Next Stop: Economic Armageddon?

As you probably have heard by now, our political leaders are engaged in epic negotiations after the Republican majority in the House of Representatives announced that it would not vote to increase the debt ceiling without major spending cuts. Unless Republicans and Democrats reach a deal to increase the debt ceiling by July 22, so that a bill can be passed by Aug. 2, the government will probably default, and many believe it'll be economic Armageddon, take two.

So how are those negotiations going, and what does it all mean for individual investors, you ask?

At a financial summit at the White House a few weeks ago, I had the chance to hear from coffee-toting Gene Sperling, one of the White House's lead negotiators. He said that both sides agreed to make a substantial "down payment" toward $4 trillion in deficit reduction, but that the White House believed that some of the deficit reduction would have to come from ending tax breaks.

He was referring to "tax expenditures," which cost $1.1 trillion per year, and mainly benefit the wealthy. Including tax expenditures in a deficit deal, Sperling argued, was necessary not only to generate enough savings, but also because "we need the moral authority to ask for shared sacrifice. ... People won't accept [cuts to domestic services] if it feels like it's to pay for $700 billion-$800 billion in tax breaks for the wealthy."

According to ABC News, the basic outline of the deal would have been 5-to-1 spending cuts to revenue increases, as follows:

The White House would agree to $2 trillion in spending cuts over the next 10 years, including...

  • $200 billion in cuts to Medicare and Medicaid.
  • $200 billion in other mandatory spending cuts, including areas like farm subsidies and federal pensions.
  • $1 trillion in cuts to discretionary spending, including the Pentagon.

In return, they wanted $400 billion in revenue increases over the next 10 years, including...

  • $3 billion for eliminating tax breaks on corporate jets.
  • $20 billion for eliminating the "carried interest" loophole that allows hedge fund employees to pay a 15% personal income tax rate.
  • $45 billion in cuts to oil and gas subsidies.
  • $60 billion in from ending tax breaks for LIFO inventory accounting.
  • $290 billion for capping at 28% the tax write-off those making more than $200,000 can claim on itemized deductions.

When I saw Sperling, he exuded measured, cautious optimism about the possibility of reaching an agreement among the negotiators: "There is a seriousness of purpose in deficit meetings. ... [Virginia Republican Rep.] Eric Cantor is well-prepared, as is everyone else. ... [But] nothing is agreed to until everything's agreed to."

You can say that again
Fast-forward one month. Republican leadership has left the talks, arguing that no tax expenditures should be on the table. Here's how Cantor put it:

I believe that we have identified trillions in spending cuts, and to date, we have established a blueprint that could institute the fiscal reforms needed to start getting our fiscal house in order. That said ... Democrats continue to insist that any deal must include tax increases.

With the negotiations broken off, both sides took their cases directly to the public. House Republicans didn't want to end the tax breaks. The White House didn't want to reduce the deficit entirely by cutting spending on social programs without the wealthy chipping in by giving up some of their tax breaks, too. Senate Democrats don't want to cut Medicare and Social Security unless it's part of a broader deal that would probably include expiration of the Bush tax cuts for the wealthy.

No one knows for certain what would happen if the debt limit doesn't get raised. The director of economic and market analysis at Citigroup clarified that, "Asking what the U.S. economy might look like after a possible U.S. Treasury default is akin to asking, 'What will you do after you commit suicide?'" But here are the sorts of things we could look forward to:

  • The Treasury would decide between not paying bondholders, or taking other measures like skipping Social Security payments and deferring troop salaries. The missing payments would cause "enormous disruptions" for the economy, as Warren Buffett puts it. A double-dip recession would be pretty likely.
  • Moody's is considering downgrading U.S. debt to Aa. That's about in line with Italy, Spain, and Japan. Rate spreads between U.S. and those nations' long-term interest rates indicate that the cost to the U.S. could be as high as $100 billion to $200 billion in annual interest payments. The Economist estimated an annual cost of about $86 billion. However you slice it, the direct costs of a downgrade or default would be high.
  • In addition to a deeper economic downturn and higher deficits, a downgrade or default could also trigger another financial crisis. Treasury bonds are not only investments, but also comprise much of the blood of our financial system. If banks begin to question each other's liquidity and solvency, they'll pull the plug on each other like it's 2007.

