JoNova

A science presenter, writer, speaker & former TV host; author of The Skeptic's Handbook (over 200,000 copies distributed & available in 15 languages).



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What Fiscal Cliff? It’s a fiscal-crack-in-the-pavement.

There is an economic crisis out there, but it isn’t the Fiscal Cliff.

The best summary of the economics I’ve seen comes from Mark Steyn.

The bipartisan Super Committee of Super Friends was supposed to find $1.2 trillion dollars of deficit reduction by last Thanksgiving, or plucky little America would wind up trussed like a turkey and carved up by “automatic sequestration.”

Sequestration sounds like castration, only more so: It would chop off everything in sight. It would be so savage in its dismemberment of poor helpless America that the Congressional Budget Office estimates that over the course of a decade the sequestration cuts would reduce the federal debt by $153 billion. Sorry, I meant to put on my Dr. Evil voice for that: ONE HUNDRED AND FIFTY THREE BILLION DOLLARS!!! Which is about what the United States government currently borrows every month. No sane person could willingly countenance brutally saving a month’s worth of debt over the course of a decade.

I suppose it’s possible to take this recurring melodrama seriously, but there’s no reason to. The problem facing the United States government is that it spends over a trillion dollars a year that it doesn’t have.

I never thought the Australian economy would look good in comparison but figure that we’ve got a population smaller than California and we’re spread across a land almost as big as the whole US. We are the first world quarry next door to China, Japan, and Korea. Sunny, lucky, and fast asleep at the wheel.

Mark Steyn points out that everyone is spending more than they are getting, but the US is better at it.

Generally speaking, functioning societies make good-faith efforts to raise what they spend, subject to fluctuations in economic fortune: Government spending in Australia is 33.1 percent of GDP, and tax revenues are 27.1 percent. Likewise, government spending in Norway is 46.4 percent and revenues are 41 percent — a shortfall but in the ballpark. Government spending in the United States is 42.2 percent, but revenues are 24 percent — the widest spending/taxing gulf in any major economy.

Big western governments are all drunken spenders, pork barreling their way to electoral bliss by quietly printing the money and loudly pretending they might reach a surplus.

Australia had a bonanza treasure-chest to start with (plus a $20bn surplus) and record terms of trade for the last few years. We could have been saving it up big time, with almost no effort. Instead, in a boom, even the worlds greatest treasurer needs more than five years to Ruin Us.

Go Wayne Swan.

The real crisis is hidden under the fake ones

Bread and circuses anyone? The US Official federal debt is $16 trillion dollars, and if that’s not a big enough drama for Hollywood, the blockbuster is unfunded future liabilities which are somewhere between 80 to 200 trillion dollars, and increasing by two to four “$T” per year. The money coming in to “pay” those bills is about $2.5T a year.  There is no arithmetic that makes that work.

If cutting debt by a tenth of a trillion over ten years is a cliff, then balancing the US accounts is a Galactic Black Hole.

Will the crowd realize the debts are too large to be repaid? The question is not “will the West default”, but what type of default will it be?

The only math that rescues us from beyond the event horizon is one where the numbers themselves are transmogrified. “One” becomes “one tenth”, or “one-to-the-minus-ten”. The transform called inflation finds the payments and wipes out the debt. It steals wealth from the people who save. It even steals from investors who make profits, but whose profit-margin is less than the inflation rate. So that’s how we’re going to default.

The fiscal cliff is a circus

The clowns will prance,  acrobats will backflip, the crowd will cheer dutifully, and the world will be spectacularly rescued from a 6 inch free-fall over a microscopic cliff.

Only a few near the fire exit will notice the approaching black hole.

And are governments going to cut real spending? Voters know the bankers were bailed out in 2008 and have been told the fundamentals are strong. They will want to be bailed out too. How did that austerity plan work out for Greece or London? Only a few people died.

When big-spending put us into the poo, the answer is not to spend bigger. But when faced with a hangover, it’s all to human to reach for the hair-of-the-dog. Welcome to the world of economic cirrhosis.

It could be worse, you could be in the EU

The US may be broke but it’s exhibiting its great strengths of  being more open and transparent. The Europeans are in an even more dire financial mess, though it’s hard to get hold of the figures to prove it beyond reasonable doubt (their ratio of total debt to GDP is much higher, and their GDPs are growing more slowly, so it looks grim). Their banking system is cloaked in secrecy, but almost certainly in much worse shape than the US banks (the US banks went into the GFC with leverage ratios of 30:1, the European banks with 50:1). But the Euro is a socialist paradise, leading the world in replacing national democratic governments with big bureaucratic solutions, right? So let’s not carp on about them: remember, when in doubt, ask: “what would Tony Jones do?”

UPDATE: Cheifio, as always, has insight – he does not want “a deal”. Read his take on the Fiscal Scare, dealing with bullies, the Bums Rush, The False Choice, the Threat.  See also his comment below at #15.

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185 comments to What Fiscal Cliff? It’s a fiscal-crack-in-the-pavement.

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    Rod Stuart

    There is an insightful essay this morning called “The coming isolation of the dollar”.
    Are Western governments merely incompetent, or is there a common agenda unfolding? Could this be the threat of International Communism issued by Lenin so many years ago? “Politicians are the same all over. They promise to build bridges even when there are no rivers.”

    “The surest way to destroy a nation is to debauch its currency.” “The Capitalists will sell us the rope with which we will hang them.” “Destroy the family, you destroy the country.” Vladimir Ilyich Lenin. And to put the current “outlaw the guns debate” in perspective, Lenin said “Only an armed people can be the real bulwark of popular liberty.”


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    Bulldust

    The US debt clock might be worth pinning to the post (although at comment 2 it is close enough):

    http://www.usdebtclock.org/

    Pay particular attention to the bottom rows of numbers … particularly “US unfunded liabilities.” When we had an unfunded super liability looming, Peter Costello started the Future Fund to cover the liability of future retirees. Would love to see some forward planning like that in the US of A.

    BTW Jo, one line doesn’t make much sense (I assume there is a typo):

    Instead, in a boom, even (the) worlds greatest treasurer needs (no) more than five years to ruin us.

    Suggested edits in brackets.

    —————
    Ta! Fixed one. But Swan has (not) ruined us yet. Give him another few years though… J (why did I leave out the word “not”?)


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    • #
      Kevin Lohse

      Mr. Swan is a mere tyro. The World’s Greatest Treasurer is undoubtedly Salvador Mundi, the Right Honourable Gordon Brown MP who when handed a burgeoning economy in 1997, turned it into a derelict corpse by 2010. Even he took 7 years, until 2004, before the cracks were irreparable. Mr Swan has the additional handicap of administering to a nation which has a lot of things the world wants and will pay for, the live re-enactment of,”Brewster’s Millions”, will, I suggest, take longer than an increasingly restive Australian electorate will give him.


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      snedly arkus

      Unfunded liabilities are a bunch of political hooey. So we don’t have the money right now to pay some guys Social Security in 2050 and we should panic? They use this tactic to scare but make no mention of the future revenues that will fund those liabilities. Using this logic unless you already have the money set aside all the food that you will require for the next 30 years is an unfunded liability. Also using the twisted logic you should be ashamed of yourself for “owing” all that grocery money. It isn’t a liability until the bill comes due. As far as the USA going broke, not. We got the goods the other guy has a promise we will pay. We are in the drivers seat. To raise revenue the US should charge all the freeloaders too cheap to fund their defense and rely on the US military for their protection and wars of plunder.


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        Jaymez

        I’m sorry Snedly but your’s is the twisted logic – I wish it wasn’t. The bulk of the unfunded liabilities they are referring to are:

        a) Aged Pensions, and
        b) Public Service Pensions (Military, Police, Secret Service, Politicians, bureaucrats, judges, etc)

        The first category of age pensioners is a problem because there is a huge bubble in the population from 1945 – 1965 usually referred to as the ‘Baby Boomers’. Obviously those born in 1945 are already 67 years old and the rest are at or reaching retirement age in the not too distant future. It wouldn’t be a problem if there was at least as many or more people in the workforce behind them to continue working and paying taxes to support their welfare payments but there just aren’t. Pensions will need to be slashed, and/or the retirement age lifted, and/or taxes raised to meet this future population bulge liability.

        The second category were voted generous retirement schemes when they were bureaucrats themselves. But the generation before them had no such benefits, of just limited benefits, not the very generous schemes these people are on. The Fed already finds itself in a position where it cannot meet ongoing Government expenditure needs from government receipts. In fact there is already a shortfall of more than $1 Trillion per year.

        So when the swag of well paid public servants retire as they are already, there will be an additional expense burden to the budget with no automatically matching revenue. So the people who remain in the work force and replace those who retire will have to pay more tax, or those generous retirement benefits will have to be reduced.

        The only time your grocery analogy might be appropriate would be if an individual was coming up to retirement, had no pension, 401K, or savings, and were entitled to no government benefits; then yes I would say their future grocery needs are an unfunded liability and they would find themself in the same situation as the US. You may be able to borrow money, if someone was prepared to lend it to you – but what can you put up for security? Or you could try printing your own money!

        In Australia, the previous Coalition Government recognised this impending problem and did two things. Firstly they increased the official retirement age slightly and tightened the income and asset tests to qualify for the aged pension.

        Secondly Treasurer Costello placed $60 Billion in the Future Fund by their last year in office in 2007 to meet the unfunded liability costs of public service superannuation funds. Their plan was to add a few billion dollars to the fund every year to keep pace with the unfunded liability. Unfortunately in his first Budget Wayne Swan clawed back the amount earmarked for the Future Fund and called it a ‘saving’ to the budget bottom line. He hasn’t added a cent since. The current unfunded liability is estimated at around $80 Billion, which is on top of the declared Government debt of around $250 Billion or so.

        Even if Labour could manage to balance their budget every year, we’d still have this debt and a monthly interest bill in excess of $1 Billion dollars increasing the growing debt. We need to take drastic action to increase productivity, reduce costs, allow the government to increase some taxes – probably the GST rate, while the Government must make serious cuts to Government expenditure with a plan to clear the deficit over the next decade. It is unlikely it could be done before then.


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        • #
          Len

          MV in a previous post explained what happened to all the money that was collected from wage earners and put in a pension fund. This was “looted” by the Federal Government. I must have been the Liberals because they were the ones in power for so long.This was superannuation but now it is treated as welfare.No means tests were meant to be applied.


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          Harry

          Actually Mr Costellos Future Fund is only used to pay the super of public servants on the old defined benefit scheme.

          Current public servants in the CSS are in a contribution scheme just like anyone else, and have been since about 1987.

          I’m in the old PSS – defined benefit scheme…. but there are not many now who are.

          To a certain extent the Future Fund is a bit of a puff about nothing.


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      • #
        Power Grab

        Good point. In support of its validity, I might mention (with tongue firmly in cheek) that the U.S. is trying very hard to get rid of all those soon-to-be-retirees. What do you think the cholesterol myth is about? Don’t forget about the “death panels” soon to be established thanks to Obamacare. And when they raise the death tax, why, they’ll probably end up with a surplus. So it appears that the plan is to kill off everyone who isn’t part of the privileged elite power club, take whatever they happened to accumulate (probably by way of the inheritance tax), open the floodgates to immigrants (who reportedly borrow 40% of what they spend), and the bankers and the bureaucrats will be sitting pretty. They will have greatly reduced the portion of the population who might have ever challenged them for supremacy, and the whole country will end up looking like Las Vegas…or maybe Haiti.
        /sarcoff

        God forbid!


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    Jim from Brisbane

    I read very recently that when more people vote for a living than work for a living, the end is only a matter of time. In this country, we seem to be in a headlong rush toward more and bigger government to solve all problems heedless of every single example throughout history of the eventual failure of that model.

    Isn’t it amazing how simple, intuitive “common sense” for lack of a better term, seems to be so contemptuously thrown aside these days in favour of much more “sophisticated”, intellectual offerings which turn into dust?

    If you spend more than you earn you’ll eventually run out of money.

    It doesn’t matter how good the best computer projections in the world are, if they continually fall well short of actual outcomes, then there’s something wrong with the models.

    If your expectation is that government should solve every problem, then it needs to continuously grow bigger and more powerful and exercise more control of individuals in order to do so.

    If you think being free to express any idea is less important than ensuring no one should ever be offended, eventually no opinion not approved by government will ever be heard.

    The real fear is that this only ends in a situation so dire that in desperation, people will turn to totalitarianism to fix it.

    One of the things that makes us unique as a species is our capacity to learn; we are not demonstrating that at the moment.


