Re: Re: Re: Can A Conservative Tax Plan Benefit All Social Classes?
Flying FuManchu said:
IMO no one truly knows what kind of tax cut (middle class, upper class- defintely not the poorer classes b/c they actually get money/ benefits from the government more than what they give in taxes) actually benefits the US economy as a whole. So many variables can effect the way a specific tax cut may work as well as how governement responds. During the Reagan years, the tax cuts were beneficial IMO (the years where I'm assuming you believe trickle down is "proven" to be a myth), however one has to consider the government spending of the time (which was tons). That is why, Bush and company are making a point to cut spending down for the next couple of years. Do I think that will happen. LOL... I don't have an answer to that.
However, I can't really disagree with this point that you made...
However, that is not always a set case. Just ask General Motors.
It was the government spending in the eighties (and now) which is driving the economy. Most of the current job creation in the US economy is government related. That and consumer debt. The Fed gov has ran up a huge debt keeping the economy running over and the consumers have jumped along using credit card debt (the worse kind, apart from sammy the kneebreaker) and house equity (which isn't the best idea with artifically low interest rates and an unstable housing price boom).
I thought the situation was bad just from the US deficit figures but if look at the figures of the rest of the world you see how potentially bad it is.
The current US deficit is $600 billion annually and within of 5.5 percent of GDP, the US current account deficit represents more than 1 percent of global GDP and absorbs almost two-thirds of the cumulative current account surpluses of the countries which are running a surplus.
The rest of the world is tapped out. There's no capacity to fund the US's continued deficit.
If the dollar crashes, and Stephen Roche, chief economist at Morgan Stanley is rumoured today to have said there's only a 10% chance of avoiding economic "armageddon" (his words, he's normally bullish), the fed may have no option but to pump interest rates to cover government expenditure (they'll need to find the money to pay the bills somehow.) It will be the only way to attract investment. Normally the rest of the world will react and follow suit. This keeps equilibrum in the system, but I just can't see how that will happen this time. The Euro-Zone has almost no growth, they won't blindly let the US lead them into recession. China's banks are carrying around 40% of GDP in bad debt, interest rates or a sharp revaluation of the yuan would topple that system. Japan may match, but I'd reckon they'd fight it, if no one else goes along.
American's are carrying too much personal debt. The housing boom and the consumer led economy of the last few years have left millions of americans in very shaky position. An interest rate rise (and we're talking around at least 2% almost certainly higher over the next 18 months) would destroy consumers spending power and drive millions into bankruptcy.
It's very worrying. The fed may have it all worked out, but for the life of me, I can't see a good ending. The US has never run such large current account deficits and no nation’s deficit has ever been as large in relative terms to the global economy. There has to be a reckoning somewhere, one thing is for sure the dollar will slide. Interest rates and inflation will have to rise. (Inflation is generally a good thing if you are carrying debt, interest isn't)