Companies that employ significant short-term financing, from financials such as Annaly Capital (NYSE: NLY  ) and American Capital Agency (Nasdaq: AGNC  ) to conglomerates such as General Electric (NYSE: GE  ) , could be crushed by a freeze-up in credit markets.

But here are the five biggest holders of Treasury bonds:

Company

Total Treasury and Agency Securities Available for Sale and Trading*

Short-term Borrowings

Total Equity

Bank of America (NYSE: BAC  )

$72.7

$318.8

$230.1

Citigroup (NYSE: C  )

$70.7

$326.5

$173.4

Goldman Sachs (NYSE: GS  )

$38.7

$266.0

$73.4

Morgan Stanley

$28.9

$214.7

$48.6

JPMorgan Chase

$23.9

$110.9

$66.5

Source: Capital IQ, a division of Standard & Poor's, and the Federal Reserve Bank of New York. All numbers in billions.
*Excludes securities held-to-maturity.

If these banks go under, no one is safe. Shorting U.S. Treasuries might be profitable. As of the most recent filings, Cantor owned ProShares UltraShort 20+ Year Treasury (NYSE: TBT  ) . But a total financial collapse could also hurt the ETF's counterparties. Similarly, gold would probably do quite well, but some gold producers could be destroyed in a financial panic.

There are ways this could all be avoided. Here are two of the most likely:

  • Voters (or Wall Street) force a compromise: This is actually how the last debt ceiling crisis was resolved. From 1995 to 1996, then-Speaker Newt Gingrich (R-Ga.) threatened to refuse to pass a debt limit increase, until he changed his mind after Social Security checks began to be affected and Moody's said it would consider a downgrade.
  • Agree to live to fight another day: On Wednesday, Senate Minority Leader Mitch McConnell (R-Ky.) suggested an intriguing proposal: Give the president the authority to raise the debt ceiling on his own (unless overridden by two-thirds of both chambers of Congress). Everyone would get what they want: The Treasury can pay its bills; Democrats don't agree to cut Medicare and Social Security without the wealthy giving up tax breaks; Republicans don't have to face the choice between ending tax breaks for the wealthy, raising the debt ceiling, and political annihilation from blocking the raise; and everyone else avoids economic collapse.

Nothing is agreed to until everything is agreed to. But I'm optimistic that either a compromise, or, more likely, something like McConnell's plan will probably be employed. Why? Because default would be economic -- and political -- suicide.

What do you think we will or should do with the debt ceiling? Sound off in the comments box.

Ilan Moscovitz doesn't own shares of any companies mentioned. You can follow him on Twitter @TMFDada. The Motley Fool owns shares of Annaly Capital Management. The Fool owns shares of and has opened a short position on Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (68) | Recommend This Article (49)

Comments from our Foolish Readers

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  • Report this Comment On July 14, 2011, at 3:46 PM, ice820 wrote:

    TURM LIMITS

  • Report this Comment On July 14, 2011, at 3:53 PM, MikeW92103 wrote:

    Everybody is against "big government spending". But nobody really seems to understand what it is. Most seem to have an image of mythical lazy, undeserving people getting "free money" from the hard working taxpayers. Nobody seems to think that the salary they receive from a company with government contracts is the proceeds of "big government spending". Nobody seems to think that the pay doctors and nurses receive from treating Medicare patients is "big government spending". Nobody thinks of airport security, food safety, border patrols, air traffic control, or the maintenance of the roads at Yellowstone National Park is "big government spending". Some people recognize that fighting wars in Afghanistan, Iraq, and Libya is "big government spending". Some don't.

    Maybe the only way for people to understand exactly what "big government spending" does for them is to show them by stopping it abruptly like the radicals seem to want.

  • Report this Comment On July 14, 2011, at 4:43 PM, definer wrote:

    I don't understand the problem that Motley Fool has with REITs. The financing that AGNC is getting is coming from stock issuance not for going to the credit trough. If the market takes a hit due to DC not getting the debt limit raised they will suffer marginally worse (if at all) than the broader market. They will only get substantially hurt worse if interest rates rise, which is unlikely given the current economic situation for at least the nest 12 to 18 months.