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    john robertson

    socialism works great, until you run out of other peoples money.
    The regulator class and politicians, our new royalty, have set up a bureaucratic heaven, through legislation they have granted themselves authority greater than our laws permit.
    We have safety and environment officials who police undefined crimes, unspecified violations , then set the penalty and prison sentence and its their judgement that you are guilty, courts won’t allow a fair trial as the crime is defined by the regulator.
    So our help is destroying our communities, disabling the productive and regulating from lunacy.
    Now we are broke, yet the chosen ones will all clamour for a greater share of the now nonexistent wealth, insist we honour their pensions and respect their authority. I almost feel sorry for them.
    On the bright side, once the folk,who are not paying attention, take a hard hit in their wallet, realize the extent of this betrayal, the fun will begin.
    People do smarten up quite quickly once they’re broke.


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    • #
      KinkyKeith

      Great comment John.

      Money will always get people’s attention; it’s happening now with power prices and other scams created by greedy politicians.

      Smart meters will just accelerate the coming public awareness.

      KK :)


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  • #

    Great article Jo. It’s a serious issue that we really need to be aware of. Borrowing on the backs of the next generation should be constitutionally illegal. Maybe thats our greatest problem, the fact that our constitutional frameworks are so weak in the face of the miscreant behavior of our media and ruling classes.


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    • #
      KinkyKeith

      Good point Ceetee

      All the hype about us lumping future generations with “Weather” and they conveniently sideline the fact that

      they, the Ruling Classes, are going to dump huge government debts on Mr and Mrs, M. and Ms Future and their

      children , grandchildren, dogs and cats.

      The corollary to all that Debt, is that someone has the money and theiere are no goods to show for the purchase.

      Where is the money.

      As I have previously discussed, others have got Extra in their pay packets through government largess.

      If you wanted to track some of the cash you could look at Victorian public works as examples: roads and

      infrastructure and the Biggy: a Fresh Water Machine for every state budget to deal with, in the future.

      KK :)


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      • #
        Cookster

        Another example KK is our governments failed border security policy. As a result of this failure they have offered Australia’s $300 / week to house these people now overflowing from the detention centres. I am quite sure those who are happy to receive $300 / week from Australian taxpayers will vote for the current government plus scream loudly when an alternative government attempts to stem the tide of illegal immigrants. All in the name of increasing government dependency (just like Carbon Tax compensation).


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        • #
          KinkyKeith

          Yes Cookster.

          The current crop of “Refugees” are, in the main simply Economic Opportunists taking advantage of our

          deluded system of Government accountability.

          Another vote gathering victory to the “Compassion Industry” which somehow conveniently lacks compassion for the average Australian worker.

          Lest I be accused of racism; members of my extended family were refugees and entered Australia after the

          proper interview overseas.

          They cost the Australian taxpayer seed money which I can proudly say has been repaid many times over in

          taxes and effort to build the Australian community.

          No doubt the many European immigrants who came here after WW11 and worked to build the nation may also be

          dismayed at the political correct treatment under UN Law that is dished out to the current queue jumpers.

          It would seem that the rights of the law abiding Australian taxpayers are being trampled on.

          KK


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            Cookster

            Thanks, agree 100%. For the record, my wife entered Australia in the late 70s after her family as refugees waited their turn before being granted residency. She shares my opinion on the curent flow of Economic Opportunists.


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          • #
            KinkyKeith

            For a while after 1975, VN became as dark and unpleasant a gulag as anything in Soviet or Chinese Communist history.

            KK


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    • #
      Juliar

      I am not a supporter of borrowing large sums of money to fund debt nor do I support Keynesian economics but for countries to not be able to borrow money is simply economically suicidal. Not borrowing money in recessions and downturns certainly results in important basic services being underfunded. Are you suggesting that Australia should have borrowed no money whatsoever during the GFC?


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      • #
        Ian

        What “important basic services” was the borrowed money used for? If it was for the BER or the “Pink Batts” schemes, was the borrowed money well spent? Was it for the $900 handout to many Australians? Is it now being used to compensate low income families for increased power bills which are arguably due to government’s introduction of a tax on CO2? Mr Hawke is urging abolition of the states. I can’t see it happening but I certainly hope it does. Look at the diminution of bureaucracy that would engender


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        • #
          KinkyKeith

          As you say Ian.

          We now have huge debt and absolutely nothing of use to show for it;

          except some very happy building contractors who will undoubtedly vote the “correct” way at the next

          election.

          Who says you can’t buy votes with borrowed money?

          It’s really weird to have Government so concerned about the “Environment” but they wont organise to plant

          a few trees in school yards to give shade and natural sequestration BUT will spend future tax money on

          the worlds largest Sun Shelters that have a gi-normous CO2 liability attached.

          Western workers and taxpayers need a way of making government representatives personally liable for this

          type of theft and blatant redistribution of the nations wealth.

          It doesn’t matter at the moment whether you vote Labour or Liberal, Democrat or Republican ; whoever the

          incumbents are they have the immunity to Screw us bad.

          KK :)


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        • #
          cohenite

          That is the point; productive debt, investment in enterprise which will enlarge the economy, can be tolerated. But this wretched givernment has sunk nearly 300 billion, almost 1/3 of GDP down the drain, and for what; as you say, pink batts, BER, cash for clunkers, my favourite was the set-top box to convert TVs to digital which was sent to all pensioners, including about 20,000 blind ones.

          And don’t forget the NBN is not on the books as a debt!

          What really is killing this country is the green disease; NSW alone inherited a $4 billion debt from the solar FIT scheme, which the outgoing ALP government had said would only cost 370 million!

          Land is being locked up through CO2 tax anchillary legislation and productive industry and debt has disappeared.

          Quite simply the ALP/Green government has betrayed Australia.


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          • #
            Boadicea

            Spot on Cohenite

            Thats why the recent Quadrant article by Walter Starck makes such good reading …. cowardly Govt and pubic sector bending to the will of activist NGO,s….

            There is also increasing evidence to also show that the so called learned professional societies have also been captured by the same brand of activism, and by the same class of ignorant, duplicitous, and decidely un-democratic behaviour.

            In fact a common thread appears to involve the ruling elite in each organisation behaving in a manner that deliberately by passes the democratic principles…

            …Unions are not the only organisations that are shonky and need a clean out

            They have all betrayed us.


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        Cookster

        Juliar,

        Are you suggesting that Australia should have borrowed no money whatsoever during the GFC?

        I’m not sure he meant no money but rather less money. Overpriced School Halls, Deadly Roof insulation schemes, $900 cheques and a few thousand more Bureaucrats in Canberra weren’t necessary when the average Australian mortgage holder had an extra $7,000 a year or so in their bank account thanks to the reduced RBA Cash Rate. And 4 years after Lehman Bros collapsed Australian taxpayers are still paying for those extra Bureaucrats plus a $50 Billion National high speed Broadband system with just a 25% take up rate just to state two examples.


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  • #

    It’s just FunnyMoney KK!. You know, the kind that socialists use and scatter like confetti at a Gypsy wedding.


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  • #
    Peregrine

    In Oliver Twist Mr Macawber said: ‘Annual income 20 pounds with annual expenditure 19 pounds and 6 shillings result happiness. Annual income 20 pounds with annual expenditure 20 pounds and 6 shillings result misery!’ Charles Dickens’ father spent time in a debtors prison so he would know.


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    JMD

    Big western governments are all drunken spenders, pork barreling their way to electoral bliss by quietly printing the money

    It’s not money Jo, it’s credit, that’s how they do it, they pass dud cheques, to you. Yes it trades ‘money good’ & almost without exception the populace treats it as money, but it’s not money. Rather, it is a credit bubble of magnitude almost inconceivable, which is maybe why few conceive it.

    The US dollar – the credit of the Federal Reserve Bank – is the most inconceivably large credit bubble in human history, as what are the ‘assets’ of the Federal Reserve Bank? Debts “too large to be repaid”, in other words – junk. Let me put it this way, when it blows, dodgy scientific method will be the least of your problems.

    When “will the crowd realize?”. Credit bubbles are irrational, so completely unpredictable, but nothing new as Alexander Pope declared sometime around 1720:

    How goes the Stock, becomes the gen’ral Cry.
    Rather than fail we’ll at Nine Hundred Buy.
    Instead of Scandal, how goes Stock’s the Tone,
    Ev’n Wit and Beauty are quite useless grown:
    No Ships unload, no Looms at Work we see,
    But all are swallow’d by the damn’d South Sea.


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    • #
      Graeme No.3

      Ah, but the aftermath. Not only did all the Directors of the South Sea Company get hauled before Parliament and “fined” up to 97% of their wealth, but some of the corrupt politicians got arrested (apart from one dying and a suicide). And the whole retribution was visited within a year.

      Interesting that one Lord, who had been sent to the Tower of London for contempt of the Lords, complained about the
      ex-Chancellor of the Exchequer being a fellow prisoner, on the grounds that he shouldn’t be forced to keep such low company.


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      • #
        JMD

        The aftermath was that the credit of the Bank of England resumed its exulted position as chief bubble. The South Sea Company was, for a time, in direct competition.

        Not that James Mark Court Delingpole or Nigel ‘tanks on the streets’ Farage, and many others, would endevour to pull back that curtain.


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        RoHa

        The Icelanders responded to the GFC in the same way, and with good results.


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      timg56

      As a US taxpayer, the only bright spot I can see is the fact that governments and investors do not have any reasonable alternative to place their money.

      As Jo points out, Europe is not an option, as they appear to be even deeper into the morass then than the US. China? Who will realistically bank their money with someone who changes the value of their currancy at will?

      Remember the talk about the US credit rating being down graded back in 2011 when it looked possible the debt ceiling wouldn’t be raised. Well it was, the down grading happened anyway and …. ? Basically nothing. Not one of the doom and gloom predictions came true. In fact the Treasury was able to offer record setting low interest rates and still sell government bonds.


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    Cookster

    I am neither an economist nor a scientist but from my observations somebody needs to point the finger at Western government application of Keynesian economics.

    Western governments love to use Keynesian policy as an excuse to spend big when the economic storm clouds gather. But governments get amnesia when economic conditions improve so they continue spending like drunken sailors. This is because the beneficiaries of that spending unsurprisingly don’t like it being withdrawn. The greater the magnitude and longevity of this increased government spending, the more addictive it becomes to the beneficiaries who also happen to be voters. As such it becomes political suicide to wind it back and thus we are left with today’s problem. This is the cycle that needs to be broken, be it the USA, Western Europe or Australia.

    Breaking the cycle will be very difficult but first, as Jim from Brisbane points out, Western people should stop expecting government should solve every problem. Every time the government rolls out a new pork barrelled promise people need to ask if that is really affordable or necessary. Free healthcare, education, Dental care, paid maternity leave etc are all wonderful, but if the productive part of the economy is not generating enough taxes it is not sustainable – it all becomes a question of National Productivity. As Jo’s figures on the gap between government spending and taxes show, in most cases these promises and services are not sustainable – they are pushing the world towards the next economic crisis and it will make 2008 look like chicken feed – who will bail out our governments?

    The ruling class loves any policy that extends its power and reach over the people and the economy. Western government application of Keynesian economics and the global warming scare campaign go hand in hand as the aim of both is to increase government dependency of both individuals and businesses.

    As Jo points out, in Australia to date we have been fortunate China has used us as its quarry. The chickens are coming home to roost now that global prices and demand for Iron Ore, Coal and Natural Gas are softening. Trouble is, now thanks to Kevin Rudd and continued by Julia Gillard and Wayne Swan there are now many thousands more bureaucrats employed by the Federal government and telling these people their services are no longer required won’t be as easy as closing any loopholes in Australia’s taxation laws.


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    • #
      Grant (NZ)

      I question the need for governments to be so integral to the economy. Government involvement only serves to distort. As we all see, when the government starts spending then you get people queueing to get their share (deserved or not). Once the government has distorted something the costs continue to rise.

      Example: I saw a bumper sticker the other day. “If you can’t feed ‘em – don’t breed ‘em”. In NZ we have such a welfare institution that there are kids who see having babies as an occupation – an option alongside other careers. And we have spiralling social welfare costs and benefits.

      Keynes has a lot to answer for. I think he lacked basic common sense and ability to process real world obeservations. He probably also had a more benign view of human nature to think that his policies woud not be “gamed” by the beneficiaries.


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        Cookster

        Well said. There has become an entitlement mindset. Whenever we have an election people ask what can the government do for me. What they should be asking is what can the government NOT do for me. There needs to be a safety net for those less fortunate but the problem is government services are being extended too far and to people who are quite capable of paying their own way out of after tax earnings. In some ways it is our own Western democratic system and selfish human nature that created the situation.


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    Tel

    … when in doubt, ask: “what would Tony Jones do?”

    Errr, try to look serious, ask a thoughtful question, and then interrupt anyone attempting to answer. After that, throw out the answer that you wanted to hear, and go back to the beginning again.


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  • #

    Thanks Jo thoughtful article. It might do USA some good to trip over this small fall.
    I think that the voting public are not right always. Think that NSW voted in a Labour government previously (before the present one of Barry O’Farrell) when it seemed that they would realise their mistake but the public had to endure another 4 yrs of pain & corruption to get the message. Similar situation occurred in Qld. It looks like USA will experience 4yrs of pain with Obama.


