Tuesday, July 13, 2010

It ain't the deficit that's the problem

It's the spending, or the lack of taxes. Since WWII US federal taxes have yielded a revenue of about 20% of GNP. In other words one dollar out of every five dollars goes to the government. That's a LOT of money. Up until Obama, the federal government spending was about the same as revenue, maybe a touch more.
Now that we have Obama, spending has jumped up to 25% of GMP, and due to Great Depression 2.0, federal revenue has dropped and the deficit is now 7-8% of GNP and getting worse.
Obama hasn't quite dared ask for more taxes (yet). He'll get around to it sooner or later. He hasn't said a thing about cutting spending. Right now the federal government is paying its bills by borrowing money, and since the it has the best credit rating on the planet, it has no trouble borrowing all it needs. That cannot last. When the unpaid US debt gets too high, lenders will stop lending to us. Then to pay its bills the government will print new money. Which will destroy the value of the dollar. Everything we have saved up for college, retirement, the new house, will turn to wastepaper.
Conclusion. We have to cut spending, cut it down to 20% of GNP, or, jack up taxes to cover the spending. Trouble with that is spending rises to meet income. Raise taxes, the Congress will spend more.

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