  • Report this Comment On July 14, 2011, at 5:02 PM, JBKirtley wrote:

    The real problem, using the 10 year time line, is that the deficit will have grown to $26 trillion dollars while the cuts are taking effect - an unsustainable amount no matter on who or by how much you raise taxes. Only efforts that immediately take an initiating step of bringing the debt to 10% below then ceiling and then methodically reducing it over 8 years (theoretically) to zero will be effective. We have to determine if we are tough enough to outlast tough times.

  • Report this Comment On July 14, 2011, at 5:02 PM, GingerR2 wrote:

    When someone is in a financial hole and living on credit the smart thing to do isn't to quit paying your credit card. Your already using your card to buy gas and food because you don't have the cash (it's all going to pay last months card bill).

    Yes, you have to get a grip on your spending and it will not be easy. You'll have to give up some stuff you'd rather not.

    When we refuse to raise the debt ceiling we're the people who think the way to get out of hock is by refusing to pay the credit card bill.

    But if we can't buy gas we can't get to work and we'll lose our job and then how're we going to get by?

    I say, cut spending, it won't be fun. But raise the debt ceiling or things will get even worse.

  • Report this Comment On July 14, 2011, at 5:03 PM, Heiny1077 wrote:

    I agree Mike. Maybe if the gov't shuts down we will realize we really don't need so many departments and programs. Maybe we could go back to the good ole days of personal responsibility.

  • Report this Comment On July 14, 2011, at 5:06 PM, LyfordJr wrote:

    August 2nd is an arbitrary deadline, and there will be plenty of money in the treasury to cover all obligations.

    And there won't be a default, because they'll come to some agreement that prevents it. No one wants it, so it won't happen. Much ado about, well, not nothing, but about something that's not going to happen.

  • Report this Comment On July 14, 2011, at 5:22 PM, cthomas1017 wrote:

    The ignorance of the author is amazing. A failure to raise the ceiling does not result in a default. Tax revenues far exceed the debt obligations. I suppose if a lie is repeated enough, many will believe it. When we get beyond partisan scare tactics, an honest compromise can be hashed out. Until then, it's just posturing or ignorance.

  • Report this Comment On July 14, 2011, at 5:32 PM, jpdal09 wrote:

    Cutting spending is the only thing that will solve this crisis. Rasing taxes does not boost tax receipts as a percentage of revenue all that much, if at all (http://www.heritage.org/budgetchartbook/income-tax-receipts)

    And the "rich" is also made up of small and medium business and if thier taxes are raised then they cut thier own spending (i.e. layoffs)

    There's an obsurd amount of programs that can be cut and departments that can be made more efficient.

    We will beat this thing by tightening our belt, not killing the goose that lays the golden egg.

  • Report this Comment On July 14, 2011, at 5:34 PM, buddyglee wrote:

    simple

    do a bit of everything!

    cut spending

    raise taxes

    default a little! (jk)

    and for gods sake CUT SPENDING ON THE STUPID ARMY!

  • Report this Comment On July 14, 2011, at 5:38 PM, Heiny1077 wrote:

    Buddy, the military counts for little against the GDP in comparison to the big 3. I actually prefer the ability to defend our nation as opposed to baby sitting the masses. The bottom 46% of income earners pay zero income tax and some actually have a net gain. The military is the least of our worries economically.

  • Report this Comment On July 14, 2011, at 5:47 PM, xetn wrote:

    Here is an excellent analysis of the "tax cuts" being talked about, and as you will discover, they are all back loaded to the last 3 years:

    http://lewrockwell.com/north/north1007.html

  • Report this Comment On July 14, 2011, at 5:59 PM, razzamatazzer1 wrote:

    If OUR country(mainly gov't.) continues to "kick the can down the road",it will only be worse than if we don't try to fix our deficit now.Raising it will only bring BIGGER problems down the road,when we run into the same situation in 5-10yrs(my guess).

  • Report this Comment On July 14, 2011, at 6:35 PM, popomike wrote:

    I will be thrilled if some sort of deal could be worked out that included spending cuts and a raise in taxes. Its the fastest way to paying down our debt.

    I am middle class and I would have no problem forking over more money out of my paycheck if it helped our country as a whole. What are you willing to do?

    "The military is the least of our worries economically" that's funny

  • Report this Comment On July 14, 2011, at 6:41 PM, SLSguy wrote:

    All proposals, democrat or republican, contain signifcant spending cuts (see "five to one above" form author). They have to if the arithmetic is going to work. It's crazy not to include revenue increases. And (sorry all you successful investors out there, inlcuding me) it's crazy not to hit wealthy people first. All the spending cuts will hurt the middle class and poor much more than the rich. Anything resembling shared sacrifice involves inreased revenues and reducing loopholes from/for wealthier groups.