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    sophocles

    Dr William Vickrey, a Nobel Laureate (1997) and economics professor at Columbia U, had some interesting ideas about national debt(s). He’s worth a read:

    Fifteen Fatal Fallacies of Financial Fundamentalism

    … given that the Fiscal Cliff is driven by Financial Fundamentalism.


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      The Nobel Prize committee in the last twenty years has messed up a few prizes- take the one to the IPCC, the one to Arafat, the one to Obama and the one recently to the European Union. If Vickery received some recognition for the piece in the link and US administrators have taken notice then it is no wonder that that USA is in debt to the tune of $US16-17trillion (Tera dollars) and the expenditure exceeds revenue. The assumption that all consumer spending and government spending is good is nonsense. Spending money on imports such as windmills does nothing for anyone. The same can be said for imports and consumption of cigarettes. Saving does lead to investment. Very few put money under the bed because with inflation over time it is worthless. Most put savings to work even if it is deposited in a bank or superannuation fund (from where it is invested in assets or loaned out for investing). Australia has high home ownership. A home is an investment and asset coming from savings.


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    Are you sure you aren’t RJ ?
    Another dipshit believer in MMT aka there is such a thing as a free lunch.


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    @Cookster:

    The problem is that folks only hear / remember 1/2 of what Keynes said. I am an economist, BTW (it isn’t hard to become one ;-)

    Keynes said that in times of recession, when the velocity of money slows down (i.e. folks stop spending) there is likely to be a deflationary spiral into a depression. The government can prevent that by continuing to spend (thus propping up the velocity of money and keeping prices supported.) This prevents the follow on consequences of a short term pull back in private spending. AND….

    (Now at this point most folks stop listening, and ALL Politicians start shouting “LA LA LA LA LA” as they plug their ears..)

    AND… when the economy is in surplus, governments need to reduce their spending and run a budget surplus. Over time, they need a balanced budget, and ought to run anti-cyclically in both times of strong and weak business cycles.

    Keynes was no fool, and he specifically did NOT advocate for prolonged deficit spending and high government debt as the standard way of doing business. The way folks selectively use the first part of Keynes and forget the second is the root of the problem with Keynesian Economics…

    @JMD:

    An interesting point, even if a bit technical… When I got my Econ degree, this was more commonly taught. It is increasingly glossed over.. The definition of “money” has two major aspects. 1) Medium of exchange. 2) Store of value. For a “currency”, it only must meet standard 1, medium of exchange. So our present “fiat money” systems that only have ‘value’ by mutual agreement, are increasingly failing on #2 (store of value).

    So you are quite correct to say “It isn’t money”. It’s only currency… As Gresham’s Law dictates that bad money drives out good, folks will increasingly look to things other than currency to be the ‘store of value’ and dump their currency in trade to others. Already, few folks in the USA have any “savings” at all. Why save something that has gone down in value by 95% over the course of my lifetime? ( The US First Class postage was 3 cents rising to 5 cents when I was about 8 years old. Now it is 40 something headed to 50 cents. A gallon of gasoline was 25 cents, now it is $3.50. Bread was 10 cents, now it is $2 to $4 a loaf. Etc.)

    So folks have just made the rational decision not to save any. Soon they will make rational decisions not to use it even for modest term “parking” of value…

    @Ceetee:

    The only “good” thing to come out of this is that we really are not going to pass on this debt to future generations. Just like the debt from 40 years ago was rolled over until inflated away, this debt too will be inflated away. The folks who lose are the ones saving (which isn’t any of the general population) and those issuing loans. So all the mortgage payers get a benefit and all the mortgage lenders lose.

    At present, both China and Japan have loaned the USA about $1 Trillion each. The other major lender is the “Social Security Trust Fund” (where real tax money goes in, it is stolen – by legal process – by the legislature and spent, leaving behind an I.O.U. called a Treasury Note, Bill, or Bond.) So who will lose? China, Japan, social security fund, and the folks world wide with $US in their vaults as “reserves”. The national banks and every other user of the $US. Oh, and all the insurance companies that hold US Treasuries for various anuities, trusts, etc.

    It is easy to avoid being one of those losers, btw. Just put your “savings” and such in real goods, assets, and productive capacity. Things like minerals, mines, forests, etc. etc.

    Oh, and a nicely mortgaged bit of land or home… Let the bank lose out… (My Dad bought a home for $7,000 that was later sold for $80,000. So it not only stored it’s value, but since he only put down something like $700, he had the rest of the mortgage inflated away and the value of the home transfered to his name. Sure, that $80,000 only bought about what the $7000 did 30 years before, but he got the 100% in his name from day one…and never had to pay for it in real terms.)

    Since most folks have more mortgage than “savings”, most folks will net win on the deal. It’s only the savers and investors in debt of the world who will lose…

    FWIW, I’d looked at the “Fiscal Cliff” some time ago and decided the best thing we could do is go right on over it and NOT raise the debt ceiling. It reduces spending a little bit and it increases taxes. We have a problem of too much spending and too much debt. Looks to me like it is an improvement…

    Or looked at the other way:
    How can “avoiding the cliff” by increasing spending solve too much spending?
    How can “avoiding the cliff” by keeping tax rates low raise enough revenue to reduce the debt?

    Frankly, I doubt anyone will even notice the very modest changes that the “Fiscal speedbump” causes. But at least we’ll be about 10% closer to where we need to be…


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      Mark D.

      Excellent points Mr. Smith.

      I do wonder though if we’ve already gone over the cliff? Mitt Romney should have stepped up and owned his comments about the number of people that pay no income tax. The fact that more people vote for a living than work for a living is the real cliff in my opinion.


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        Cookster

        Thanks Mr Smith & Mark D:-

        When more people vote for a living than work for a living it results in reduced productivity, in other words a smaller pie from which all those government services can be paid or paid off (if borrowed). The amount of tax collected is a function of A: The rate of tax and B: The volume of taxable earnings. The volume of taxable earnings should rise as national GDP grows.

        On the taxation side of the equation, A (increasing the rate of tax) is always the proposed solution but increasing A can reduce B (the volume of taxable earnings by business and individuals). This is because B is a disincentive to individuals to work harder and businesses to innovate and become more efficient.

        The key is to finding the right balance between providing incentive to businesses and individuals so that the amount of tax collected pays off all those government funded ‘nicetees’. Unfortunately for political purposes governments usually spend first and worry about how to afford it later. ‘Later’ means future elected governments and future generations. Borrowing against the future to fund the present if you like. I think we are getting very close to ‘later’.


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        That more voting for a living than working for one is a problem is an absolute fact. It won’t last for long though, because the point will quickly arrive where the “living” derived from voting will be unliveable as the tax base disappears; people will learn the hard way, and will start to work again, with attitudes similar to what we saw after the Great Depression. Innovation, Wealth Creation, plain old bloody hard work. People need it, laziness destroys the soul.


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      ianl8888

      Thanks for this, EM Smith

      I agree that that the unacknowledged plan of Western Govts (including the EU) is to inflate their debt away over time. This only damages people who save cash – not a very large group and well-diffused amongst the various electorates, Provinces etc, so their electoral impact is absolutely minimal and can be ignored

      The “fiscal cliff” aggogery is essentially an artificial construct from the left-leaning MSM, convenient to beat up opponents with and allowing “heroic” politicians to appear to save the day with self-serving speeches … meanwhile, Governments print money to force up inflation (reducing their debt), absolutely careless of obvious consequences from that


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    Keith L

    What would Tony Jones do?
    Well it all comes down to ‘renumeration’.
    I guess he would re-number people.


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    As society (glides happily or abruptly crashes) into the (crack or cliff) of economic reality, hindsight would reveal:

    The Nobel Prize Committee has been promoting misinformation as scientifically valid economics and physics since about the same time Richard Milhous Nixon became the 37th President of the United States: http://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences

    Henry Kissinger became Richard Nixon’s National Security Advisor on 20 Jan 1969 and secretly flew to China in July of 1971 to negotiate away the Apollo Program that the 35th President, John F. Kennedy, had established during his brief tenure (1000 days) in office before assassination in Nov 1963.

    Two years before Climategate exposed fraudulent global temperature data in Nov 2009, the New York Times reported on 13 Oct 2007 that Al Gore, the UN’s IPCC, and an unspecified number in the “United Nations network of scientists” shared a Nobel Prize on for actively promoting (mis-)information as evidence of “man-made climate change.”

    http://www.nytimes.com/2007/10/13/world/13nobel.html?_r=0


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    Well said Jo. This fiscal cliff is a manufactured crisis. It will take a lot of scurrying around at the last minute to “resolve” it, with the President being the saviour of the US.
    In climate there is a lot of rot written about “tipping points”. Many EU economies have reached and gone beyond fiscal tipping points. This comprises of the following elements:-
    - In the growth period (i.e. pre-2008) there was already a structural deficit, with the nominal National Debt growing faster than economic output.
    - As economic growth turns into a severe downturn, the receipts plummet (especially from corporation taxes) and expenditure rises (social security). Debt rose by an even greater amount, as increased debt acquired through bailing out the banks did not count as expenditure.
    - Governments spend more to “stimulate” the economy. If does not work. It merely adds to the deficit problem. Even Keynes would have predicted this, as the economic problem was not a deficiency of aggregate demand.
    - Debt rises, increasing the interest payments.
    - Interest rates rise, as lenders see the increased risks, increasing the deficit.
    - Unemployment rises, further exacerbating the deficit.
    - Governments react by cutting expenditure and raising taxes. Does not work, further exacerbating the deficit.
    - Governments cannot raise the cash, so stops paying employees. Employees keep on working, as cannot get jobs elsewhere.
    - Holders of government debt see the risks are escalating, and suddenly demand much higher rates of interest.
    - The deficit suddenly balloons, taxes are raised, expenditure is cut. And the crisis gets worse.
    For a country like Greece they now have two options. Stay in the Euro and have ever-increasing debt. Or exit the euro and default on the debt, much of it now held by Germany.

    The problem started with running structural deficits in the good times. In the Eurozone, the rot set in when France, then Germany, broke the euro rule limiting the deficit to 3% of GDP. Greece followed suit to fund the 2004 Olympics. I discussed the problem of structural deficits in relation to Britain here.


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      Cookster

      Well said MBC. The current Australian government has succeeded to creating a structural deficit in good times. Australia enjoyed record terms of trade and a booming resource sector thanks to China and yet spending continued to outstrip record tax receipts. And this is just based upon the declared Budget Deficits – the $50 Billion NBN is off budget.

      And to bring the discussion back to Jo’s core subject, all those extra Bureaucrats administering the Carbon Tax are part of this structural deficit as they are a drain on economic output.

      And yet still a group of Euros bestowed upon our treasrer Wayne Swan the title of worlds best treasurer :-(


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        Hi Cookster,

        I don’t think that the Australian government has created a structural deficit, except in recent years. A structural deficit is a notional deficit that would occur if the economy was growing at its underlying rate. A structural deficit means that the National Debt increases over the entire business cycle,
        In Australia (based on World Bank Figures) that is around 3.5%. In Australia growth slowed from around this rate to 2% in 2009-2011. The cash balance went from 2% surplus in 2008, to deficits of 2.5%, 4% and 3.7% in the next three years. The swing cannot be explained be the downturn in growth. The small structural surplus meant National Debt declined from 31% to 24% of GDP between 1999 and 2008. By the end of 2011 it was back up to 31%.

        However, things are not nearly as bad in Australia as the Euro-Zone countries. Countries like Greece and Portugal have been running huge structural deficits for years.

        I have posted up some comparison charts at my blog.
        http://manicbeancounter.com/2012/12/31/is-australia-near-the-fiscal-tipping-points-of-europe/


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          John Westman

          MBC and Cookster, you have hit so many “nails on the head” with your posts. Thanks for your valuable comments.

          Simply put, we have today the squandering of public money by a bureaucracy that is determined to protect it’s interests and its fiefdoms, no matter what. The interests of the bureaucracy, often conflict with those for the well being of the country and for its people.

          There is nothing that the socialists and bureaucrats love more that to spend OP’s money and to control OP. Socialists and bureaucrats together, and freedom are an oxymoron. I don’t like to use the word “freedom” as it has become so abused and misused that it has lost much of its meaning. When I hear a politician use the word “freedom”, I start gagging.


