The budget “deal” that was supposed to reduce spending by $38.5 billion apparently only reduces spending by $352 million according to the CBO (the bi-partisan Congressional Budget Office); and it may even be less than that. Why can’t Congress (both Republicans and Democrats) deal with the deficit and spending? President Obama talked about shared sacrifice, defined as having the rich (anyone earning over $250,000 per year) absorb the entire tax increase. Nancy Pelosi apparently is looking to raise taxes on all those earning over $1,000,000 (rather than President Obama’s target of $250,000). In polling late last year, the American people opposed raising taxes those earning over $250,000; but favored raising taxes on those earning over $1,000,000. Pelosi’s plan may get traction.
This week I thought that I would look back at the American economic situation and provide Arnold’s position statements regarding all of the issues that you are thinking:
The economy can not have a major sustained recovery (or GDP growth of 4% or more) unless and until we (the United States government; businesses and citizens) wash out the excess debt. OK Arnold, what does that mean? That means that banks need to write off and liquidate all of the bad loans; finance companies need to write off and liquidate all of their bad loans, investment banks need to mark to market all of their positions, and on and on down the line until all of the debt is either paid off, written off and paying as agreed. At that point, then the economy will have been cleansed from the overhang of credit.
All of the real estate that is in foreclosure, already been foreclosed and bank owned needs to be sold off, liquidated, so that we can restart anew.
The government needs to stop running $1 trillion plus a year deficits. It would be better to run surpluses. Here Arnold will tell a story: After World War II ended and all of the troops were returning home, there was a major fear that the United States was going to go back into depression. It was a real concern – 5 million plus soldiers returning, enormous deficits, and all of the classic issues. So what does Harry Truman do? Does he continue to run enormous deficits? No, Harry Truman does (what is today unthinkable). He balances the budget and in so doing the economy revs up on all cylinders and the United States economy experiences a major improvement that lasted until after Kennedy was elected President.
Keynesian policies do not work! John Maynard Keynes during the Great Depression created the present deficit spending model that all Central Banks utilize. Clearly this does not work long term. But – and this is real the issue here – Keynes clearly stated that governments needed to run deficits during major downturns and run SURPLUSES during strong economic periods to pay back the deficits. Would the program work as proposed by Keynes? Maybe, but all of the central bankers and governments stopped reading at the deficits, and refuse to run surpluses and pay back debt during the strong periods.
Tax the rich will be the mantra of the Democrats. The rich do not pay their fair share will also be the mantra of the Democrats. Presently, the top 1% of individual taxpayers pays 41% of all taxes paid. What is a fair share? By historical standards, this number used to be in the high teens at most, now it is more than double the norm, yet the Democrats carry on that the rich are paying too little.
Arnold will continue the next 5 items over the next several weeks.
• The DJIA should finish its correction before the end of April and then rise to new post March, 2009 highs.
• Gold should be reaching $1500 or more the ounce soon (enough) and then correcting.
• Oil is still heading towards $125 a barrel.
• The dollar should be bottoming out within the next several weeks.
• Interest rates should start to rise again; and we could see 30 year Treasury rates of 7 to 8% before year end.
• Real estate is still extremely weak.
• The economy continues to look sluggish to me.
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