming and accelerating rate, while giant Corporations continue to make record profits.
Current policy needs to be COMPLETELY REVERSED.
Why the Federal Reserve private bank is behaving INCREDIBLY stupidly and WRECKING the American economy
Currently the Federal Reserve is printing $1tn a year of new money.
This money is going straight into the excess reserves of the big banks. They are not lending it out.
The big banks already have $2tn of excess reserves.
They have to do something with it.
They are using this money for speculation.
Some of this speculative money is being used to bet on food and gas prices.
It is pushing up the prices of both.
Goldman Sachs made $400m last year pushing up food prices.
Gas prices just hit an all time record for February, with $4 gas in California.
Increases to food and gas prices affect poorer people disproportionately.
Current Federal Reserve policy is LOWERING disposable incomes, lowering GDP growth, raising unemployment and deepening the coming recession.
The Federal Reserve needs to STOP printing money.
It actually needs to take away some of the current $2tn of excess bank reserves.
What needs to be done to reverse America's current economic decline
More details on how incredibly stupid both the government and the Federal Reserve are being and other things that need to be done to reverse America's decline are included in here.
http://ian56.blogspot.co.uk/2013/02/why-sequester-is-giant-con-trick.html
E.G.
The Corporate cartels that currently operate in each major industry need to be broken up to increase competition.
For banking, Glass Steagal needs to be immediately reinstated as a first step.
The huge amounts of current government and Federal Reserve subsidies to the big banks need to be entirely stopped. They amount to nearly $1tn a year, all of which will eventually be paid for by taxpayers.
Appendices
Corporate Welfare
Some examples of Corporate Welfare, military spending and other grossly wasteful government spending that can easily be stopped altogether or drastically cut.
$105bn a year for 7,000 mercenaries still in Iraq.
$170bn on building new and supplying existing foreign military bases.
$88bn per year on the Afghan war. Get out now.
$100bn+ of Medicare fraud.
Reduce the price of prescription drugs. America pays by far the highest prices in the world.
Stop the $200bn of new Corporate Pork a year.
Stop the futile war on drugs and save $200bn a year.
Fine the big banks $200bn+ for the harm they have done - it is easy to do.
Completely reform Corporation Tax.
Ending the tax avoidance by offshoring US generated profits and other tax breaks given to multinationals, banks and arms companies would bring in $200bn a year.
End the personal tax avoidance schemes like carried interest and hedge fund managers diverting their remuneration through reinsurance schemes would also bring in more revenues.
Make the taxation system FAIR. Don't favor the rich and large multinationals over the little guy and small businesses.
There are many other ways of saving money and making the marketplace fairer.
The above adds up to $1,300bn a year.
A lot more than that is possible and should also be done.
Further details and examples are listed in here
http://ian56.blogspot.co.uk/2012/11/it-is-very-easy-to-cut-1tn-from-federal.html
Update 03/26
These $780bn a year government subsidies to the big banks should also be removed to all allow smaller and better managed banks and credit unions to fairly compete.
http://ian56.blogspot.co.uk/2013/03/the-780bn-of-annual-subsidies-to-big.html
The Coming Demographic Timebomb
(Added 03/05)
There is a coming demographic time bomb that will massively exacerbate America's debt problems.
The ratio of the number of retirees to the number of workers is increasing all the time. People are living longer than they used to.
This ratio really starts really accelerating upwards from around 2020.
It is already written into the future just by examining the numbers of people in each age group of the current population. The green segment in the chart below will start retiring then.
It won't change very much at all however much future immigration levels are.
N.B. This problem affects the entire developed Western world (and China and the BRIC's too) - not just America.
Don't expect any help from the rest of the world via increasing American exports.
The only way that this problem can be fixed is to gradually start raising the retirement age at some point in the future and raise it very significantly to 70+ by 2050.
Some countries have already made a start on doing that - e.g. the UK, but America hasn't.
N.B. The Social Security Trust Fund does not contain any real money.
It is stuffed full of government IOU's.
Government IOU's that the government will not be able to afford to fulfil.
The way to start fixing Medicare/Medicaid is to start making Healthcare more EFFICIENT, so that these programs cost less for the same services. The cost of prescription drugs, fraud, over prescription and massive overcharging for Healthcare all need to be tackled. Americans pay DOUBLE for Healthcare, with worse Healthcare results, than say France.
The age qualification will need to be raised as per pensions. Benefits will also need to be means tested.
Something else that Americans would benefit from reading.
http://ian56.blogspot.co.uk/2012/10/the-fall-of-rome-was-due-to-unfunded.html
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