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          Cookster

          Actually MBC, I am concerned the Australian government may have created a structural deficit in recent years. Cohenite puts it well at #5.2.1.2. Productive debt, investment in enterprise which will enlarge the economy, can be tolerated. Spending extra money with little thought as to how that spend will create a multiplier in the productive economy will just move a government towards a structural rather than cyclical situation. No things are not nearly as bad in Australia but our government has had only 5 years to work its ‘magic’ despite best ever terms of trade and a wealth of Iron Ore, Coal and Natural Gas to sell to China. Europe and the USA have been working at it rather longer and don’t have our relative wealth of resources :-)


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            So it appears that Australia is in a similar position to Britain at around 2004/2005. The first British Labour Government from 1997 to 2001 followed the Conservatives policies, which resulted in a fiscal surplus. After being re-elected in 2001, Labour (under Chancellor Gordon Brown) sublty changed the principles. Before it was to balance the books over the course of the economic cycle. That is for the structural deficit to be nil. After Brown (or one of his underlings) created the Golden Rule:-

            The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending.
            Therefore, over the economic cycle the current budget (ie, net of investment) must balance or be brought into surplus.

            Problem was investment included social, not economic returns. “Investment” was so broadly defined, it included massive pay rises for doctors, nurses, school teachers and the army of sycophants who campaigned for ever higher regulation and expenditure. So people were massively mislead into thinking the debt was “productive”, when in fact it was no such thing. This slight of hand, I calculated, will add over A$1 trillion to the UK national debt, or about 40% of GDP. Given that the reducing the deficit is far more difficult, and the recovery has stalled, this slight of hand could be even more costly.

            Cookster,
            You are quite right to be concerned about the recent structural deficit. In Australia you need to make sure there is a change to a fiscally conservative government before it gets to US or UK-sized proportions.


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        Len

        A group of Euros in WA means a group of brown coloured kangaroos, a Kagaroo Court if you like.


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    Speedy

    What happens to the US dollar when it is no longer the standard medium of trade? What happens if (or when) the Chinese Yuan is regarded as more stable – on the grounds of better economic management?

    You know the answer, and it’s not pretty.

    Happy new year,

    Speedy


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      Bulldust

      This would require the Chinese financial and other government institutions being a heck of a lot more transparent than they are currently. Not saying the US ones are doing a great job, but at least they are the devil we know.


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    Steve R W

    Does anybody have a solution to the economic breakdown?

    Anyone?


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      Not me. It is a long and painful process of adjustment.
      What needs to be recognized to resolve as quickly and painlessly as possible is that.
      1. Governments play for short-term opinion-poll gains over long-term fiscal stability. See Obama’s fiscal cliff above.
      2. Politicians will not admit to past mistakes. They will therefore not apportion any of the blame on their decisions or previous lack of understanding.
      3. As a corollary to (2), politicians will raise bogeymen to blame for the current crisis, whether it is the banks, other countries (excess savings from China for instance), the capitalist system, the rich “not paying their way”, or other countries.
      The fundamentals to avoid this happening again is for people to accept smaller government, and a strong fiscal conservatism of running a small spending surplus over expenditure in years of growth.


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      Geoff Sherrington

      The solution is probably in several parts. One part is to return to the system of 30 years ago when much scientific and engineering research was performed by companies from their profits. The present emphasis on funding research by governments is too open to pork barelling, political whimsy and (with incewntivisation schewes) plain corruption.

      One day I will dig out our small company’s past exploration figures, with some of the discoveries that are now driving the mineral boom, to show the enormous leverage that successful exploration can bring. Devices like bionic ears should have huge leverage as well. So should some locally-designed pharmaceuticals. The political ideology halt on nuclear processes like Synroc waste storage and laser enrichment of uranium using Silex was unforgivable. The pain that Drs Marshall and Warren had to endure privately was also unpardonable as they made a world impact on those suffering from ulcers. The list, indeed, is very long, but its common feature is interference by governments.

      Keep watching the 30 year embargo releases of parliamentary papers. In time, have a look at the enormous damage done with the drunken spree style of signing onto treaties by Gareth Evans.

      Always, should your resolve stray, keep the word “Fabian” in mind and squash this wretched concept, so beloved by Bob Hawke, whenever you meet it.


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    Since politicians hid their head in the sand, handed out all kinds of goodies charged to a limitless credit card (or so it was believed), and created people who think unemployment should include a cell phone, internet, satellite TV, food, and heat, in ADDITION to the check in the mail, the only solution the seems viable is “natural consequences”. You know, where reality comes in a smacks people back from fantasy land. Turns out the credit card has a limit, money does not grow on trees and entitlement only works so long as those the government steals money from put up with. People close businesses, lay off, and the “limitless” money stream dries up. It’ s not pretty, but it will straighten things out when people decide they can ignore reality and get away with it. Reasoned planning would have been good but at this point, who knows? I’m betting on nature/reality for this one. (Societies rise and fall all the time. Maybe because thought is not as strong a human trait as we want to believe.)


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      KinkyKeith

      Great comment Sheri

      KK :)


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      Roy Hogue

      Maybe because thought is not as strong a human trait as we want to believe.

      I beg to put that a different way. Thinking works just fine. Real smart people are putting a lot of thinking into how to put us even farther down the hole. What isn’t working so well is wisdom.

      You can think of all sorts of ways of reaching into the cookie jar and pulling out more goodies but if you can’t muster up the restraint to take out less than you put in… …well, need I finish?

      I keep being reminded of the Peter Sellers classic, Being There. Our august leaders are Chance the retarded gardener turned Chauncey Gardener, advisor to the rich and famous. If you haven’t seen it do your best to get a hold of it. It’s well worth watching — in fact a real lesson in how to let yourself be led down the garden path. In the movie as I remember, Chauncey’s advice actually turns out well. Will we be as lucky?


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        Yes! Yes! Yes! I have been saying for four years this whole Obama presidency reminded me of “Being There” (I read the book.) It is so nice to find someone else who sees it too!


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          Roy Hogue

          The movie has that closing scene where Chance walks right out across a small lake on his late benefactor’s estate that you have to see to get the full impact.

          The outtakes at the end of the movie are hilarious also (a bit raw but hilarious) (and if they’re left in).

          Sellers is at his best! :-)


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    Every civilization before ours has collapsed due to expansion beyond resources and productivity. It was compounded by endless increase in top down command and control of nearly everything. For a while, they seemed to be able to weather the storm but then a perfect storm hit they could not withstand. They had consumed their past, their present, and their future. Nothing was left to pay for having a present let alone having a future. Poof! It all turned into rubble and rabble.

    It looks like the same thing is happening to us. Can we avoid the collapse? Yes, it is always possible for those of us who are alive to wake up and change our ways for the better. Is it likely? History says no.

    Oh, but we are different aren’t we? It can’t happen to us. Wanna bet? Likely the collapse is not if, it is when. Such a collapse will not be survivable for most of us. Many of us are alive because of a high technology civilization. When it goes, we will too. Better luck next time.

    As it was once said, the thing we learn from history is that we never really learn from history.


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    DougS

    It could be worse, you could be in the EU

    The UK is in the EU!

    The amazing thing is that a lot of UK citizens (sheeple) think that it’s a good idea – and don’t want us to leave!!!!!!

    They seem to like to have their laws made in Brussels by unelected bureaucrats that we didn’t vote for and can’t remove!

    They appear to think it’s a good idea to borrow £10bn per annum and send it to the EU!

    Our only hope is UKIP.


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      Josualdo

      It is, but it can print money. Now, what happens when you are over-indebted, paying high interest rates, unable to spend, your fiscal income really goes down when you raise taxes, production is going down and the German will not have it about devaluing the euro? Well, you start cutting services (including essential ones such as health), send people to the dole, then cut down unemployment subsidy, and start losing population etc. Which starts to happen only after people begin scavenging for food in garbage containers.

      Krugman sais there’s no theory for a time like this. And no salvation without devaluation.

      BTW, one raised to any power remains one (see text).


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      Roy Hogue

      The amazing thing is that a lot of UK citizens (sheeple) think that it’s a good idea – and don’t want us to leave!!!!!!

      When I first heard the EU idea being kicked around I said it would lead to trouble and ultimately the whole thing would be regretted.

      It was easy enough to predict. The more responsibility you consolidate in the hands of fewer and fewer people the less they can pay attention to the little details that are what really counts. Even the best and most honest management you can get will fail this way. Any savvy business manager knows this. Oh well, who said we had to get it right? Isn’t it better to get it wrong and do it over a dozen times? In fact, if we learn from our mistakes, shouldn’t we try hard to make as many mistakes as possible?

      You have my complete sympathy for whatever that’s worth. Meanwhile the Federal Government is becoming The United State of America as fast as it can. All power to the president as it were.

      Do I sound…well…how do I sound? Pissed off is about right I think.


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      The UK is in the EU, but not in the Euro. As a result, despite have as big a deficit and national debt as some of the basket case Southern European states we in the UK have not passed the fiscal tipping point that they have beached.

      A majority of the UK people would probably vote to leave the EU in an open referendum, but the three major political parties are pro-EU. UKIP have yet to win a seat in the House of Commons, or even get close. In the European elections based on proportional representation (and where the issue is the EU) UKIP have nearly a third of the seats. As well as being the only anti-EU party they are the only ones who are climate skeptics – except the tiny and awful British National Party.


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    The only possible “solution” I have ever come up with is:
    Rather than the government sending checks out, we use one of those supercomputers, feed in all the payments and then, the person being taxed writes and hand-delivers the check. So if your neighbor is sitting at home making money under the table while stealing working people’s money through unemployment or whatever, this person’s neighbors will write checks to cover their part of his unemployment checks. So I write a monthly check of $100, another neighbor writes one for $150, etc. and then we take the check to the lazy guy who likes us paying for him to watch TV. If another neighbor gets social security, the workers in the area hand deliver checks to them, pay their medication costs directly, etc. Likewise, if a neighbor is drawing disability and wants to go back to work, those delivering the checks could help watch for a job for this person. If there was not a huge, impersonal cloak to protect those who are being “gifted” by tax money, I suspect spending would be dramatically cut. Same goes for special interest payments, energy subsidies, etc. Personal delivery of the check from the person who paid for that service/hand-out.
    (I know setting this up would be complicated and yes, it will make some very angry people, but I see no other way to stop the politicians from blindly spending money.)


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      KinkyKeith

      Brilliant Sheri

      Growing up after WW11 my family was poor but we never felt it.

      On one occasion when my father’s war damage needed hospitalization we received food help from the local hotel.

      We were a community but also everyone had work.

      True, a lot of it was simple Government jobs like sweeping the buses but there was work and in hindsight our

      Governments at that time were probably the socialist ideal that escaped the Russians as we were a commune

      where the basics were available but some effort was expected.

      Basic medical care like vaccinations were done en mass at schools and basic medical care was there if you broke an arm.

      No expensive stuff like hip replacements or half million dollar cancer treatments but the basics were there.

      Everyone knew the neighbours and crime was pretty much non existent.

      Everyone was accountable to the community and I think that is also probably the point of your illustration.

      The main things we fight now are high mobility which means people can bludge and then move on and also

      politicians fleecing us and using media hype to cover and confuse details of the theft.

      It is THEFT.

      Theft from Tax payers, theft from the past, present and future.

      KK :)


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      Ace

      So…how do you go about taking cheques (thats how its spelled actually) to the Cayman Islands to pay off the “lazy guy” who owns Google, or Starbucks or any of these other multi-billionaire businesses that pay virtually no tax to any state?

      When your Air Force stops pasying 150,000$ for a wrench that I can sell them for a buck, then it’ll be the appropriate time to worry about the mythical “lazy guy”.


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    elva

    The old waning decrepit senator Mitch McConnell, leader of the GOP, amuses me. He obviously bullies others including the speaker who wants to compromise. He talks like an old wise owl but never budges an inch.

    When he says the GOP has bent over backwards he means he has looked up to see how high his and other billionaires’ wealth has increased. How dare the rich pay more percentage in taxes!! Why, the orders for private jets and imported luxury cars will stimulate the economy, they think.

    The less ordinary folk have will spur them to seek more work, he thinks. It’s funny that the original “Tea Party” in Boston was over taxes imposed by Lords in England. Now the USA “Tea Party” wants ordinary citizens to pay more taxes.

    Perhaps it will be ‘good’ if USA suffers some trauma before waking up to itself as it did under FDR.


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      KinkyKeith

      Elva

      I don’t think you are going to win even if you get rid of The Mitch; there are fifty more waiting to take his place.

      It is entrenched power that is the problem and only a revolution will change it.

      Both sides shaft us and the only solution is to make them accountable for theft and even poor judgement in government.

      KK :)

      http://joannenova.com.au/2012/12/what-fiscal-cliff-its-a-fiscal-crack-in-the-pavement/#comment-1216148

      http://joannenova.com.au/2012/12/what-fiscal-cliff-its-a-fiscal-crack-in-the-pavement/#comment-1216148


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      Elva: Many would argue the US woke up AFTER FDR, not during. Entitlements were very muchly entrenched by FDR, though admittedly he actually had people working for money rather than just mailing checks.

