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starbucks4ever (97.43)

Too much pessimism

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February 03, 2010 – Comments (11)

There is too much long-term pessimism on these boards, as evidenced, for example, by russiangambit's posts. Almost everybody sees some iceberg ahead: we can't afford Social security, we can't afford military spending, the budget deficit will destroy us, blah-blah-blah. Interestingly, the same people often remain optimistic about the short term - the nearest 3-5 years or so. As for me, it's quite the contrary. I'm fairly pessimistic about the next 5 years, but optimistic about the long run. 

The way I see it is this. We will certainly come up with the solution to all these problems, but we will only come up with the solution when it can no longer be postponed. If you think governments start reforms out of the goodness of their heart, then you shouldn't even be on these boards. You're too naive to invest in the stock market, period. Changes will come at the moment when they can no longer be avoided. Not a second earlier and not a second later.

And then there is the question: can these problems be solved at all? You bet.

When you hear that balancing the budget is impossible, paying for entitlements is impossible, solving the healthcare impasse is impossible, you should know that you just heard a damned lie. Or, to make it more like the truth, you should realize that the speaker means something very different. What he really means is this: if we let billionaires pay symbolic taxes as we do now, then balancing the budget will the impossible. If pumping asset prices will be our only goal, then paying for entitlements will be impossible. If we must keep HMO executives as happy as they are now, then solving the healthcare impasse will be impossible. And since low taxes for billionares, inflated asset prices, and happiness of HMO executives are all sacred things to the speaker, it follows that positive changes are impossible.

In other words, you can never do anything worthwhile without stepping on some toes.

I can only agree with that, but I disagree that our self-inflicted problems have no solution. For better of worse, America is a fabulously rich country that can easily find the money once it starts looking in the right places.

The available savings and the available sources of extra income are large enough to pay for all the excesses of the last two administrations, and that includes the two wars and the whole series of multi-trillion dollar bailouts. We can even stay on the current collision course for another decade and then still fix the problem when the need arises.

Just run these numbers:

A real healthcare reform can save $1 trillion a year.

A meaningful cut of needless military spending can save $300 billion a year.

An extra 1% property tax can bring in $200 billion a year 

A repeal of Bush's tax cuts can bring in another $100 billion a year.

Removing the waste in the education system can easily produce another $100 billion of savings.

A 1% asset tax on stocks can generate $50 billion a year once the market is allowed to find its normal valuations.

Paying the debt can save the government another $250 billion a year in interest once the steps indicated above are taken and the time is allowed to work its magic and reduce the $12.3 trillion debt to zero. 

I could continue the list of measures, but there is no reason to continue it. The conclusion is already clear. We can pay off all that astronomical debt in 7-8 years without any major trouble and with minimum sacrifices for the majority.

So when I hear that doomsday talk, I am not worried at all. It's like hearing Warren Buffett cry about his inability to pay for his diet Coke. You realize that the guy is facing a very tough emotional decision, you know that as far as he is concerned, the world is ending for him this very minute, but you also know that eventually the sweaty hand will reach into the pocket and the dollar bill will be produced and handed over to the cashier and nobody will be bankrupted and the world will continue. 

This is why I am optimistic about the long term. 

On the other hand, I also know that this dollar bill will not be produced until the cashier tells the customer to pay now or leave.

This is why I am pessimistic about the short term.

Finally, there is that climactic moment when tax hikes and spending cuts are already unavoidable and people still think the world is ending. That's why I am even more pessimistic about the medium term than about the short term. 

But if we talk about the really long term,15-30 years from now, then it's a different story altogether. In the long term, I don't see any significant problem balancing the budget, paying for the entitlements, and even increasing them if necessary.

11 Comments – Post Your Own

#1) On February 03, 2010 at 11:47 PM, ralphmachio (24.57) wrote:

While I was at the bank yesterday, I had the opportunity to speak with an woman from India who had just returned from a 3 week trip back home. She was telling me how expensive the clothes were there, and how she could barely afford to buy anything. Being a mid level employee at the bank, (she had her own office) I was surprised to hear this. I knew India was doing well, but if a decently employed American cant afford to go shopping in India, we are alarmingly worse off than I assumed. She went on to explain how Americans are not as concerned about their clothes as Indians and how we are much more worried about necessities and debt. (I live in CO, not LA or NY anymore) 

So I asked her if she had any recs. for me, and she said that any IT or engineering /machining business would be a good bet. (She did not rec an actual company) She did however mention that the return on a 5 year CD in India is 10% annually. She said there was a way to get involved with that from here.

