Wealth in the U.S. - An Overview

[imoldernu]

Some interesting charts and observations. A perspective.

charles hugh smith-The Fiscal Cliff's Structural Endgame

While reading the article, I was mentally placing myself as a point on the graphs. It made reading the analysis more personal. For the most part, I don't even show up on the charts at all.

If that relates to not being here, it does not speak well for the future. Common sense says that a bright future means eliminating the liabilities. (sigh)

 

[pb4uski]

The change in the slope of federal spending in chart 8 beginning in 2000 is mindboggling and it gets worse beginning in 2009. The quote that I found most interesting was:

What few dare admit, much less state publicly, is that the Constitutional limits on the financial Aristocracy and the Tyranny of the Majority have failed. This guarantees a future Constitutional crisis as each political class – the financial Aristocracy, the top 24% who pay most of the taxes, the dwindling middle class and the bottom 50% who depend on Federal transfers – will battle for control as the Status Quo collapses under the weight of its unsustainable promises.

 

[MichaelB]

Between the text quoted by pb4uski and the first line in the link

The fiscal cliff is not a one-time political event; it is a generational process that ends in the collapse of the Status Quo.

this thread is moving to the politics forum. How does this relate to FIRE?

 

[Lazarus]

The financial stability of the country that I am retired in is relevant to fire.
I don't see that as political. No one in this thread has said anything about political parties or candidates. I am ok with it.

 

[rescueme]

I don't see that as political. No one in this thread has said anything about political parties or candidates. I am ok with it.

+1

 

[pb4uski]

The financial stability of the country that I am retired in is relevant to fire.
I don't see that as political. No one in this thread has said anything about political parties or candidates. I am ok with it.

+1 At the same time. I have no idea how one structures a retirement investment portfolio to protect oneself from a constitutional crisis.

 

[REWahoo]

I don't see that as political. No one in this thread has said anything about political parties or candidates.

Not yet, but history tells us that won't hold beyond another dozen or so posts before political allusions are made and sides are drawn...

 

[MichaelB]

Did anyone read the link? A discussion about public finance and FIRE is fine.

The link in the original post clearly is not a simple financial discussion and is very much a mix of non-mainstream politics and economics expressed in a way that is anything but financial.

What few dare admit, much less state publicly, is that the Constitutional limits on the financial Aristocracy and the Tyranny of the Majority have failed

The intent here may be a totally acceptable discussion of current mainstream financial issues. Hopefully that will be the case.

 

[rescueme]

Did anyone read the link?

I did.

Don't condemn the article based upon a few sentences of opinion. In any statement, there is a bith of "truth", regardless if you agree to the statement, or not. Treat us as adults, and we can acertain and form our own opinions (as long as we keep them to ourselves, and not start an argument on the forum).

As they said in my day (as an old phart), "don't throw the baby out with the bath water".

I too want to know what the "climate" (political or otherwise) may impact me (and my family) in the future.

Just my simple POV, of your comments.

 

[MichaelB]

All I did was change forum. Chill...

 

[rescueme]

All I did was change forum. Chill...

Is that your "opinion" as a poster or as an Admin?

Sorry, I don't know what the word "chill" means.

 

[MichaelB]

Is that your "opinion" as a poster or as an Admin?

Sorry if I wasn't clear. My opinion is

The intent here may be a totally acceptable discussion of current mainstream financial issues. Hopefully that will be the case.

 

[Lazarus]

Ok, I have a mainstream financial question for those who know more about national economics than I do.

Can the current level of spending be met with tax revenue? In other-words at what ever level of taxation is required to meet it.

 

[NYEXPAT]

I think that as long as the top .5% and the bottom 50% interests are allied, this simple majority will keep the other 49.5% "noses to the grindstone" for awhile longer. On a side note I enjoy the "Peak Prosperity" website but do find it ironic they changed their name from Chris Martinson.com when "peak oil" did not work out for them like expected.

 

[rescueme]

Can the current level of spending be met with tax revenue?

No. Not current or under any proposed current "solutions", as proposed, regardless of major party, IMHO.

That's all I'll say, since "opinions" are not allowed on this forum (and I have a lot to say on that subject)...

But what do I know? Being a Libertarian, I'm traveling on a "different road". I tend to look at the expense side, nothing more than an indivudial (either still in the w*rkforce or retired) tends to concentrate on. You can't necessarily expand your income, but you can control your expenses to some degree, IMHO.

 

[Lazarus]

I am just looking at it from an engineering perspective. I agree that the present or proposed levels will not meet the outgo. I don't think there is a claim that they will. I mean is it possible to raise taxes high enough to cover it at all? I am not asking for opinions just facts. Would some level of higher taxes cover it? I have no idea myself.

 

[pb4uski]

I think the answer is solely increasing taxes could fill the gap (in theory) but that the resulting level of taxes would be so high that they would have severe adverse ramifications to the economy so just increasing taxes alone is not a feasible alternative.

 

[Midpack]

Ok, I have a mainstream financial question for those who know more about national economics than I do.

Can the current level of spending be met with tax revenue? In other-words at what ever level of taxation is required to meet it.

In 2011, federal spending was $3.6T and revenues were $2.3T, for a deficit of $1.3T. Revenue would have needed to increase by 56% to balance the budget in 2011. Revenue includes individual income taxes (about half of total revenue), payroll taxes, corp taxes and various other taxes & fees (less than 10% of total).

Imagine the disruption if all these various taxes/revenue sources actually increased by 56%? Or even worse if 'we' decide to exclude any of the revenue sources.