      I don’t think you actually understand the Tea Party. Class envy you seem to get, yes. Ordinary citizens pay very little taxes as it is. Four of the ten highest tax payers in the US are oil companies. They pay around 40% in taxes. Most people pay under 10%, many pay none at all. The Tea Party is based on the idea that people are responsible for themselves and have no right to live by stealing from those who produce. Some favor a flat tax, which would be “fair” as far as everyone paying the same percent, but if one actually tries to pass such a thing, it becomes evident that what people really want is someone other than themselves taxed and they want money from people who they think have too much money. (I maintain lottery winners should be taxed at 95%–it’s the most unfair way to get rich there is. You did nothing to earn it–it’s just based on luck and luck is not fair.)

      I agree with KinkyKeith–career politicians are a problem. I believe that’s part of why there was an amendment to the constitution after FDR–fear of someone becoming “president for life”. Unfortunately, it’s completely possible to be a congressperson for life and since Congress hands out all the money, we really should have limits there. In addition, it might encourage better people to run for office and cut down on the costs. If you can’t be senator for life, spending millions makes little sense. This was the original idea anyway–citizen government, not professional bureaucrats. We need to “untrench” these people!


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      John Westman

      Perhaps Elva it would help, you if you checked some facts first. This would prevent Foot in Mouth disease.


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      Roy Hogue

      Elva,

      Ignorance is bliss they say. But bliss or not, you are certainly ignorant of things in the U.S., current and historical. That’s not a complaint by the way, just a statement of fact.

      Have a Happy New Year and I hope things look better for you than they do for us.


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    Mark F

    Elva, perhaps a little more Fox News and a little less MSNBC would give you a more balanced and accurate perspective.


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    Thumbnail

    Don’t steal. The Government hates competition.


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    Mark

    Very good Thumbnail.

    Sorta reminds one of:-
    Question: “What’s the difference between robbers, thieves, rogues and socialists?”
    Answer: “None, they all believe in wealth redistribution.”


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    Five PM news says the House of Representatives will not vote on any measure to stop the fiscal cliff. They had until midnight to do so. It looks like we will find out if it’s a cliff or a dip!

    (Also, the record low for today was -34 degrees F!! I so miss winter!)


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      Roy Hogue

      Five PM news says the House of Representatives will not vote on any measure to stop the fiscal cliff.

      So we’re over the edge now? Oops, still a little over 6 hours until California tumbles.

      Well frankly I’ve been hoping it would go that way. The sooner we hit bottom the sooner we can start to climb back up.


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    Bob K.

    Explanation of fiscal cliff from Catallaxy files:


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    Streetcred

    Didn’t know where to put this (h/t Steven Goddard):

    Australian Sunday Herald Sun’s gaming writer Alice Clark heralds in the new year:

    At the rate that we’re going, large portions of land will be under water in about 20 years.

    If we do nothing to stop the ice shelf in western Antarctica from falling into the sea, 15 per cent of our city by the bay will be just a bay by 2040. While global warming won’t end the world, it will make it largely uninhabitable for humans. We’re experiencing species loss at the highest rate in 63 million years.
    If temperatures rise 6C, the human population will decline to two billion and we will also lose most species, including trees.
    At an 8C rise, humans go down to a few million and must retreat to Antarctica. It is possible for humans to continue living underground if the planet gets too hot, but there isn’t very good phone reception down there.

    -


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      Streetcred

      Alice Clarke is a “gaming writer” … she should stick to gaming that she knkows and not trying to game what she doesn’t ! What an idiot !!

      BTW, Happy New Year … let’s look forward to a new Liberal National government to restore our Nation in 2013 and rid us of the likes of the twit Clarke (and of course ju-LIAR et al).


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      ExWarmist

      I thought she was taking the piss… note what else she sat right next to the CAGW scare in her article.


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    Mark

    BTW, Happy New Year … let’s look forward to a new Liberal National government to restore our Nation in 2013 and rid us of the likes of the twit Clarke (and of course ju-LIAR et al).

    I’ll certainly second the wish for a happy new year Streetcred; it’s the hope for a “new Liberal National” government which I would quibble about.

    In NSW we threw out a totally corrupt ALP and voted in Fazzer O’Barrell’s Lib/Nat coalition. What have we got so far? More “pie-in-the-sky” transport promises which will still be “pie-in-the-sky” when he is kicked out.

    I awake this New Year’s Day to the delightful news that O’Farrell is going to put even more radar “speed” traps on our roads along with dozens more “safety cams” at intersections. This, despite him saying when in opposition, that they were pure revenue raising measures that had nothing to do with road safety. Furthermore, he has cemented the expected revenue from these sources into the State Budget! This, of course, raises the interesting question of what the reaction would be if the all the motorists suddenly decided not to commit any traffic infringements.

    I could go on…and on….


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      Ian

      You should have gone on and on… But even if you had done so it wouldn’t have made a scrap of difference to reality. Barry O’Farrell inherited a load of debt. He pledged he would reduce that debt. He didn’t get elected on the promise he would increase the debt nor did he hide the fact before the election that he was going to reduce debt. The Liberal government was elected by a majority of voters who presumably knew O’Farrell’s intentions. If they didn’t it is hard to see why they didn’t. As in most states, the public service blossomed under Labor governments ’cause Labor likes “Biiiiig Governments” the Biiiger the better. Do you think public servants should get 17.5% annual leave loading? Do you know why annual leave loading was introduced by Whitlam in 1973? It was to compensate shift workers for loss of penalty rates when they were on annual leave. Is it really applicable to the general workforce? Perhaps O’Farrell should just increase taxes to get rid of Labor debt and leave spending alone. Any thoughts on that approach? And on a more general note how long do you think the low productivity of Australian industry can continue? Bill Shorten says its all due to poor management and nothing to do with the workers. Is he right? Probably not but whatever, if Australia doesn’t get up to speed with productivity fairly soon the ordure will certainly hit a lot of fans


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        Mark

        Oh Puhleeaze, Ian! Stated like a true believer of the Flibs.

        Do not presume to tell me what O’Farrell said he would or wouldn’t do. I have ears to hear with and eyes to see with and make my own judgements on what any politician is up to.

        I’ve formed my own opinion of O’Farrell and the state Libs, you’re welcome to yours. A Liberal Party which still looks to Nick Greiner as some sort of elder statesman is one to be shunned. Famous for farming out contentious matters to ‘independent’ (nudge, nudge, wink, wink) bodies then washing his hands of the outcome. Said outcome was always the one the he wanted anyway.


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      Streetcred

      I’ll take the man with a plan over the witch with her hand in my back pocket …

      http://www.michaelsmithnews.com/2013/01/julia-gillard-and-tony-abbott-in-their-own-words.html


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    Geoff Sherrington

    This question shows how dumb I can be, but if governments everywhere are in debt to each other, why not have a cleearing house meeting once a month so that everything can be evened out? (Once economists can get the appropriate metrics for GDP, GNP between countries as per Henderson and Castles).
    My worry is the old one, that some of the government spending assumes that the people who generate the money can’t utilise it as well as the government can, after it takes its imposts. This is usually coupled with bloat in bureaucracy, always a danger sign.
    To my sorrow, we have strayed too far from the wisdom laid down in the Constitution. Compliant Courts have stretched credibility to give governments more powers, so that governments now tend to do what they want to do, rather than what the people want them to do.
    The referendum method should be reviewed in this age of easy communication, so that important decisions are polled, formally or informally, before they are enacted.


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      ianl8888

      Geoff

      The referendum method should be reviewed in this age of easy communication, so that important decisions are polled, formally or informally, before they are enacted

      Agreed, but I used to imagine, in my naivety, that the Swiss had probably the best form of democracy in that a referendum was required on every important policy issue (the CO2 tax would qualify). What better, I thought, even if Switzerland has a tiny geographic area and a smaller population than Oz, it’s certainly a model to emulate

      That is, until a Swiss citizen (colleague) unburdened me from my naif – the Swiss Govt cannot be made to pay heed to these referendum results if it doesn’t wish to. Worse, when a recount of a referendum vote was called for (the Swiss Govt had apparently misrepresented the results by 180 degrees), it was found that the current law allowed the Govt to destroy the ballot papers immediately following a vote. In this particular case, it had done just that. No recount, no reversal of Govt policy in line with the apparent vote and no time for another referendum

      One may hope to have citizen-initiated referenda on major policy issues (I would support that immediately), but the current Swiss experience suggests some deep thinking is required first


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      Andrew McRae

      if governments everywhere are in debt to each other, why not have a cleearing house meeting once a month so that everything can be evened out?

      Firstly the precondition is not 100% true.
      Many smaller developing nations will have debts to the World Bank (due to their oh-so-helpful bailout deals) which will eclipse the debts owed to sovereign nations. Admittedly that makes little difference to the largest debtors.

      Secondly I’m guessing the method of repayment has various vested hangers-on.
      The methods of repayment presently can take the form of trade deals that profit Big Industry, or derivatives shenanigans from which the finance sector can profit by siphoning off fees. If you cancel debts bi-laterally at the stroke of a pen then all sorts of wheeling, dealing, and pork-barrelling is eliminated. I imagine the usual suspects would be unimpressed with such a plan, and given the revolving door between Goldman Sachs and the government treasuries and banks of the world, that’s another reason it wouldn’t happen that way. That’s a bad reason though, and you did imply you couldn’t think of good reasons why it shouldn’t be done.

      (Interesting page on the amounts involved is the World Wide Web of Debt with a Euro-centric view.)

      Another alternative being floated is debt cancellation aka The Chicago Plan 2nd edition. This has been proposed by the IMF recently, but only as part of a larger package of changes. This is more Keynesian Statist interventionism, which is hoped to fix the problems created by… Keynesian Statist interventionism. They may be on the right track though, as requiring 100% collateral for loans (another part of the package) would put an end to the current fractional reserve banking debt spiral. Again this will never happen, and for the same corrupt reason.

      Cancelling debts bilaterally does make a lot of sense, in particular it avoids the bartering problem of finding a co-incidence of interests for trade, especially between poor countries that can only afford a large number of cheap items produced over a long time.


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    John Brookes

    Keynes understood economics. When business is booming and “irrational exuberance” is everywhere, governments should cut spending and raise taxes. When business slumps, and caution dominates the thinking of those with money, governments should cut taxes and spend more.

    That is the theory, but the problem is that there are people who scream that the world will end if the government spends big in a recession. And the only time those people shout louder is in good times when governments want to raise taxes and cut spending.

    And then there is the problem that big business and rich individuals will always explain that your tax rates are too high, and they will go and set up in a cheaper place. This strategy seems pretty effective – with the result that tax rates are set too low, and we risk the “structural budget deficit” mentioned above.

    Personally, if businesses and individuals want to leave for a low tax country (Ireland anyone?), we should tell them to get lost and not come back. Most people I know who have gone overseas to work have not gone for the money. They went because they had skills that weren’t needed here, but were needed in bigger countries.


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      Andrew McRae

      Dear misguided JB,

      Keynesians are not strictly economists. An economist seeks simply to understand the free market. Keynesians seek to intervene and control the market because they do not believe the market outcome will be acceptable to themselves and their sponsors behind the curtain.
      The great economic Jedi Master Ludwig told us this in Human Action:

      Economics is not concerned with the spurious metaphysical doctrines advanced in favor of tax progression, but with its repercussions on the operation of the market economy. The interventionist authors and politicians look at the problems involved from the angle of their arbitrary notions of what is “socially desirable.” As they see it, “the purpose of taxation is never to raise money,” since the government “can raise all the money it needs by printing it.” The true purpose of taxation is “to leave less in the hands of the taxpayer.

      Note the combined effect of dollar devaluation (by banks) and income confiscation (government taxes) is to push people to spend the majority of their take-home pay on immediate needs, leaving little for savings and capitalist entrepreneurialism.

      Specifically on Keynesian management of the business cycle:

      A retailer or innkeeper can easily fall prey to the illusion that all that is needed to make him and his colleagues more prosperous is more spending on the part of the public. In his eyes the main thing is to impel people to spend more. But it is amazing that this belief could be presented to the world as a new social philosophy. Lord Keynes and his disciples make the lack of the propensity to consume responsible for what they deem unsatisfactory in economic conditions. What is needed, in their eyes, to make men more prosperous is not an increase in production, but an increase in spending. In order to make it possible for people to spend more, an “expansionist” policy is recommended.
      This doctrine is as old as it is bad. Its analysis and refutation will be undertaken in the chapter dealing with the trade cycle. (i.e in pp. 548-565)

      Thus spake Mises on p555 under “The Gross Market Rate of Interest as Affected by Inflation and Credit Expansion”:

      It is evident that every expansion of credit must bring about the boom as described above. The boom-creating tendency of credit expansion can fail to come only if another factor simultaneously counterbalances its growth. If, for instance, while the banks expand credit, it is expected that the government will completely tax away the businessmen’s “excess” profits or that it will stop the further progress of credit expansion as soon as “pump-priming” will have resulted in rising prices, no boom can develop. The entrepreneurs will abstain from expanding their ventures with the aid of the cheap credits offered by the banks because they cannot expect to increase their gains. It is necessary to mention this fact because it explains the failure of the New Deal’s pump-priming measures and other events of the ’thirties.

