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The election is over. Obama won. No need to be nice anymore. Time to push back against fiscal insanity and propaganda.

Yves Smith has a good piece up over at Naked Capitalism - Obama calls on Citizens to Ask Congress to Slit Their Throats.

In fact, NOT getting a deal done is far better for everyone except the uber rich. As Paul Krugman has stressed, going into 2013 with no deal in place is not a dramatic event, and would substantially weaken the Republican’s bargaining position as far as preserving tax breaks for the wealthy are concerned. And if the Administration wanted to preserve middle cut tax relief, like lower payroll taxes, it can make that retroactive to the start of 2013.
...the options that Obama is allowing to be considered range from utterly dreadful to merely awful.
More below ....

Yves is of course correct.

The best way (except maybe for market confidence ... which although important is still overplayed by the media/talking heads) is to go over the fiscal cliff. Let all the tax cuts expire. Once they have expired they can be re instituted, if necessary, for everyone on their first $250,000 of income. This is far easier than selling out to the Rethugs in order to get a deal, any deal.

It is important to note that any tax changes can be made retroactive to Jan 1, so even if a deal is not made until February for example the impacts can be reversed.

Unfortunately the Obama approach continues to be run by the representatives of the 1%. Whether it is Geithner, Bowles, Lew, etc. they all see the world through a similar prism, one that distorts reality to fit the Wall Street view of the world.

Steps to sanity:
1. Let the tax cuts expire. Then if necessary bring some back as part of a new deal.
2. Social Security is OFF the table. Any reforms to SS should be separate and based on the solvency of that program, independent of the rest of the budget. SS is NOT an entitlement program. It is shared insurance and should be treated as such.
3. Stop trying for a Big Deal. The number crunchers just bend the projections out into the future without actually changing much. They can get any result they want by playing with assumptions. Just take a look at how good CBO or other projections have been for even a three year period into the future, let alone 10 years. It is just an exercise in BULL SHIT.
4. Defense has to be cut, and cut hard. Spending 50% of world military expenditures (and borrowing all the money to do it) is NOT sustainable.
5. Tax reforms, tax increases, and spending cuts should be aimed at those with the lowest propensity to spend ( in other words if I take $1 away for someone on unemployment insurance, they will cut spending by $1 - not good-, but I take $1 from someone in the 1%, it likely will not impact their spending one bit), because for now it is important to try to maintain demand in the economy.

Is the deficit important?

Yes, because if deficits really did not matter, then why do we bother collecting any taxes at all.

What else is important?:

What markets and businesses and individuals really want is some certainty and some consistency, an end to brinkmanship, and a new era of over performing on expectations. The continual focus on short term solutions and deadlines is, as we have seen in Europe, and in the US, a recipe for disaster.

Now if this sounds like the Grand Bargain idea, it is not. Any Grand Bargain will fall apart within a year or two, because expectations will not fit reality. Stick to one, two and three year plans, with consequences for targets not hit (cuts to Congress critters pay/benefits being an example).

What else else is important?

We are still in a balance sheet recession. These types of recessions can take many years to recover from (see Japan) and require very different solutions than normal recessions. The economy has basically stabilized .. but unfortunately the time since the recession began has been wasted as almost no structural reforms have been implemented. Much of the fiscal discussion seems predicated on getting back to how things were in the good times ... Well that AIN'T gonna happen. Those past time good times were fueled by debt and now the debt tank is empty so going forward new models, new approaches, and new systems will be required ... which unfortunately we have seen very little evidence of so far. And this is not just an American problem. It is a developed world problem.

Note #1: If you agree take a trip over to Twitter #My2k and throw a spanner or two into the propaganda machine.

Note #2: For anyone worried about how the markets will react to going over the fiscal cliff ..  don't. The markets as we used to know them are gone, broken, dead and gone. What we have now are algorithmically run casinos designed to fleece any investor that walks in. They are the parasite devouring the host ... at almost light speed. I say FUCK THEM for a few weeks.

Originally posted to taonow on Thu Nov 29, 2012 at 05:23 AM PST.

Also republished by Progressive Policy Zone.

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Comment Preferences

  •  Tip Jar (20+ / 0-)

    There's room at the top they're telling you still But first you must learn how to smile as you kill If you want to be like the folks on the hill

    by taonow on Thu Nov 29, 2012 at 05:23:24 AM PST

  •  Wheeeeeee! (4+ / 0-)

    It'll be more like a fiscal waterfall/kayak experience.

    All kidding aside, I am beginning to think it will be a non-event with a side of stewed Republican. They're stewing mightily about it right now.

    Moderation in most things.

    by billmosby on Thu Nov 29, 2012 at 06:11:16 AM PST

    •  More like surfing a tsunami of epic proportions. (1+ / 0-)
      Recommended by:
      billmosby

      Sounds fun.  Let's take this puppy out for a spin and see how it handles.  I see the GOP caving in on itself by Spring....

      I count even the single grain of sand to be a higher life-form than the likes of Sarah Palin and her odious ilk.

      by Liberal Panzer on Thu Nov 29, 2012 at 09:12:51 AM PST

      [ Parent ]

  •  I read yesterday that Erskine Bowles said he was (5+ / 0-)

    worried saying there is a 30 percent chance we go over the cliff. I feel so bad for the Ryan budget lover.