Coming away from the conversation, my feelings that we shipped all the good jobs overseas a long time ago were reinforced. I'm not sure how we will ever recover while we continue on a downward spiral compared to the rest of the world. They are used to being destitute, and are much more eager to learn, and work.

I finished the day by watching the Network, a film from '75 that depicts a news agency being bought out and run by Saudi interests.  The news agency operated at a 150 million dollar loss, but the arabs were willing to buy it just so they could control our press. That was '75. the sooner we realize that our country already got sold out from under us, the more aware we will be. Families such as the Bush family have been getting rich by looting this country for generations, and I think there is about as much of this country left as there is oil reserves in Saudi Arabia, on a relative scale.

I know that the Indian woman at the bank was from the elite class, or one below, as far as Indians go. i know Network is just a movie. All taken into consideration. 

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#2) On February 04, 2010 at 1:34 AM, RonChapmanJr (90.28) wrote:

Um, no.  America is toast. 

You should double check this - A real healthcare reform can save $1 trillion a year. - that is simply not true.

You should list the other measures you think would solve the problem because the ones you have listed would not fix the problems we have now much less the ones on the way. 

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#3) On February 04, 2010 at 2:00 AM, tfirst (33.45) wrote:

When others are fearful ...be greedy.

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#4) On February 04, 2010 at 2:46 AM, whereaminow (< 20) wrote:

ralphmachio,

I'm in India right now, staying in 5 star hotels for $100/night.  I spend $2 per meal and when i give a guy a $3 tip he looks at me like I just give him 3 weeks pay.

I think that person in the bank got ripped off.

David in Qatar 

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#5) On February 04, 2010 at 4:51 AM, memoandstitch (< 20) wrote:

I agree with you that America is not doomed.  This is evidenced by the fact that the yield on treasury bonds is still historically low.  However, it won't be pretty.  Yes, the debt problem will be solved.  But the solution won't be pretty.  Most of the steps you listed above (even if they work) lead to poorer economic conditions and/or reduction in welfare.  Do you really want an asset tax?

Think of it like this: if there is a painless way to solve the problem, people would have already done it.  Hence, any solution that will be implemented years from now will be painful.  Somebody will be denied healthcare.  Somebody will be left behind.

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#6) On February 04, 2010 at 8:31 AM, starbucks4ever (97.43) wrote:

RonChapmanJr,

I insist that 1 trillion is correct. The current system costs us about 18% of GDP, and we overspend 40-70% relative to what a normal system should cost.  

memoandstitch,

Asset tax is fine with me. Unless it's me alone who will pay it while the New Hampton crowd enjoys a carefully left loophole, I don't see any reason why I would object to it. 

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#7) On February 04, 2010 at 9:18 AM, ChrisGraley (29.65) wrote:

A real healthcare reform can save $1 trillion a year.

A true health care reform like mentioned above, can not happen in a 2 party system

A meaningful cut of needless military spending can save $300 billion a year.

Hard to cut military spending when we are still fighting 2 wars. Also you need to itemize items to support your claims that there is needless spending.

An extra 1% property tax can bring in $200 billion a year 

It's also an unfair tax to people on Social Security.

A repeal of Bush's tax cuts can bring in another $100 billion a year.

It would also transfer wealth overseas and deflate the GDP

Removing the waste in the education system can easily produce another $100 billion of savings.

Without itemizing said waste, you can say $200 trillion dollars and be taken just as seriously.

A 1% asset tax on stocks can generate $50 billion a year once the market is allowed to find its normal valuations.

It also encourages investsment in foriegn markets and deflates the market.

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#8) On February 04, 2010 at 6:55 PM, ralphmachio (24.57) wrote:

Thanks for the correction David. I love being misinformed at the bank. I wonder what else she lied about... Enjoy India!

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#9) On February 04, 2010 at 7:10 PM, simplemts (< 20) wrote:

In regards to #7's repsonse, he is very much right.

 Most of your proposals simply involve cutting spending and higher taxes, which would impede growth, which would decrease revenue, which would increase deficits, which would mean we are in the same problem we are in now. 

 The only real solution is by slimming down on stupid programs that we have overextended ourself in such as Medicare, Public Pensions, and Social Security and increase our productivity and competiveness.  Again, as Chris states, this will not happen in our two party system.  The focus is short-term, politicians to get reelected.  They could care less about the next generation, or even the next decade.  We work to SOLVE problems, not prevent them.  This is our flaw and will be the demise of America over the next few decades.