      This means the critical ingredient for the boom is currency devaluation (punishing savers) via monetary expansion (more Keynesian monetarist meddling!) which is happening ALL THE TIME, and this expansionism results in a boom whenever the government TEMPORARILY CEASES taxing the hell out of the productive sector.

      Thus spake Mises on p565 under “The Alleged Absence of Depressions Under Totalitarian Management”:

      Many socialist authors emphasize that the recurrence of economic crises and business depressions is a phenomenon inherent in the capitalist mode of production. On the other hand, they say, a socialist system is safe against this evil. As has already become obvious and will be shown later again, the cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered market, but a product of government interference with business conditions designed to lower the rate of interest below the height at which the free market would have fixed it.
      [...]
      But in a socialist economy it is only the government’s value judgments that count, and the people are deprived of any means of making their own value judgments prevail. [...] If the dictator invests more and thus curtails the means available for current consumption, the people must eat less and hold their tongues. [...] Where the individuals are not free to choose, they cannot protest against the methods applied by those directing the course of production activities.

      Keynesianism generates the booms artificially, and a boom originating by any mechanism will inevitably lead to a bust, therefore Keynesians generate the busts in the market.

      I say Keynes did not understand the economy, he understood how to meddle in it in ways that allowed governments to expand their power and falsely claim credit for the actions of others, and to create a source of inside information that would not otherwise exist which financiers could exploit, and for all this Keynes was handsomely rewarded by your owners.

      Sympathetically then, the problem of the “structural budget deficit” is because the government is spending too much and occupies too much of the economy, not because it isn’t confiscating enough money from the wealth-generating class!

      You have much to learn about the Force of the economy, young padawan John.

      _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
         In Ludwig We Trust.


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        Mattb

        “An economist seeks simply to understand the free market. Keynesians seek to intervene and control the market because they do not believe the market outcome will be acceptable to themselves and their sponsors behind the curtain.”

        Hmm that seems to be a very skewed opinion of what an economist is? Maybe that is what you think they should be, rather than what they actually are?


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        John Brookes

        An economist seeks simply to understand the free market.

        Oh yes, a free market is a thing of beauty. It is so beautiful that one should worship it, and never see its faults. Far better to worship perfection than focus on the mundane facts of real people in the real world.

        The sainted Mises was an earnest fool worshipping a pretty illusion. Keynes was a realist who sought to understand the world rather than a beguiling theory.


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          The free market is a fascinating thing. So is stealing from those who work hard. The alternatives to free market say “You unfairly worked 90 hours a week and made a bunch of money.” “I did nothing but watch TV and sit on my derrière and I want money so I am going to take yours.” Somehow, that theory always looks so cool to the lazy and envious while free market looks good to those with ambition.

          Interesting thing about socialism and income redistribution–those who work can instantly destroy the system by not working. Translation: The working folks own you. Without them, you’re toast. Every aspect of your life is owed to people who can pack up and leave you out in the cold.

          I’m sticking with free markets. I really hate having to depend on someone to allow theft of their earnings in order to eat and live indoors. I’d rather get them myself.

          To each his own, however.


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            John Brookes

            Ahh, yes, the 90 hour week and all that. The deserving rich. The indolent poor. The poor who are corrupted by money.

            I am not a hard working person. On occasions, hard work is absolutely necessary, and on those occasions I work hard. But when there is nothing obvious that needs doing, you won’t see me working hard. However I have friends who are hard workers. They work hard just about all the time. Sometimes they are paid, and sometimes not. But they love working, and they would work for very little pay. One told an anecdote about a friend who had a boat and had invited half a dozen people to spend a pleasant day on the water. But on the day, they went without him. A mate had rung him about clearing a block for some measly amount of money, but our hard worker just couldn’t resist – so he spurned a day on the ocean enjoying the fruits of his labor for a day spent doing what he really liked – working.


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            Crakar24

            JB,

            Your comment above (sorry no comment numbers for me??)frightening as it is comes as no surprise to me. You give all the impressions that you are free loading lazy arse good for nothing and your comment above merely reinforces that assumption.

            Let me give you a scenario and you tell me if this is far and equitable.

            I have an 18 YO son who has just completed his year 12 studies he studied Physics, chemistry, math studies and math specialist and ended up with an ATAR score of 90.45. As he got a B+ is math specialist the Uni of Adelaide will give him an additional 4 Atar points (94.45).

            When he turned 18 the government no longer gave us a parenting allowance (about $200 a F/N) which is fair enough as he is now an adult but he cannot apply for a job seeker allowance (the old dole money)until he is 21 so he applied for youth allowance. Now to get youth allowance you need to be enrolled at a tafe or uni so he has to wait…….but hang on a second he cant get youth allowance because i earn too much money. But he is now an adult WTF has my income got to do with it????

            Oh but it does not end there JB, if you come from a low income house hold (by the way i am not paid that much) you get youth allowance and whats more the universities give you extra Atar points if you are recieving youth allowance.

            How many leg ups do you need??? But wait theres more…..if you go to a school in a low socio economic area (read public school) you get even more Atar points given to you (depending on the uni).

            In the end you can have a average student from an average income house hold going to an average school getting paid by the government and showered in additional points just so they can leap frog all the hard working students out there.

            Sound familiar JB, i sudder to think how JB’s there are out there at Uni right now who are given everything without raising as much as a sweat. You are a product of our own demise the lazy useless eaters will rule the Earth.


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          Andrew McRae

          You do not go nearly far enough JB.
          I have not been merely beguiled by the Austrian school, I am totally smitten! :D

          In an economy subject to Keynesian monetarist meddling, the central bank and the government are attempting to centrally control the economy based on metrics which are lagging indicators, by applying a handful of economic control knobs that themselves take time to work through the system.
          In the real world, in control theory engineering, it is a known basic result that any system with closed-loop control subject to delayed feedback cannot be controlled because delayed control responses compound the internal motion to produce a diverging chaotic outcome.

          You imply the free market has flaws which are ignored by Mises, but in the real world Mises noted (e.g.) about environmental degradation:

          In the central and western areas of continental Europe, where the institution of private property and been rigidly established for many centuries, things were different. There was no question of soil erosion of formerly cultivated land. There was no problem of forest devastation in spite of the fact that the domestic forests had been for ages the only source of lumber for construction and mining and of fuel for heating and for the foundries and furnaces, the potteries and the glass factories. The owners of the forests were impelled to conservation by their own selfish interests. In the most densely inhabited and industrialized areas up to a few years ago between a fifth and a third of the surface was still covered by first-class forests managed according to the methods of scientific forestry.

          In Chapter XXIII Section 6, he goes on to say that loopholes in laws and the lack of complete private property rights are causes of pollution which can be fixed by legal reforms that do not contradict a free market in private property.

          You imply Mises’ theory is a beguiling ivory tower theory, yet in the real world Mises’ student Hayek was one of the few to predict the economic crisis of 1929 about 7 months before it happened. This fact did not go unrecognised by the Nobel Prize committee. The crisis was a predictable result of the monetary expansion recommended by Keynes.

          You should see that the Austrian school has an answer for everything, and the reality of the system you adore is played out every 3 months when the poorest proletariats of the country hang on the edge of their seats at 6pm hoping the RBA won’t raise the prime lending rate by a half percent.


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            Rohan

            In the real world, in control theory engineering, it is a known basic result that any system with closed-loop control subject to delayed feedback cannot be controlled because delayed control responses compound the internal motion to produce a diverging chaotic outcome

            Oooooh, Laplace transforms to model control systems. That brings back memories. Until I studied this in third and forth year, I never understood the practical implications of the Argand diagram and complex numbers other than a mathematical curiosity.

            My control theory lecturer noted that he would get some of his academic mates from the other side of campus come visit him to apply feedback control loop theory to economic modelling. He pondered with some disdain that they had little to zero mathematical ability to do so, despite the obvious relevance.

            It now all makes perfect sense. The true error of Keynesian economics and why it’s not viable is that his roots were complex positive or real positive, rather than being complex negative or real negative!


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          Roy Hogue

          Oh yes, a free market is a thing of beauty. It is so beautiful that one should worship it, and never see its faults.

          You always miss the point. But if you don’t like the way things are why not propose the ultimate solution? Have the government assign me a job then have them determine what I will be paid and at the end of the week just give it to me and be done with it. Let the government set the price of everything too. You could even have the government determine the outcome of every form of competition so no one’s delicate little ego would ever be hurt. Think of it, John, everyone could win a fair share of all the chess games they play; every student could get a fair share of “As” and “Fs” on the tests as they go through school. No bosses or managers would be permitted either so the workplace stays equal. No promotions would be permitted for the same reason.

          It’s a very straight forward plan to remove all inequality.

          Go for it. Really! Just go all out for it and be done with it. I’m sure you can even think of a good name for it if you try. I would suggest “The Homogenized Society” as a place to start.

          I think you’ve shown us your true stripes whether you wanted to or not. It isn’t a pretty picture. The world has many problems and you better get used to them. They aren’t going away just because you want them to. If you can step in and help someone then do it. Get your own hands dirty doing the hard work. You’ll feel much better about nearly everything that way and you’ll be too busy to keep nauseating the rest of us with your demands that we solve something you think is a problem. Life is a do-it-yourself project.


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            John Brookes

            Oh Roy. I’m a great fan of the free market. It just has a few faults that need watching. And I’m not interested in strict equality. But I am interested in keeping exploitation down to a minimum, and in keeping inequality at a healthy level. And I am interested in equality of opportunity, so that the available talent is allocated (by the market) as efficiently as possible.


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            Streetcred

            JB, I get the strong impression that it would be a waste of effort to attempt exploitation of you. The university system shelters a lot of your type … I know, I’ve been in it and my wife is still a senior academic in the system. The system has built it’s own entire bulging bureaucracy based on minimum input requiring over employment of a lot of people sheltered from more productive endeavours.

            Funny, with funding cuts ahead, the knives are out and the administrators are suddenly far from their socialist facades … self preservation is very strong.


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            Roy Hogue

            Oh Roy. I’m a great fan of the free market.

            John,

            You forgot to add, “…as long as it works exactly the way I want it to.”

            I’ve lived through: Camelot; The Great Society; The War on Poverty; The Shining City on a Hill; A Thousand Points of Light; Compassionate Capitalism; and all but the last few days of the first term of a congenital moron at the helm. And you know what John; it didn’t fix a damned thing. The moron will go one to another 4 years of partying and the next 4 years won’t fix anything either. And none of it ever will.

            If you want to do some good concentrate on keeping everyone honest. That will be more than enough of a challenge. And if you have any spare time left, spend it trying to teach the poor economic competitors how to be more competitive.


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          Rod Stuart

          JB needs to come to grips with the following:
          “Chip Krakoff (2011) quotes ADM’s Dwayne Andreas as justifying his corporate welfare history:

          There isn’t one grain of anything in the world that is sold in a free market. Not one! The only place you see a free market is in the speeches of politicians. People who are not in the Midwest do not understand that this is a socialist country.”


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      Josualdo

      Krugman notes that one of the sides of Keynes’ theory, that during an economy boom the government should disinvest and save and possibly raise taxes, is never put into practice.


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    Speedy

    Evening all.

    Just a comment on the language being used in describing these economic events. It appears that language is being used to misinform or at least conceal the truth from the punting public.

    For example: Reduction in government defecits = “Fiscal Cliff”. Government-endorsed counterfeiting = “Quantitative Easing”.

    Someone is not being entirely honest, but the fault also belongs to the media and the public for not investigating the underlying issues.

    Cheers,

    Speedy.


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    Mattb

    And surprise surprise they passed the bill to avoid the fiscal cliff. yay they saved the world.


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      Only in the senate. Last word was the House has not voted yet.
      If by “saving the world”, you mean dissed their responsibilities and avoided dealing with the mess while continuing to hand out candy to the masses (report is the spending continues while the taxation increase will cover a few days cost at most). I agree. :)


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        Roy Hogue

        Dissed is too kind a word.


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          At this point, I am angry enough to just give up voting for either party. There really are not two parties–just the dominant one and submissive one, resulting in one party. Worse yet, it appears the flaming idiots handed the wind energy an extension to continue raping and pillaging the environment. Probably, I should not type the actual sentiment I have at this point. :(


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        Mattb

        I do hope the dripping sarcasm of my post was evident. It is the theatre of politics but all we get are re-runs of national lampoons christmas vacation.


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          Rohan

          Not to worry Matt, Gillard, Swan and co will most likely implement another uber expensive but utterly pointless vote winning policy similar to the set top box for pensioner scheme thingy (especially as this is an election year). This scheme will give free cable/satellite TV to your home, which I’m sure will ease your sense of class envy and entitlement anxiety. You can then enjoy the usual Christmas/New Year “Keeping up with the Kardashians” non stop back to back marathon.