    DC is caught in what percentage of GDP should the government operate on, nonsense. The question should be what are the priority's of the people and the majority are saying protect people's health, Medicare, Medicaid and Social Security.

    Many better solutions and budgets exist that are not on he table, the people's budget, transaction taxes, etc.

    Rushing to a grand bargain is and looks stupid. Go over the cliff and settle down into a more progressive congress and get to work next year with contemplative plans argued on the floors of congress for all to see instead of behind closed doors where Wall Street instead of main street controls the negotiations.

    "Lets show the rascals what Citizens United really means."

    by smiley7 on Thu Nov 29, 2012 at 06:22:23 AM PST

  •  This is how it was sold in 2001. (6+ / 0-)
    just take a look at how good CBO or other projections have been for even a three year period into the future, let alone 10 years. It is just an exercise in BULL SHIT.
    In the Spring of 2001, then Rep. Charlie Bass, who had just been named to the Energy & Commerce Committee, was promoting the new idea of the tax cuts with graphs and charts about Social Security that included an asterisk to the fine print which said *1996 $.

    When I raised my hand and asked him why we were figuring this stuff based on the wrong money, and for eleven years (not simply ten? that's weird and it automatically made it a guaranteed issue for the 2012 election..oh I see, of course, I thought) -he folded up his easel and went on to the next subject. While he did that, he quietly said, with an ironic chuckle and as an aside to me, "-years? We can't plan now for September." That was April. 2001.

    There never was any reason for these "Tax Cuts" anyway except that they saw an opportunity to grab money and took it.

    Let them expire I say, along with the whole republican party. No zombie tax cuts for the rich.

  •  There's no reason not to go over the cliff... (3+ / 0-)
    Recommended by:
    billmosby, smiley7, Sunspots

    ...except that the spending cuts would hurt some vulnerable people who can't be made whole by retroactive restorations.  But we have to know ourselves (Democrats) well enough to accept that those people would be sacrificed anyway in a Grand Bargain, because they always are.  So it might as well be (a) temporary, and (b) in the context of winning on some other important things.

    You know, I sometimes think if I could see, I'd be kicking a lot of ass. -Stevie Wonder at the Glastonbury Festival, 2010

    by Rich in PA on Thu Nov 29, 2012 at 07:12:09 AM PST

  •  I located the original handout from Bass's Town (2+ / 0-)
    Recommended by:
    FiredUpInCA, taonow

    Hall meeting, which I thought was so preposterous that I saved it in -guess what- a binder.

    I am not a numbers wonk, so I will just try to describe a page or two and 'you people' can tell me what it means.

    One page says "Increase in GDP Under Bush's Tax Plan" with a bar graph in 1996 $, from a Heritage Foundation report on the Economic and Budgetary Effects of President Bush's Tax Relief Plan, Feb. 2001.

    The graph begins with "$1 Billion 1996$" for 2001 and increases gradually every year ("preliminary results-all years are fiscal year end") through $239 Billion 1996 $ for 2011, which seemed to me like "imaginary" rather than "preliminary" results to me back in the day. Did that all happen, numbers people?

    The other page I want to share here is "The President's 10-year Plan: Uses of the $5.6 Trillion Surplus, prepared by the House Budget Committee [2001]"

    This page is a pie chart purporting to show that there will someday be a surplus like that, and it will be used thus:
    $2,017 Billion towards Social Security (Debt)
    $1,620 Billion towards Tax Relief
    $603    Billion towards Contingency Reserve (General)
    $574    Billion towards Social Security (Reform)
    $417    Billion towards Debt Service
    $240    Billion towards Contingency (Medicare)
    $153    Billion towards Medicare Modernization
    $20      Billion towards Net Other Spending

    The handout also begins with the statement that
    "The President's Tax relief proposal would provide the typical American family with at least $1600 more of their own money. (The typical family is defined as a family of four, with one wage earner who earns $50,000 annually)"

    Then it goes on to state "What $1,600 would Buy:

    * the average mortgage payment for a month
    * One year's tuition at most community colleges
    * The average gasoline costs for two cars for one year"

    As I said, I thought then that the numbers were imaginary. Now our mortage was exactly half of that, but we bought in October of 1985, and got one of the very last 30-year mortgages based on actual value, before the housing market began to bubble, but I personally saw my State College tuition triple as I went on the slow track over those same ten years, never mind the gasoline business.

    •  Hockey sticks (1+ / 0-)
      Recommended by:
      PhilJD

      Used to work for a company trying to go public and funded by vulture capitalists. All they wanted to see was exponential growth over 10 years ... so all my charts had to show that ... which you can do if you play with the assumptions enough. No one in their right mind believes these kind of numbers ...

      There's room at the top they're telling you still But first you must learn how to smile as you kill If you want to be like the folks on the hill

      by taonow on Thu Nov 29, 2012 at 09:02:09 AM PST

      [ Parent ]

  •  Better temporary discomfort (2+ / 0-)
    Recommended by:
    Sunspots, taonow

    ..than permanent pain.
    Yes to the safety-net, no to austerity. Fight.

