“No laws are more basic than the laws of arithmetic: For fiscal sustainability, whatever level of spending is chosen, revenues must be sufficient to sustain that spending in the long run,” Bernanke told the commission, which was established by Obama in February to give recommendations on ways of balancing the federal budget.”
Washington needs to find ways to cut spending on major programs and raise taxes or else risk doing “great damage” to the U.S. economy, said the head of the country’s central bank Tuesday.
Ben Bernanke, chair of the U.S. Federal Reserve, said the federal government cannot close its budgetary shortfall by merely relying upon economic growth to reduce social spending and increase revenue.
Instead, the government needs to attack the deficit by reforming popular entitlement programs, such as Medicare and Social Security, and by pushing up what U.S. citizens pay the government.
“(E)ven after economic and financial conditions have returned to normal, in the absence of further policy actions, the federal budget appears set to remain on an unsustainable path.
“(But) choices regarding Medicare, Social Security, and other spending programs cannot be made in a vacuum but must be combined with decisions about how much revenue the government will raise and how it will raise it,” Bernanke said in testimony before the National Commission on Fiscal Responsibility and Reform.
“U.S. President Barack Obama’s administration has driven the U.S. deficit to record levels — estimated by the nonpartisan Congressional Budget Office (CBO) to be $1.35 trillion in 2010 — as Washington spent large amounts of borrowed cash in an effort to prevent the recession of 2008 and 2009 from becoming an all-out depression.” Source: Kelowna
This is how things will probably turn out in the next couple decades: taxes will be increased even more on the working class and the benefits that they receive will be slashed, but the top earners? They won’t be touched. People making millions will get, at best, a meaningless tax raise, corporations will still pay little or nothing, especially when they off-shore, and the erosion of “The American Dream” will continue. The sad part is that most people know by now the statistic that the top 1% has more wealth than the bottom 95% of the population combined, but we’ll still let them do it to us. What a difference in the world where in the days of Truman and such taxes on the rich were at 90%+ (and they still lived extremely well and the economy didn’t implode) but now they’re at an all time low. The people who buy into this radical capitalism, supply side nonsense which has lead us to this point have absolutely no regard for facts or reason.
In the same vein, if the economy were structured in a true free market capacity, there would be no central bank or government to distort the market to make the necessary to tax the top earners in society. Indeed, according to the Austrian school of economics, having richer people in society and a blessing because the more money (real money; not the fiat monetary system we have today) kept in a bank earning interest and being loaned out, this gives poorer people more incentive to create business with lower and lower interest rates (if they need loans). This works out because the more money a bank has (supply), the more demand for money goes up and the lower the interest rate usually is (all things being equal).
” From all outward appearances, it seems that a grim chapter in U.S. economic history has come to an end. Newsweek magazine declares that “America is Back,” government statistics indicate revival, and our stock market has put in a rally for the record books (by rate of ascent, not highs – we are still more than 25% below the 2007 peak).
And yet, despite massive federal stimuli and subsidies, American unemployment clings stubbornly to the 10 per cent level, with the “underemployment” rate closer to 20 per cent. The IMF does not appear to buy into Washington’s optimism; it projects a “double dip” contraction by the second half of this year. With so much conflicting sentiment, it is difficult for investors to know whether the cup is half-empty or half-full.
On a technical basis, stock market gains of 50 per cent or more in a twelve month period should indicate dangerous downside potential. On the other hand, the markets of early 2009 had priced in the likelihood of financial Armageddon. The meltdown did not happen, so traders and brave investors have been quickly buying up the deeply discounted equities.
However, many remain suspicious, believing that the catastrophe had been postponed rather than overcome. The vast bulk of investment funds are sitting on the sidelines, invested in fixed income despite historically low interest rates. Investors have also sought safety in gold, driving its price to above $1,000 an ounce or about half its inflation-adjusted peak price in 1980. ” Source: Peter Schiff