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    elva

    To Roy Hogue; I have studied USA history up to and beyond University graduate grade. And read much more since. Most Americans hardly know Australia exists or have never gone beyond their state line.

    To Sheri;

    Most people pay under 10%, many pay none at all.

    What!?! That’s ridiculous to say. The Billionaire Buffet said that he paid less% taxes than his secretary who pays about 37%. He was criticised by his wealthy friends for suggesting this should be reversed.

    Actually what gets me irked are the number of people who pride themselves of their wealth from sheer inheritance. Maybe a 90% death duty would spur these parasites to work for a living. I know too may relatives and others who are in the position of flaunting wealth they never worked for but for which they say they DID!

    I simply ask those who love the G.O.P. and the extreme Tea Party should ask what would happen if a magic wand were waved and George Bush were still president or Romney had won HOW and WHAT different a strategy would have worked better that what has?

    USA is making itself a fool of itself mocking places like Greece but doing no better. Soon, USA will be an underling to China just like GB became that to USA. Nationalism and rah,rah, rah, won’t help.


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      John Westman

      Tell me Elva, what do you mean by “extreme Tea Party”?

      I am not a member, of the party but from what I have heard they are about smaller and responsible government. They are also about balanced budgets and stopping the squandering of public money. This all seems to me to be full of common sense and logic.

      Please correct and explain if I have it wrong.


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        John Brookes

        Yep, you are wrong. They are pawns set up by the Koch brothers. They promote the interests of big business, while all the time thinking that they are fighting for the true meaning of the US constitution.


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          John Westman

          Can you tell me the evidence? This is all new to me. I am only interested in facts;I am not interested in opinion nor political agenda.


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            Crakar24

            JW,

            Tip number 1. Do not read anything JB writes with interest as most of it is jibberish, i am told that he has a cage full of monkees each armed with a type writer and every now and then one of them type something legible but still it is jibberish.

            The TEA in TEA party stands for TAXED ENOUGH ALREADY and they are sick and tired of watching the private banking system include the Fed reserve get bailed out at the expense of the tax payer. The bill for the trillions the banks lost through fraud and poor management has been passed onto the tax payer and now the government is on the bones of its arse. There is nothing they can do to reverse this trend, sure they can print more money but it will drive up inflation or they can start tightening the belt and pay off some debt but that would crash the economy.


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        • #
          Mark D.

          The delusional John Brookes spaketh Sheite once again……


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        Crakar24

        I simply ask those who love the G.O.P. and the extreme Tea Party should ask what would happen if a magic wand were waved and George Bush were still president or Romney had won HOW and WHAT different a strategy would have worked better that what has?

        Is Ron Paul an option?


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      I know this is shocking, but Buffett deliberately mislead, if not outright LIED. He is also under investigation for NOT PAYING TAXES he owed. Maybe you should find a more reliable source. Not mention, he has said this crap for over a decade and never paid any extra taxes. (His secretary did NOT pay 37% in federal taxes–maybe if you combine ALL taxes, state, local and so forth, she did. If Buffett really cared, he would either pay her more or loan her his tax accountant so she can avoid taxes like Buffett does.)

      We make around the median income for our state. Our effective tax rate for federal taxes the first year of the Obama administration was 2%. In 2010, it was 3% and last year it was 6%. We have nothing but standard deductions. Check this:http://money.msn.com/tax-planning/whats-your-real-tax-rate. MSN sets the average federal tax rate at 11%.

      If the GOP were still in, the tax rates may or may not have gone up. One would hope the idiots would stop spending like drunken sailors with no credit limit, but in actuality, from the Senate vote on the fiscal cliff bill, I’m not sure there would be much difference. Until the Candy Man president and Daddy Warbucks congress stop stealing from workers and giving to non-workers, pet projects and freebies for the leeches in society, nothing will change. I agree Americans are making fools of themselves. Until the freebie campaign gets reined in, that will continue. It’s pretty much worldwide, so until the champagne and free money run out, the “good times” will continue. Problem: Money will run out and it will be very bad when it does.


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      Roy Hogue

      Elva, you say,

      What!?! That’s ridiculous to say. The Billionaire Buffet said that he paid less% taxes than his secretary who pays about 37%. He was criticised by his wealthy friends for suggesting this should be reversed.

      And you are probably right about the actual fact you state. But Warren Buffet is playing with you. It’s what he doesn’t say and you don’t know that comes back to bite not only you but many others.

      You see, Warren Buffet actually pays no tax at all on earned income, the kind of income that comes from an hourly wage or a salary paid by your employer. He has no employer. All his income is derived from his investments and investments are taxed at the lower 15% rate, called capital gains. It’s that way by intent to encourage investment, which, after all is said and done about it, is the engine that makes for a prosperous economy and probably permits you to have a job.

      Now I don’t know where the 37% number comes from and I don’t care. He’s been paying what he owed according to the Internal Revenue Code as far as I know. And if not, then as Sheri points out, he’s going to get looked into.

      You then go on to say,

      Actually what gets me irked are the number of people who pride themselves of their wealth from sheer inheritance. Maybe a 90% death duty would spur these parasites to work for a living. I know too may relatives and others who are in the position of flaunting wealth they never worked for but for which they say they DID!

      Are you jealous, Elva? That’s a double standard you know — an ugly one too. It will consume you if you aren’t careful. I’ll bet anything you’d love to have a lot of money and make whatever use of it your heart desires.

      I’ve just dismissed you from any more consideration. I do not entertain the nonsense that says anything like what you wrote. My bottom line is simple. Neither Warren Buffet’s nor anyone else’s money bothers me in the slightest. What bothers me are the thieves and scoundrels who want their hands on what I have spent a lifetime slowly accumulating by honest hard work for my own retirement and the benefit of my family. You have just put yourself in the same category with those thieves and scoundrels.

      A spade is a spade is a spade is a spade.


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        Roy Hogue

        To Roy Hogue; I have studied USA history up to and beyond University graduate grade. And read much more since. Most Americans hardly know Australia exists or have never gone beyond their state line.

        That and $3.50 will get you a cup of coffee in most decent restaurants.

        Take my word for it, you know very little.


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        elva

        Roy Hogue says,

        Are you jealous, Elva? That’s a double standard you know — an ugly one too. It will consume you if you aren’t careful. I’ll bet anything you’d love to have a lot of money and make whatever use of it your heart desires.

        Yes. Of course I would like money just as you do when you say you have worked hard for your amount. Actually, I have plenty more than the average person because I was a professional for which I studied hard.

        I think you miss the examples of the other kind of jealousy or envy. That is, downward envy. Envy of anyone who receives a helping hand in life especially if they are struggling. The Western world, including USA, prides itself upon its Christian foundations. But no more, it seems.

        Money is god and celebrities are the angels. Right now here, there is a ‘star’ visiting who insists that all the red M&Ms be set aside for him/her. If this is all riches and fame can attain then we are truly lost.

        Incidentally, many firms avoid taxes anywhere. GOOGLE only paid about $75 000 taxes to our government last year bragging that they place their ‘earnings’ in Bermuda. I understand that it treats USA the same way. Even Romney pays taxes off shore and the truth had to be prised from him like a wisdom tooth with pliers.

        Thus if all corporations and companies paid in an honest fashion there would be more in the treasury. The wealthy are no more to be ‘trusted’ than the lowest con artist.


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          What a ridiculous idea “downward envy”. Anyone can become a moocher or a looter. Anyone can live off the government dole. Seriously, how can you envy something that takes NO effort whatsoever. (I would note that I am NOT opposed to helping the downtrodden. I am opposed to the government helping the poor. This invites fraud and misuse. If charity is personal, done by local people, the poor may get help and the mooching may not. I was a social worker and gave out Christmas baskets. We choose who received them and it was not based on income. Now, charities take APPLICATIONS and there is a means test. Meaning the older woman who lives alone will not be served, though she was in the system I worked in. I am not opposed to helping–just mindless, heartless handouts.)

          Christian foundations do NOT say give people handouts. It’s the government who took from the earners and gave to the non-earners, forever enslaving them to the government dole. No where in the Bible do we find Christians running around demanding people hand over money–in fact, if memory serves, there were admonitions against forced giving, money changing, etc. Charity was to help, not enslave.

          If your point is taxes are applied only to those who cannot worm their way out, you’re right. This is why a flat tax is suggested. Thus far, it has not succeeded. The problem with a flat tax is you cannot use it for social engineering. Tax only the rich, punish the producers, exempt the lower income, hand out money from tax revenues to people who never paid in. A flat tax is just not going to work for class envy, unless one tries writing in a higher flat tax for business. Then businesses raise prices and cover the tax, so no gain there.

          As far as the moral status of the US or any other country for that matter, again, it’s always more fun to party and pretend nothing is wrong than to behave in an adult fashion. Natural consequences correct this when we won’t. Historically, we usually don’t.

          Lastly, IT DOES NOT MATTER HOW MUCH MONEY YOU TAKE IN IF YOU SPEND MORE THAN YOU TAKE IN. Repeat that often. Unless you reduce spending, you simply spend the country into bankruptcy–oh wait, that’s where we’re going, isn’t it?


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          Roy Hogue

          I think you miss the examples of the other kind of jealousy or envy. That is, downward envy. Envy of anyone who receives a helping hand in life especially if they are struggling. The Western world, including USA, prides itself upon its Christian foundations. But no more, it seems.

          Money is god and celebrities are the angels. Right now here, there is a ‘star’ visiting who insists that all the red M&Ms be set aside for him/her. If this is all riches and fame can attain then we are truly lost.

          Elva,

          Please don’t assume that all of us have abandoned sound moral principles.

          There are lots of problems as you point out. But the solution isn’t what you apparently want to implement.

          I’ll close with this one statement. I don’t easily make heroes out of people. Some of mine are quite wealthy. You’ve never heard their names and probably never will. They’re heroes to me not because they’re rich but because of the way they live their lives, run their businesses and how they use their money. Not everyone has gone wrong and you can’t judge people except as individuals, one at a time. If you want to be part of the solution the first thing to do is make sure you aren’t part of the problem.


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    Mark

    JB and elva.

    Considering moves to North Korea anytime soon?

    No? Thought not.

    Hypocrites, both of you. That there are those who work hard and smart to ensure that they and their families don’t become dependent on other taxpayers seems to rankle with you.

    Pathetic, envious bunch of socialist sadsacks.


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      John Brookes

      Why North Korea Mark? Do we ever advocate an inherited dictatorship and silly marching as a system of government? I love the free market – but it just needs a little help when it overshoots. And of course, I’m a fan of democracy. The ability to throw out a government is absolutely essential.

      I’m reminded of Gina Rinehart and her statement that Africans are happy to work for $2 per day. This prompted a wonderful cartoon on how to be a billionaire. One way was to inherit vast mining leases and then find China booming. This was the preferred way. The other way was to work for $2 per day for 500,000,000 days (around 1.35 million years). So damn those Africans who want $5 per day – envy never did anyone any good.

      But I guess the good thing is that Gina doesn’t cost the government anything.


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        Mark

        But I guess the good thing is that Gina doesn’t cost the government anything.

        Zackly right, John. Not only does she not cost you anything but her mining biz contributes hugely to the nation’s financial wellbeing. You would well know John that the matter of two dollar employees came up when Rhinehart was explaining the sort of competition Australia is up against. Not to mention that her employees earn huge salaries of which I begrudge them not one cent.

        Yeah, I know, everything is expensive out there but that’s another story.

        About North Korea, John. You should know from history that socialism has been the philosophical home for the world’s worst mass murderers and there’s no getting around that grisly reality.


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    David

    So Warren Buffet wants to GIVE more. Say he wants to give ten percent more. Does he now give that ten percent to a charity? If the Government takes ten percent more, does he then not give that to a charity, or does he still give that, plus the ten percent more? If this is so, and the proper level of giving, then why does he not now give twenty percent to the charity? At what point would he cut back on his chaitable giving? When he gives in a church it appears he weighs what he gives based on what he sees his neighbor putting in the plate. This is strange.


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      I’m not sure about the giving angle, but the “I’m willing to pay more taxes” is complete BS on Warren’s part. Also, on the part of Obama and any other speaker. What they mean is they want everyone to pay more taxes and they will only pay more if everyone else does. How do we know that? Because anyone can send extra money to the IRS. Anyone saying “I can afford more taxes and would be wiling to pay more” and then NOT sending a check is liar, plain and simple. Nothing prevents people from paying more taxes except that they never intended to in the first place. Good ole Warren can pay 50% if he wants–he just doesn’t want. He wants the government to steal income from everyone while he uses deductions and income shifting to not pay.
      I don’t know if Warren wants to give 10% more to charities, but we know FOR CERTAIN he does NOT mean he wants to pay 10% more to the government.