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#10) On February 04, 2010 at 7:22 PM, alexxlea (66.68) wrote:

"A real healthcare reform can save $1 trillion a year.

A meaningful cut of needless military spending can save $300 billion a year.

An extra 1% property tax can bring in $200 billion a year 

A repeal of Bush's tax cuts can bring in another $100 billion a year.

Removing the waste in the education system can easily produce another $100 billion of savings.

A 1% asset tax on stocks can generate $50 billion a year once the market is allowed to find its normal valuations.

Paying the debt can save the government another $250 billion a year in interest once the steps indicated above are taken and the time is allowed to work its magic and reduce the $12.3 trillion debt to zero. 

I could continue the list of measures, but there is no reason to continue it. The conclusion is already clear. We can pay off all that astronomical debt in 7-8 years without any major trouble and with minimum sacrifices for the majority."

 

Let's just say for a second that I could care less about money issues. It's all fictional bullshit anyways. The only reason why we have healthcare costs like they are is because we want to try to retain some semblance of medical talent to take care of the people who bother to go to the polls.  Apparently the old-fashioned premises of respect, adoration, and oh wait the prospect of helping people isn't enough incentive for people to do anything anymore, everything has to be monetized and have a dollar value put on it in this day and age for you to do anything.

Anyways I'm not even going to discuss what a sorry excuse the entire notion of health care or the medical field is. We have approaching 7 billion people on this planet. They all want to live as good as people in the wealthier countries do. Good luck sorting that out. Unless you can convince them to not live like you, while you still live like you do, then you can't do shit about what they do without looking like a big hypocrite of the highest order. Excuse my language, by the way. I'm just pissed right now that MF is determined to delete so many of my opinion and thought-laden diatribes as of late.

So, does your whole balancing the budget thing help out with the fact that we're not going to have oil pretty soon? With the fact that we live in a world of selfish nations whose governments and corporations seek to vie for more power and clout on the global theatre?

Georgia initiated a war with Russia during the Olympic games. That was the clearest and most recent reminder that our clout is non-existent. We have no say in any country's affairs nowadays. We have no points where we can apply pressure, realistically speaking. What are we going to do if a nation threatens war? Tell them we'll stop selling them counter-swap agreements? Tell them we'll raze properties they own stateside? Our corporations' profits are too dependent on other nations for them to give a damn as to what happens to us, and it's not like they're able and willing to pressure countries in which they have business interests.

We've been getting the good end of the dealings this decade with China. If you think that they aren't waiting for their rewards patiently, then you are an idiot or a fool.

 

People around the world have been watering their mouths at the mere chance to consume like we have. To eat like we do. To do things we don't even give a second thought to. They will fight tooth and nail for that chance, and their efforts are shaping all of our history.

 

 

One last piece of food for thought. The only things people really need are food, water, and shelter, after that they want cool stuff. Do they really want some GS-issued bond and insurance on that bond? No. Not this new up-and-coming class. They want stuff. Once they realize that our shit is just their shit repackaged and shipped back to them, our play money will remain just that.

 

Btw my time horizon is not as immediate as any of yours as I am young and you are most likely old and most likely many decades closer to death than I am, unless I complete a purchase of a motorcycle or decide to take up base-jumping while wrestling with sharks as yet another dullard pasttime.

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#11) On February 05, 2010 at 12:28 AM, QualityPicks (78.76) wrote:

"Too much pessimism"

This is relative. It is not about being pessimistic or optimistic. When I see the problems facing this country, and I ask around and talk to friends or watch the news, I really think most people are behaving "optimistic" in light of the facts.

Also, my college degree is in public accounting and finances. The US is on the path to bankruptcy, that is clear. If the US were to seriously try to fix its problems, the Great Depression of 1930 would be peanuts compared to this one. But not only that, I am looking at what the government has said they will do and what they are doing, and that is, make the problem bigger. Everything the government is doing is avoiding the problem, thus making it bigger. On the other hand you are assuming the US will be forced to change its ways.

Just to compare, GM is exactly the US government for me. GM leadership never made the hard decisions, never changed its ways. GM ended bankrupt. So, if you think the US will make hard decisions, I will tell you, I'll get bullish when I see the right decisions being made and the markets absorb them. In the mean time the problem is just getting bigger. I'll be a realist, you can be an optimist. If, and that's a big if, things change, I will too.

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