    I can't believe anyone reading this comment doesn't know from personal experience that it's easier to get money if you already have it - or, put another way, the more money you make the easier it is to make more. That's life. Revenue increases from people with more money is only fair.

  • Report this Comment On July 14, 2011, at 7:18 PM, Lennyg02 wrote:

    Agree with SLSguy: "It's crazy not to include revenue increases." Only those who blindly follow ideology don't see this.

  • Report this Comment On July 14, 2011, at 7:44 PM, bornboring wrote:

    I find it difficult to understand the ignorance with the masses and politicians in the States.

    While raising the debt limit is just kicking the can down the road, not raising it is official declaration of bankruptcy. International function has no such provision as Chapter 11. US$ will immediately cease to be a reserve currency, all governments and corporations will have to dump whatever $ they have on their hands. This is going to be a world economic upheaval, more than a just new world order.

    Thank Ilan for revealing congressman with investment shorting the treasury. It means these people have personal interest to see the collapse of US$. They can of course resign later on and renounce US citizenship to live happily ever after. Hey, the patriot act doesn't apply, right? Ever thought of how many lives and sacrifices US citizens gave in the past world wars and reconstruction, and the prestige gained in those efforts?

    Would anyone agree that those congressman shorting on US$ should not vote on financial issue?

  • Report this Comment On July 14, 2011, at 8:15 PM, hbofbyu wrote:

    Why don’t we look at what works and the strengths of our decentralized system rather than inviting ever increasing federal government spending and control? Who can honestly claim that politicians and policymakers, at the will of special interest groups and public opinion, know more about what's best for you in your local community?

    The Feds take 30% of your money and when they give you 10% of it back in benefits (to buy your vote) you think it is a virtuous institution.

    America is turning into thoughtless sheep - many of which are perfectly content being attached to a big governement teet.

  • Report this Comment On July 14, 2011, at 8:17 PM, hbofbyu wrote:

    Exhibit number one:

    The Dept. of Education. Created in 1979. Their biggest accomplishment has been the dumbing down of America.

  • Report this Comment On July 14, 2011, at 8:53 PM, LyfordJr wrote:

    "It's crazy not to include revenue increases."

    In the first place, the problems are far (far far far) bigger on the spending side than the revenue side, and to include "revenue increases" before some spending discipline is involved is to push the problem further down the road. I think most people understand that revenues are going to have to go up, but the typical result of negotiations like this is revenues that go up now with poorly defined spending cuts at some point in the future that never arrives. They need to address the core issue, which is trillions of dollars worth of future spending commitments that can't be met. The idea that the best they are capable of doing is $2 Billion in cuts is a bad joke.

    In the second place, the revenue problem at the moment is largely the result of the dreadful economy. It's easy to say "we need revenue increases," it's not necessarily easy to do. Which rates are you going to raise, and by how much, and how much actual revenue will that raise, and how many more jobs will be lost as a result?

  • Report this Comment On July 14, 2011, at 9:10 PM, TMFHousel wrote:

    <<In the first place, the problems are far (far far far) bigger on the spending side than the revenue side>>

    For 2011, revenue is 3.5 percentage points of GDP below the long-term average, and spending is 4 percentage points above it. I don't know if four "fars" are necessary.

  • Report this Comment On July 14, 2011, at 9:26 PM, LyfordJr wrote:

    2011 isn't the problem. If 2011 were the only problem, there wouldn't be a fight going on right now. The long-term structural debt is the problem, the spending commitments that cannot possibly be met.

  • Report this Comment On July 14, 2011, at 10:13 PM, dbtheonly wrote:

    rigean,

    You forgot your meds again.

  • Report this Comment On July 14, 2011, at 10:22 PM, DoctorLewis4 wrote:

    Gee, I wonder what's working in Germany? They seem to be doing well lately?

  • Report this Comment On July 14, 2011, at 10:41 PM, TMFDiogenes wrote:

    "I don't understand the problem that Motley Fool has with REITs. The financing that AGNC is getting is coming from stock issuance not for going to the credit trough."