Lots of good info here if you're interested Federal Revenue and Spending: Federal Budget in Pictures

 

[Hamlet]

That's actually a more complicated question than it looks like.

A large portion of the deficit is due to safety net spending that increased dramatically because of the recession (unemployment, Medicaid, food stamps, etc), as well as a collapse of tax revenues caused by the recession. Another large portion comes from temporary measures designed to help during the recession (extended unemployment, SS tax cut, etc).

So if the economy improves, a large chunk of the deficit will go away as well. The article puts the deficit number at $1.3 trillion (2011), but 2012's deficit was only $1.1 trillion. Every month we are generating about 150k net new jobs. If that continues, that means that by this time next year, we'll have another 1.8 million people that will be paying into the system rather than taking out of it.

Once the economy gets to full employment, the best guesses I've seen put the expected deficit in the $500 billion range, but they are only guesses at this point. Since the economy grows over time, a modest deficit of $200 billion or so is not disasterous (although I think it would be better to aim for surpluses eventually). So our real structural problem in the medium term is probably only $300-$400 billion or so.

I suspect that a return to Clinton level taxes for everyone (not just the 250k+ crowd) would be enough to close that gap. I'm not advocating exactly that, but it's a good baseline to start with.

Some caveats--

We may go back into recession, especially if we don't smooth the fiscal cliff. The economy is still very fragile, and taking $500 billion out of it in a year may spiral us back into a severe recession.

We need to get medical spending under control. Medicare, Medicaid, and the VA are going to eat us alive in a few decades if we don't do something to bend the curve.

We need to get untangled from foreign wars and stay untangled for awhile.

Ok, I have a mainstream financial question for those who know more about national economics than I do.

Can the current level of spending be met with tax revenue? In other-words at what ever level of taxation is required to meet it.

 

[eytonxav]

Ok, I have a mainstream financial question for those who know more about national economics than I do.

Can the current level of spending be met with tax revenue? In other-words at what ever level of taxation is required to meet it.

IIRC, there have been very few instances in the history of our country where we balanced the books. It seems pretty sad that deficit spending is an acceptable practice for the country, when you consider what happens to individuals that run their households at a deficit.

 

[Midpack]

IIRC, there have been very few instances in the history of our country where we balanced the books. It seems pretty sad that deficit spending is an acceptable practice for the country, when you consider what happens to individuals that run their households at a deficit.

As long as deficits are at or below GDP (1.5-3%), they're considered sustainable, it is an "acceptable" even desirable fiscal practice. Unfortunately we've been well above that for a long time...

 

[LRDave]

IIRC, there have been very few instances in the history of our country where we balanced the books. It seems pretty sad that deficit spending is an acceptable practice for the country, when you consider what happens to individuals that run their households at a deficit.

I don't see how a country/government's spending and a household's spending compare in any way. I don't see that the mission of a government and the objective of an idividual citizen or household line up at all. But that's just me......

 

[BTravlin]

See chart below and this is what I find even more worrisome than our debt levels. This shows Total Government Spending as a % of GDP. We're now in the 40% range and the trend line is steadily rising. How long before spending is over 50% of GDP? How long can we last with the government as the dominant actor in the economy?

 

[Midpack]

That's actually a more complicated question than it looks like.

A large portion of the deficit is due to safety net spending that increased dramatically because of the recession (unemployment, Medicaid, food stamps, etc), as well as a collapse of tax revenues caused by the recession. Another large portion comes from temporary measures designed to help during the recession (extended unemployment, SS tax cut, etc).

So if the economy improves, a large chunk of the deficit will go away as well. The article puts the deficit number at $1.3 trillion (2011), but 2012's deficit was only $1.1 trillion. Every month we are generating about 150k net new jobs. If that continues, that means that by this time next year, we'll have another 1.8 million people that will be paying into the system rather than taking out of it.

Once the economy gets to full employment, the best guesses I've seen put the expected deficit in the $500 billion range, but they are only guesses at this point. Since the economy grows over time, a modest deficit of $200 billion or so is not disasterous (although I think it would be better to aim for surpluses eventually). So our real structural problem in the medium term is probably only $300-$400 billion or so.

I suspect that a return to Clinton level taxes for everyone (not just the 250k+ crowd) would be enough to close that gap. I'm not advocating exactly that, but it's a good baseline to start with.

Some caveats--

We may go back into recession, especially if we don't smooth the fiscal cliff. The economy is still very fragile, and taking $500 billion out of it in a year may spiral us back into a severe recession.

We need to get medical spending under control. Medicare, Medicaid, and the VA are going to eat us alive in a few decades if we don't do something to bend the curve.

We need to get untangled from foreign wars and stay untangled for awhile.

Except all the projections I've seen (gov & private) suggest it will be 2017-18 before we get to 6% unemployment (considered "full" employment by many) given the path we're on. Have you seen any more optimistic?

Obviously growth and reducing unemployment take away the pain, how exactly do we do that under present circumstances?

 

[rescueme]

I don't see how a country/government's spending and a household's spending compare in any way. I don't see that the mission of a government and the objective of an idividual citizen or household line up at all. But that's just me......

When you (along with others) are responsible to support government expenses (via taxes), it is part of your personal budget/expenses (and taxes are an expense to the indivudial) that you must account for.

It's simply the case of someone telling you "I'm going to buy this, and you're responsible (or future generations) for paying for it".

Sorry, I don't buy that ...

Government and personal expenses are highly correlated, IMHO.