    (Especially appreciative of "Note #2" - Fuck  Them indeed)

    The dire straits facing America are not because poor people have too much money

    by Anthony Page aka SecondComing on Thu Nov 29, 2012 at 07:48:27 AM PST

  •  Agreed Wall St. will be fine. (3+ / 0-)
    Recommended by:
    taonow, wilderness voice, PhilJD

    If we go over the cliff and there's problems - they can be fixed.  If everything is given away in a deal - there's no fixin that.

  •  Good diary except for 1 thing on deficits (0+ / 0-)
    Is the deficit important?

    Yes, because if deficits really did not matter, then why do we bother collecting any taxes at all.

    No the deficit is not important and taxes do not finance spending. Taxes regulate demand pull inflation by destroying the money supply that is created. Taxes also give the currency value through taxation and taxes are also a tool for combating income inequality. We create our currency and mark it up like a bank account at a central bank as even Ben Bernanke admits so therefore taxes are not needed to fund spending.

    Inflation is our constraint as far as spending, not the deficit. If everyone has a job and we keep spending that will drive prices up and there is your constraint.

    I don't negotiate grand bargains with deficit terrorists!

    by priceman on Thu Nov 29, 2012 at 04:08:33 PM PST

    •  I should say paying down deficit is not important (0+ / 0-)

      deficits put money into the private sector so they are very important though we need better progressive taxation, unions, and others things to regulate the fairness of that money.

      I don't negotiate grand bargains with deficit terrorists!

      by priceman on Thu Nov 29, 2012 at 04:10:41 PM PST

      [ Parent ]

    •  Zimbabwe (0+ / 0-)

      I believe Zimbabwe and some others beg to differ. They had inflation without much demand. Japan has been deficit spending at increasingly insane levels desperately trying to create inflation .. and just falling father and farther out of any rational fiscal situation.

      The US has another issue. As it issues the main reserve currency, and because the US has run trade deficits for a long time, a lot of the purchasing power of the currency printed is held back, outside of the US. As a result the US may not feel the inflation constraint until it is too late, and then may not be able to control it once it gets out of hand.

      Essentially financial crisis build very slowly but then tend to happen all at once. It is preferable to avoid the buildup if one can. Waiting for inflation, or the markets, to impose a constraint is rather dangerous.

      There's room at the top they're telling you still But first you must learn how to smile as you kill If you want to be like the folks on the hill

      by taonow on Thu Nov 29, 2012 at 06:53:31 PM PST

      [ Parent ]

      •  Those are two pernicious myths (0+ / 0-)

        1. Zimbabwe for hyperventilators 101

        Basically the land reforms dropped production so there were too few dollars chasing too few goods which is known as demand pull inflation which is also what happened in he Wiemar Republic and none of that has any realistic potential of happening here so my thesis is correct and yours is not.

        2. The Myth That Japan Is Broke by Ellen Brown

        Japan’s debt-to-GDP ratio is nearly 230%, the worst of any major country in the world.  Yet Japan remains the world’s largest creditor country, with net foreign assets of $3.19 trillion.  In 2010, its GDP per capita was more than that of France, Germany, the U.K. and Italy.  And while China’s economy is now larger than Japan’s because of its burgeoning population (1.3 billion versus 128 million), China’s $5,414 GDP per capita is only 12 percent of Japan’s $45,920.
        How to explain these anomalies? Fully 95 percent of Japan’s national debt is held domestically by the Japanese themselves.
        Japan is doing a lot better than advertised by the mainstream media.

        3. The issue with the trade deficit is not evidence that we need to cut back deficits or deficit spending. In fact it's because of our trade deficit that we must run deficits because of sectoral balances between the public and private sector for every deficit in the public sector there is an equal surplus in the private sector. The trade deficit is part of our current account and balance of payments. This is also not accurate historical as the trade deficit remained constant during the brutal but somewhat effective(along with the Soviet Union dumping a glut of energy onto the market when it collapsed) anti-inflation with double digit interest rates in the 80s as inflation dropped.

        The exchange rate falling causes manufactured goods to be cheaper as it is doing right now in China which helps export led growth and the balance of trade on that end but there is no real correlation between a trade surplus or deficit and hyperinflation which is a continual rise from month to month of the price level. The evidence is just no there. There is only an inflation constraint once unemployment is less than 2% and we keep spending past the goods that money chases.

        There are two types of inflation cost push inflation which caused the inflation of the 70s(2 oil shocks) along with the collapse of Bretton Woods supply and demand pull inflation which I already explained. So not to brow beat you, because your diary is still quite good, but on this you are mistaken.

        4. You need real regulation in the finance sector and crisis are built by fraud and an expansion of credit with no underwriting standards to supplement income the public has not had equal footing with since 1979 when the great Compression ended. Bleeding the public of income(deficits) is not going to help.

        But good diary besides my disagreements.

        I don't negotiate grand bargains with deficit terrorists!

        by priceman on Thu Nov 29, 2012 at 08:40:55 PM PST

        [ Parent ]

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