    Most mortgage REITs do a lot of both. AGNC actually has a 6.6-to-1 ratio of short term borrowings to equity, which along with NLY is one of the highest. Not saying they're necessarily bad investments (I've bought NLY for a portfolio I co-manage for the Motley Fool), just that they, like other companies relying on st financing, could be vulnerable if credit markets freeze again.

  • Report this Comment On July 14, 2011, at 10:46 PM, TMFDiogenes wrote:

    "The ignorance of the author is amazing. A failure to raise the ceiling does not result in a default. Tax revenues far exceed the debt obligations."

    1. Warren Buffett: I don't see how a country that skips payments to millions of people [social security] is triple-A.

    2. "Standard & Poor’s said there was a “substantial likelihood” it could lower its AAA grade on Treasury debt because of the political battle over the federal debt ceiling and spending cuts.

    S&P follows rival Wall Street ratings firm Moody’s Investors Service, which on Wednesday put its top-rung U.S. rating under review for a possible downgrade."

  • Report this Comment On July 14, 2011, at 11:11 PM, vidar712 wrote:

    Want to know a secret about America? Everyone believes that they are the middle class. Everyone. It doesn't matter if you are unemployed living in a van down by the river, or if you use a helicopter instead of a ski lift. If you are an American, you believe that you are middle class.

    When they say that they are not going to tax the middle class, what they want you to hear is, "We are going to tax everyone except for you."

    It is not like the government is a big monster that eats money. As if you pay your taxes and the money stops existing. The government uses that tax revenue to pay workers (Government empoyees, hospitals working on Medicare patients, contractors to are resurfacing highways.) or they send the money to citizens (Social Security). The point is that money gets recycled and taxed again. Reducing spending reduces revenue (slightly).

    If you want to tax the rich, just tax capital gains as regular income. The rich became rich by investing. (This idea is unpopular because it would inhibit other people from becoming rich.)

    The thing that I don't understand is: Why don't people just say what they want? You want to cut spending because you want less government intrusion in your life. You don't want to raise taxes because the government will spend that money and increase the intrusion in your life. Why use taxes and service cuts as a proxy?

  • Report this Comment On July 14, 2011, at 11:13 PM, vidar712 wrote:

    @DoctorLewis4 "Gee, I wonder what's working in Germany? They seem to be doing well lately?"

    From what I've heard is that they have been investing in European counties. (Greece in particular.) If we are going to save this country than we need to invest all of our money in Greece.

    (Just kidding.)

  • Report this Comment On July 14, 2011, at 11:28 PM, maiday2000 wrote:

    If anyone believed that President Obama and Gene Sperling were being honest about their cuts, they haven't been paying attention. They just spent the last 2.5 years added $3.7 trillion to the national debt, with program after program and regulation after regulation. There were absolutely zero spending cuts identified by his people. Heck, the Senate hasn't even produced its federally mandated budget in two years because they are so afraid of people seeing their spending.

    The Republicans asked for lower rates in exchange for fewer deductions, which would result in revenue increases and less dead weight loss in economic terms, better for everyone.

    Democrats don't want this. High marginal rates with all kinds of loopholes and special deductions are how they keep their pet projects like "green" energy alive. It is how they pay off their people. How else did GE pay zero dollars in taxes last year?

    But, as usual, the MF political commentary is severely lacking. Yep, as many of us who have been here for years know, it is the usual half-hearted effort, leading to an inadequate explanation in some attempt to frame an issue that is important. At least we can all take comfort in the fact the article wasn't written by Selena Maranjian.

  • Report this Comment On July 14, 2011, at 11:31 PM, neamakri wrote:

    I tried to find an explanation of WHY we need a debt ceiling. Apparently it was created in 1917, nearly 100 years ago.

    What's the point? Congress keeps spending more and more of my grandchildrens' money. They have almost nothing left.

    Get rid of the debt ceiling. Then when the world economies wake up to the fact that the US Congress is irresponsible, something will happen.

  • Report this Comment On July 14, 2011, at 11:36 PM, JEGmonster wrote:

    Do the members of Congress start a meeting as American kids start their days in school reading the National Pledge.....the "Pledge of Allegiance":

    ......I pledge allegiance to the flag of the United States of America, and to the republic for which it stands, one nation under God, indivisible, with liberty, and justice for all......