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    Elva: How do you feel about taxing lotteries at 95%, life insurance at 95%, etc. Sure, someone paid for the life insurance, but no one needs two or three million in life insurance. Tax everything except the burial costs. (In the US, life insurance is not taxed–or it wasn’t anyway.) And lotteries and gambling winnings–soooo unfair. Not earned at all. At least in the case of inheritance, someone worked for the money at some time. Tax away all the winnings–no one should ever will millions of dollars just for buying a ticket.
    I am guessing that if a relative left you money, you would immediately give it to charity or the government, since you did not earn it and have no right to it. Very noble of you–if that actual happens.
    Class envy is such an ugly thing.


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      Rod Stuart

      Ah, but a government lottery is nothing more than a tax on the foolish. Taxing the winnings of some poor sod that took a trillion to one risk would prevent the foolish from buying more tickets from which the societal elite reap such immoral proceeds.


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        Roy Hogue

        Ah, but a government lottery is nothing more than a tax on the foolish.

        Very true Rod. However, the foolish pay that “tax” voluntarily do they not? No one is forced to buy a lottery ticket. So where is the problem? I mean, really, where’s the problem? From a free market point of view there just isn’t one. So why then tax away the winnings? I mean, isn’t that counterproductive? You want the lottery to make all that money for schools or whatever so wouldn’t it be best to make lottery winnings tax free to encourage more people to buy tickets?


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          Yes, lotteries are free market and tax the mathematically impaired. My original suggestion was to tax the winnings because a lottery is just as unfair as inheritance. Winners did not earn the wealth and are therefore not entitled to it. If you get rid of the idea of taxing the rich because they are not entitled to the money, then there is no need to implement such a tax. I was not saying the lottery was necessarily bad (that’s a different subject) nor commenting on what taxing the winnings would do, just that if we are to tax those who are “unfairly” rich, lottery winners are right up there.
          My point with this is the people I talk to tend to want to tax “unfair” richness. They want estates stolen by the government, to punitively punish corporate success, etc because these are unfair. However, bottom line seems to be taxing rich people who either worked to earn the money (the speaker did not work and will not work enough to become rich so why should anyone else get rich that way?) or inherited the money (speaker has not rich relatives). These are rich people who got their money via methods the liberals/class envy people cannot or will not use. Lotteries are ignored because liberals can and do win lotteries. It’s hypocritical.


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            Roy Hogue

            Sheri,

            We’ve probably beaten this subject to death by now but I was laying on the sarcasm as thick as I could.

            I think we all agree that what the left hates is success. Their misunderstanding of what constitutes wealth and how it’s acquired is a gap so wide that probably we have no way to get through to them.

            In the meantime, my bill for breakfast this morning was a few cents higher because the sales tax in California has gone up. The highway robbery has begun and all we can do for the moment is grin and bear it.

            Wyoming isn’t the only place with -34 degree temperatures. The political climate is down around the same number and getting worse.


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      elva

      Sheri, I am not against inheritances of a sizable amount. What I do baulk at is personally hearing some people who have been lucky in that regard telling everyone they meet they worked hard for their fortune. Not only that, but I have heard these same persons ridicule others for making bad choices. How does one “choose” a rich relative or two? I am very wary when some people brag about their accomplishments when maybe other factors had much to do with their apparent success. The tax official also keeps an eye on those who live a life style above their income. This often involves drugs or crime. Then there are the wealthy who have conned ordinary folk with dud companies, etc, declared bankruptcy, then gone on to do the same and living a high life. Beware those who brag about their wealth, flaunt it and speak bad of the poor.


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        If I understand you correctly, you baulk at rude people who lie about their lot in life. I’m good with that. No argument on the people who live above their means (guy in my neighborhood buys cars, remodels his house, etc all with no job–I stay away from him) nor on the con artists. I do think con artists can be most effectively dealt with by teaching people to watch for the con-think before you buy.
        Seems we are not really far apart on this.


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    “Maybe a 90% death duty would spur these parasites to work for a living…”

    If such a tax existed wealth would be transferred into companies, trusts, farms and entities of that type. Government attempts to extract such wealth in order to fund additional government expenditure would then be like running a wrecking ball through the economy.


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    Crakar24

    Here are the numbers in real time

    http://www.usdebtclock.org/


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    Bulldust

    *TINK* *TINK*

    Yes, that was the sound of the can being kicked a few feet down the road:

    http://au.news.yahoo.com/thewest/a/-/newshome/15746444/us-congress-finally-averts-fiscal-cliff/

    Now the fighting can resume for the debt ceiling increase required come the end of February. The political theatre never closes…


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    Bruce D Scott

    The aim of the US Democrats is to render the Us Economy, irreparable, blame the Republicans and inflict totalitarian measures to “save” the so called, “United States of America”. There is nothing “united” about the USA, anymore.


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    David

    [ Sheri, that is my point concerning Buffet, or anyone advocating higher taxes. Why are they not giving them now? If not to Uncle Sam, then why is their “excess” money not going to some worthy charity? And if it is going to some worthy charity now, and they have no additional “excess” money to give to Uncle Sam, then when He demands more, they will have to reduce what they “give” to the charity.

    The additional point is that I assume any worthwhile charity will be at least twice as effcient in providing for those in need as any goverment program. All advocates of higher taxes should already be giving their “excesss” money to those in “need”. Otherwise they are refusing to help the “disadvantaged” who so desparetly need more, simply because their neighbor is not giving what they deem the proper amount to government is.


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    Ace

    I worry about my bills etc over the coming months, etc….but theres no point my worrying about further ahead: here in the UK I believe it means the complete collapse of the NHS, schools, most academic institutions, and the benefits system, the collapsing of army, navy and air-forces into a little territorial/coastal security unit, more than 60% unemployment, mass starvation and inter-communal strife in which redundant squaddies and their purloined “souvenirs” will figure centrally. The police will be devoted to protecting a tiny elite as best it can. The only question I can apply to me in that scenario is how soon I die and by what means.

    But HEY, Happy New Year everybody!!!!!


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      MaxL

      Hi Ace,
      You paint a very depressing picture there, I’m not sure I agree that all will collapse as you say.
      I don’t have a crystal ball either, but I’d like to think I can write here on Jo’s site on the 3rd January 2014, “Happy New Year Ace :D

      You’ve made many friends here.


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    Roy Hogue

    For the record:

    I don’t mind being taxed at whatever rate it takes to sustain those services that government must provide because individuals or lower level government entities cannot provide those same services on their own.

    I do mind being screwed.

    Right now I’m being screwed and I want that to stop.

    I’ll stop complaining when it’s clear that I’m getting what I’m paying for, the price is honest and am not being charged for more than what government’s legitimate mandate really is. And I want my voice to count for as much as the voice of any other citizen — which just ain’t happening at the moment.


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      Ace

      But thats the sunny side of the bleak future I painted earlier: it would be The End for millions of sinecures and graft-surfers.

      Nor is it likely to be as badly made as “Bleak Future” the movie: not one of Australias sunnier exploits!


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        Roy Hogue

        But thats the sunny side of the bleak future I painted earlier: it would be The End for millions of sinecures and graft-surfers.

        Precisely!


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    Crakar24

    Has this been covered?

    Apart from the “fiscal cliff” legislation to avoid bankrupcy there were a few “extras” inserted, the following is a list of the extras and a basic explanation

    1) Help out NASCAR – Sec 312 extends the “seven year recovery period for motorsports entertainment complex property”, which is to say it allows anyone who builds a racetrack and associated facilities to get tax breaks on it. This one was projected to cost $43 million over two years.

    2) A hundred million or so for Railroads – Sec. 306 provides tax credits to certain railroads for maintaining their tracks. It’s unclear why private businesses should be compensated for their costs of doing business. This is worth roughly $165 million a year.

    3) Disney’s Gotta Eat – Sec. 317 is “Extension of special expensing rules for certain film and television productions”. It’s a relatively straightforward subsidy to Hollywood studios, and according to the Joint Tax Committee, was projected to cost $150m for 2010 and 2011.

    4) Help a brother mining company out – Sec. 307 and Sec. 316 offer tax incentives for miners to buy safety equipment and train their employees on mine safety. Taxpayers shouldn’t have to bribe mining companies to not kill their workers.

    5) Subsidies for Goldman Sachs Headquarters – Sec. 328 extends “tax exempt financing for York Liberty Zone,” which was a program to provide post-9/11 recovery funds. Rather than going to small businesses affected, however, this was, according to Bloomberg, “little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp.” Michael Bloomberg himself actually thought the program was excessive, so that’s saying something. According to David Cay Johnston’s The Fine Print, Goldman got $1.6 billion in tax free financing for its new massive headquarters through Liberty Bonds.

    6) $9B Off-shore financing loophole for banks – Sec. 322 is an “Extension of the Active Financing Exception to Subpart F.” Very few tax loopholes have a trade association, but this one does. This strangely worded provision basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it. According to this Washington Post piece, supporters of the bill include GE, Caterpillar, and JP Morgan. Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the “Active Financing Working Group.”

    7) Tax credits for foreign subsidiaries – Sec. 323 is an extension of the “Look-through treatment of payments between related CFCs under foreign personal holding company income rules.” This gibberish sounding provision cost $1.5 billion from 2010 and 2011, and the US Chamber loves it. It’s a provision that allows US multinationals to not pay taxes on income earned by companies they own abroad.

    8) Bonus Depreciation, R&D Tax Credit – These are well-known corporate boondoggles. The research tax credit was projected to cost $8B for 2010 and 2011, and the depreciation provisions were projected to cost about $110B for those two years, with some of that made up in later years.

    Conveniently, the Joint Committee on Taxation in 2010 did an analysis of what many of these extenders cost. You can find that report here.

    https://www.jct.gov/publications.html?func=startdown&id=3715


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    Maverick

    Simply Brilliant Jo, a master piece!


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    gai

    RMB says: January 25, 2013 at 7:42 am
    “You can not heat water from above. surface tension blocks the heat very emphatically and very convincingly. Thats why there is no climate sensitivity.”
    >>>>>>>>>>>>>>>>
    bones says: January 25, 2013 at 2:21 pm
    Baloney. This is the kind of hopelessly wrong stuff that the CAGW sympathisers pray that they will find here.
    >>>>>>>>>>>>>>>
    When RMB says ‘heat’ he is talking about infrared radiation and therefore he is correct.

    Wavelengths of sunlight penetrating the ocean: Graph from Colorado University

    Graph of solar radiation and terestrial radiation

    Graph Solar wavelengths at ocean depths
    legend:

    The solar radiation ‘envelope’ penetrates the ocean to 100 metres at visible wavelengths but to much shallower depths as the wavelength increases. Back radiation in the far infra-red from the Greenhouse Effect occurs at wavelengths centred around 10 micrometres, well off the scale of this chart, and cannot penetrate the ocean beyond the surface ‘skin’.

    A close up of the IR field we see in the following graph

    (Google translation) of Oceaanopwarming of zeespiegelstijging door CO2 is niet mogelijk
    The wavelengths of CO2 are only between 13.5 and 16.5 microns, and here we see that this radiation is can only penetrate 5 to 10 microns deep.

    The ocean surface is approximately 3 degrees warmer than the atmosphere. Where the surface of the water is cooler than incidental in the atmosphere (by wind), the atmosphere possible micrometers from the top by conduction heat up the water, but this too will cause water evaporation, and not to warming. The evaporation boundary layer contemplates a particular temperature gradient as we will see.

    Further, the upper 700 meters of the ocean for 50 times as much mass as the entire atmosphere. The specific heat of water is 4 times higher than that of air, so that possesses low water 200 times as much heat energy as the total atmosphere (for the entire ocean, this is even as much as 1200 times). It is the ocean warms the atmosphere primarily by evaporation and not vice versa.

    The boundary layer of water evaporation

    There is a very important phenomenon which occurs in the boundary layer of the surface of the water for evaporation occurs, where water evaporates and the layer in the atmosphere.
    Below is a very nice diagram (Schematic plot or open ocean surface thermal structures) that the temperature gradient in water indicates depends on the depth below the surface. The top value on the y-axis indicates the 10 micrometers up to where IR radiation comes, the next value below it is already 1 mm deep (1000 microns) far outside the range of IR radiation.
    The temperature goes up to the right, and curve (a) overnight (b) during the day.

    evaporation graph

    Update 12-05-2012

    Oceanograaf Dr. Robert E. Stevenson schrijft in zijn rapport op pagina 8:

    The atmosphere cannot warm until the underlying surface warms first. The lower atmosphere is transparent to direct solar radiation, preventing it from being significantly warmed by sunlight alone. The surface atmosphere thus gets its warmth in three ways: from direct contact with the oceans; from infrared radiation off the ocean surface; and, from the removal of latent heat from the ocean by evaporation. Consequently, the temperature of the lower atmosphere is largely determined by the temperature of the ocean.

    Warming the ocean is not a simple matter, not like heating a small glass of water. The first thing to remember is that the ocean is not warmed by the overlying air.


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