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Austerity vs The One Penny Solution

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Austerity vs The One Penny Solution

Paul Ryan, the GOP in general and European policy makers either just don’t get it, or they’re trying to return us to the time where there was a Spanish Pope name Borgia (daughter Lucrezia), or my theory that Republicans are Neo Confederates is fact, not theory.

To hear any of them talk, one would think that the U.K. and Europe were on the right path and have indisputable proof saying so. Nothing could be further from the truth. All of the above do, however, have things in common. They are all currently run by 1%ers, and they are all run by Conservatives who have managed to convince large numbers of people that they should not believe their own eyes nor vote in their own best interest.

Well sure! The failing economies for these countries just need more fiscal austerity, more labor market “flexibility” (read sacrifices), more price stability (read more wage control) and the European, British and recovering U.S. crises will be licked.

Seeing is Apparently Not Believing

I ask myself daily (in dumbfounded disbelief)….what has happened to peoples’ common sense? It has been over two years since Europe began moves to austerity, and the crisis gets worse every single day. Why? Greece, Spain and Italy are not borrowing more money. They are still spending huge amounts of money. To the contrary, they have been implementing the austerity measures as demanded by Germany. The chart above shows explicitly that immediately after austerity measures were implemented in the euro zone, GDP stopped its rise and leveled off and is now once again in retreat as spending choked off growth. The same happened with the U.K. But even with the concerted effort by Republicans to make drastic cuts, the Obama administration has resisted and he U.S. GDP growth continues to recover….dramatically more than the euro zone or the U.K.

This is undeniable proof that austerity crushes the very growth that the GOP admits is the only way out of this mess the lack of oversight and tax reductions have put the U.S. into.

Growth in European gross domestic product was negative in the last quarter of 2011. Unemployment in the entire euro zone in February was 10.8 percent; in Spain it was an astounding 23.6 percent with Greece, Spain, Italy and Portugal close behind. And judging from the renewed turbulence in bond markets, investors don’t believe that prosperity is just around the corner either, austerity or not.

Now, just last Friday,(4-27-2012) Britain announced that it has formally slipped into a double-dip recession, despite their own Conservative Party’s insistence that they follow Europe’s lead last year when Prime Minister David Cameron and the Conservative Party took over control of Parliament. Naturally, PM Cameron blames the U.K. crisis on the euro zone, but nevertheless continues to follow their lead.

A Chink in the German Armor

Despite the desire to keep the euro zone whole, it looks as though France, among others, have had enough. The grumblings and complaining throughout Europe has not only quickened, it has grown exponentially in volume as well.

Soon-to-be French leader Francois Hollande (barring unforeseen calamity), said last week regarding economic policy, “It’s not for Germany to decide for the rest of Europe”. He is not alone. Countries on both the left and right are flocking to his side with even uber-Austria having stated that they’ve had enough of Germany’s demand for austerity.

British Prime Minister David Cameron said the euro zone crisis was largely to blame for Britain falling back into recession, and insisted that getting the economy moving again was the biggest issue for the government, at a time when the popularity of his own Conservative Party had fallen to its lowest level since 2004.

“What’s happening in the euro zone is a massive tension …that countries are finding very difficult to adapt to, and that’s what we’re seeing”, said Cameron.

Mr Hollande has stated that he plans an EU-wide call for renegotiation of Europe’s punitive austerity pact on his first day in the Elysée. For this he was instantly rebuked by German Prime Minister Angela Merkel. Pacta Sunt Servanda. “The treaty cannot be renegotiated,” she said, forgetting the Kohl maxim that every German chancellor must bow three times before the Tricoleur.

In addition, the troubled countries of Europe are part of a common currency area. This means that the other obvious tool for stimulating growth during a time of fiscal austerity, depreciating the currency relative to that of their main trading partners, is not available.

The result is that austerity is especially destructive right now. Indeed, because of the harsh effect of budget cutting on growth, debt-to-G.D.P. ratios in Europe have continued to rise, not fall.

In the U.S., Paul Ryan, darling of the Neo Confederate Conservative Party, has pushed two very similar European-style austerity plans through the Republican-led House of Representatives that have died in the Democrat-controlled Senate. But the Conservatives keep pushing, completely ignoring the data and the living, breathing examples in all parts of Europe of how NOT to battle a debt problem during an economic downturn.

There Are Answers but Politics remain the Primary Roadblock.

If stringent belt-tightening isn’t the answer, what is? It’s definitely NOT to just ignore the deficit. Many European countries as well as the U.S. have long-run fiscal situations that are unsustainable and must be dealt with. The Bush administration that inherited a budget surplus, was the first since the Revolutionary War to engage in a war without a corresponding surcharge, tax increase or some other revenue stream with which to finance the war.

To the contrary, President Bush engaged the U.S. in two unfinanced wars and simultaneously passed the largest tax CUT in history. For the icing on the cake, he commenced to decrease transparency on Wall Street that enabled the biggest real estate bubble burst since the Great Depression in the last month of his 2nd term.

The hyper-partisan atmosphere in Washington has so exacerbated the problem of non-cooperation that the U.S. will almost assuredly find themselves in Great Depression 2.0 unless the stalemate is broken.

A bi-partisan measure that I have detailed many times will fix all of the U.S. economic problems and absolutely no one will like it. Although the very fact that neither party will like it should be a tip-off of just how effective it would be, it is simple, it is effective, and it would prove to the rest of the world that the U.S. is still the most powerful, reasonable and innovative system of democracy in the world.