    Normal everyday Americans don't act the same way as the members in Congress display themselves to the public; the average American has common sense to do the right thing when your Family has a crisis. As American's we are all Family and right now the senior members of the American Family seem to have lost the ability to make a decision during an "American Family Crisis."

    Very sad day for our Nation as a United States of America.

  • Report this Comment On July 15, 2011, at 1:16 AM, daftstockpicker wrote:

    Get rid of the Bush tax cuts. Problem solved.

  • Report this Comment On July 15, 2011, at 3:26 AM, Dekabrist wrote:

    Dear US fools,

    I am actually heartened by most of the comments above (surprised, actually). To outsiders, reducing tax breaks on corporate jets sounds like a no-brainer. A little bit of cutting taxes and cutting debt is all that is needed. So as a non-US investor in the US, please write to your Republican senators and tell them to suck it up on ridiculous tax breaks. Oh, and then get back to innovating and making things so my portfolio does well, which will then make the US dollar rise, giving me more bang for my buck!

  • Report this Comment On July 15, 2011, at 3:33 AM, Dekabrist wrote:

    And, one more thing, given that I have now read JEGMonster's comment:

    Perhaps JEGMonster needs to organise a protest movement - may I suggest a convoy that fills up with gas from Valero, social networking using ipads, the golden arches (MCD) for meals and netflix for on-road entertainment! When you have achieved success, may I also suggest putting on a big celebratory dinner with organic food from WFM.

    I know, I'm shameless; a dinky di motley fool.

  • Report this Comment On July 15, 2011, at 3:51 AM, KurtEng wrote:

    The debt ceiling has to be raised.

    All of these negotiations should have been done during budget planning. Unfortunately, congress can only act when their back is against the wall. They're like a bunch of lazy high school students.

  • Report this Comment On July 15, 2011, at 5:27 AM, Countinfo wrote:

    I don't think the US has much option. Like the UK, they too will have to raise taxes and cut expenditure. They will have to balance that against encouraging growth.

    Its a tough call but I don't think the government has much choice in the long run.

    Count

  • Report this Comment On July 15, 2011, at 5:53 AM, dcflipflop wrote:

    Ilan, I vehemently disagree that giving the president the authority to raise the debt ceiling is "everyone getting what they want." Really, no matter what happens, it seems the American taxpayer will NOT get what he wants.

    But leaving the situation unresolved will just mean it will be that much worse later on. The time to address the situation is NOW. (Actually it was probably ~10 years ago but we don't have a time machine that I know of). We cannot continue deficit spending, just like a family cannot continue to run up credit card debt indefinitely. It is unsustainable, and the debt problem compounds with time.

    Our elected officials need to put aside partisan bickering and work out a sustainable plan for the governments finances. NOW. It is what we overpay them to do.

    I'll be writing my congressman this weekend...

  • Report this Comment On July 15, 2011, at 6:44 AM, LyfordJr wrote:

    "Standard & Poor’s said there was a “substantial likelihood” it could lower its AAA grade on Treasury debt because of the political battle over the federal debt ceiling and spending cuts."

    They've been threatening to downgrade because of the debt itself - not the ceiling, the raising of which only makes the debt worse - since the first of the year. Moody's, in January, warned about the possibility of a downgrade based on "uncertainty over the willingness and ability of the U.S. to reduce its debt." S&P changed its rating on the US to "negative" in April, because of "very large budget deficits and rising government indebtedness."

    The idea that everything will somehow be just ducky if only the Republicans will acquiesce to all of the President's desired tax and spending plans and raise that pesky debt ceiling, which seems to be the underlying assumption behind many of these comments, doesn't square with the reality that I see...

    And there's no excuse whatsoever for the US government to skip a single Social Security payment in August, and the President's threat to do so is offensive.

  • Report this Comment On July 15, 2011, at 7:26 AM, sspec wrote:

    The Republicans should ask the president to propose specific cuts and taxes. All I have heard is the generic version of tax increases and cuts in services. The proposal needs to be codified so the public can judge and this will form the basis for the elections in 2012.

  • Report this Comment On July 15, 2011, at 8:02 AM, Teaweed wrote:

    Fools, we have a huge cash economy in the USA that does not participate in paying federal taxes. This money does work its way back into the economy when goods and services are purchased. I strongly urge congress to cut spending, make adjustments to the tax code by reducing deductions and rates, and adding a federal sales tax. We have way too many people in our country on the teet and too few paying into the system.