The best part of the plan is that it would include every man, woman and child, regardless of income level. It would include Wall Street, drug dealers, prostitutes, strip clubs, and even visitors from other countries in reducing the U.S. debt quickly and efficiently with much less harm than any other plan or plans ever mentioned.

The One Penny Solution

As of the end of the governments 2011 fiscal year, the deficit was approximately $15 trillion dollars. The U.S. can run, but we simply cannot hide given the rocky state of Europe and China’s problems. Neither can we continue to ignore our huge deficit without running the risk of total economic chaos given the facts above regarding Europe’s pending failure to effectively deal with their own currency/fiscal problem.

  • FIRST AND FOREMOST: In order to make this a plan that is bullet-proof to political piracy, the law would have to stipulate that the funds collected under this assessment can be used only, and irrevocably for debt reduction, as of a static date and amount, (i.e. FYE 2011 the Federal Deficit was approx. $15 trillion) unless 80% of both houses of the Congress and the President agree to change it in any way.
  • #1 ABOVE would alleviate any “tax and spend” argument because the sole purpose of this plan would be deficit reduction and to could never be used on new spending. Furthermore, once the deficit threshold amount as pre-determined is reached, the entire plan ends. Again, to make a change would require 80% of BOTH houses of Congress to approve eliminating any chicanery involving ad hoc amendments.
  • Part 1 of the assessment phase would place a one-penny-per-dollar Federal surcharge on all consumer goods AND services for the sole purpose of being applied to the Federal Deficit as defined in step #1 above.
  • Even at today’s extremely low GDP of $15 trillion, the consumer portion of the deficit reduction tax would reduce the deficit at $150 billion per year. This is a greater reduction than was the mandate for the failed so-called “super committee”. Because the surcharge is tied to consumption, as the economy recovers and GDP increases, so too would the rate of deficit reduction increase. In Year #2, if GDP = $18 trillion, then $180 billion would go towards reducing the deficit, and so on.
  • Part 2 of the assessment phase would be tied to Wall Street and is already supported by a plethora of concerned citizens, organizations and even OccupyWallStreet. Americans for Financial Reform, which is a coalition of more than 250 economic, union, and activist groups, explained why it’s backing the tax:
  • “The deficit problem that the Select Committee must address was to a significant degree created by the world financial crisis, a crisis caused by Wall Street speculation. It is therefore appropriate that we call on Wall Street to help address it. A small tax (i.e., 1/3ȼ on all financial market transactions has the potential to raise significant revenue and simultaneously limit reckless short-term speculation that can threaten financial stability.” This one small surcharge will add trillions more to deficit reduction over time for those who enjoy Capital Gains favorable income taxation.

  • No exceptions, no exemptions. No ceilings, no floors. Every citizen, every prisoner, every non-resident alien, every temporary worker, every single person enjoying the rights and freedoms that come with literally being on American soil, would be contributing to reducing the debt created over the last forty years that now threatens the U.S. economy. There could be no finger-pointing, no blaming “the other party”, no “class-warfare”. This financial crisis is tantamount to a world-war-time crisis. In World War II EVERYONE was rationed on sugar, rubber products, etc. This deficit reduction/demand-growth plan would be a small price to pay for not only financial freedom, but a path back to fiscal responsibility, increased growth through both higher employment and higher demand.
  • As lagniappe, the actual mechanics of the plan are easily implementable, as most states are already set up for collecting and remitting sales taxes; these surcharges would merely go to Uncle Sam. This would also muffle any “tax and spend” argument because the sole purpose of this plan is deficit reduction; not ever to be used on new spending.
  • By expanding the tax base to encompass all goods and services, everyone in the country would be contributing to help alleviate the mess. No one could claim “tax and spend”…..or, ”the poor pay nothing”…or, ”the rich should pitch-in too”, etc. The wealthy could not employ armies of accountants to avoid the taxes; poor people receiving government assistance would still be contributing to the deficit reduction; criminals, non-citizens, even prisoners who currently purchase items from correctional commissaries would be contributing to this deficit reduction.. It would virtually assure that every person in the country is contributing to the debt without placing an impossible burden on any one group.
  • Normal politics could resume. Balanced budgets could be argued. Appropriations could still be based on, well, whatever the heck they base them on now.

    The important part of this entire plan is to remove the cover from which politicians have been hiding for far too long. Their constituency.

    If Republicans want to still make bogus claims that people earning wages over $1million per year after taxes are “job creators”, let them sell it to the public. Make a balanced budget amendment with teeth in it. None of it would be tied to this plan. Smokescreens would disappear. But by gosh the deficit would be retired, and the laws of supply and demand would once again reign supreme.

    Once legislation is on the books, politicians, even from opposing parties, have little incentive to change it. Markets don’t want counterproductive measures. For credibility, what matters is the nature and the composition of the tax…and the clarity of the purpose and schedule.

    This one simple plan would lower unemployment faster, and put us on a path to fiscal health. And, by strengthening our growth, it would help the world economy, too.

    This policy is not nuanced. The key element is dynamics. It uses a credible plan to lower a long-term fiscal problem, while not taking immediate austerity measures that would raise unemployment when what countries need most is growth.

    Current measures aren’t working. Sooner or later, politicians and citizens will demand a strategy that does.

    This is that strategy.

    Source: hg.scimth.net

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