  • Report this Comment On July 15, 2011, at 8:07 AM, drillerjim101 wrote:

    There is only one solution to getting the needed spending cuts needed to save our nation: We need a new president.

    Four more years of Obama will the the Armagedden that could really sink our wonderful nation to European status.

    Jim Fregia

  • Report this Comment On July 15, 2011, at 10:25 AM, MikeW92103 wrote:

    Fools,

    over many years, but especially during the early to mid 2000's, we decided that we wanted our Government to spend on a number of things,

    (wars, tax breaks for oil and gas, etc...)

    and that we preferred to borrow the money to pay for those things (Tax cuts). We also want a lot of other things from our government, so many that we may not be aware of them all. We are going to have to seriously reconsider what we want (spending) and what we are willing to pay for it (taxes). It would be much easier if we could have a serious, sincere discussion of those things without an unnecessary crisis, because that crisis will add "higher interest" to the spending side, and we'll get nothing for it in return. If we can't make the choices that need to be made without being reminded what the government does for us (by shutting it down) maybe that's what we have to do. It would be better than caving in to the unreasonable demands of the other side.

    Personally, I think the unreasonable demand is that taxes can't be raised even to eliminate special breaks of questionable value, or to raise rates to what they were under Clinton (pretty good times). But the argument works either way, it's better to make definite choices than to yield.

    Economic Armageddon is the price we have to pay for letting our political system become dysfunctional. That is a cryin' shame, it didn't have to be that way.

    People wishing for Economic Armageddon and depression had best be careful what they wish for, because they may get it. And I guarantee nobody is going to be able to get quite what they want out of it.

  • Report this Comment On July 15, 2011, at 10:53 AM, donbasilio wrote:

    The ignorance of the author is incredible.

    The monthly revenue to the government exceeds the current monthly financial obligations. Motley Fool should let this fool go join the Obama re-election campaign.

    Imagine your teenage son is shopaholic. He spends like a liberal and he maxes out all his credit cards. So what do you do - increase the limit on his credit cards so he doesnt have to face embarrassing problems when he has to use it? The author is a fool if he thinks that increasing taxes in the middle of a recession is not the real Armageddon.

  • Report this Comment On July 15, 2011, at 11:00 AM, dbtheonly wrote:

    MFpatriot,

    Your teenage son has started two wars in Asia?

    "The ignorance of the author is incredible." Agreed; but I think we disagree about which author.

  • Report this Comment On July 15, 2011, at 11:49 AM, kgcarin wrote:

    TERM LIMITS -- the politicians may possibly make a decision based on its merits instead of whether it will affect their next election. Nobody in their right mind will ever jeopardize their own job. TERM LIMITS can be the only solution, especially on major decisions.

    Eliminate "tax expenditures" that benefit only the rich - like the oil subsidies, farm subsidies, yacht subsidies, private plane subsidies.

    Tax expenditure elimination is not a tax increase !

  • Report this Comment On July 15, 2011, at 11:55 AM, conor7lad7 wrote:

    Providing the executive branch the ability to raise the debt ceiling is quite simply political Cowardice. Politicians seeking to assign responsibility and ultimatel blame upon the executive in power at any time this becomes an issue. It is also the worst possible scenario for a fiscally responsible government at a critical juncture in our economic recovery.

    A non partisan view is required to understand that the federal government has, at great expense to ALL American tax payors, invested directly in the financial well being of Americas wealthiest individuals through its programs to subsidize the recovery required from the fiscal irresponsibility of borrowers, the banking industry and the investors in the riskiest assets ever devised in a credit economy. In absolving the nations sins against fruglity we have subsidized the risk assumed by the wealthiest financial institutions and investors.

    It is time to find ways to enable our nation, andsecure our childrens future, by both reducing spending at the federal goverment level while increasing revenue through the elimination of tax breaks which benefit the fewest number of Taxable Americans or corporate Entities operating in the united states. The plan outlined in this article asks for a mere 20% of the of the total revenue change to be funded by the removal of these tax allowances. It seems more than fair and equitablegiven the broader view of government funding sources.

  • Report this Comment On July 15, 2011, at 12:02 PM, ravenesque wrote:

    "I don't know about you, but I'm gonna get mine before this whole shithouse goes up in flames."

    - Jim Morrison

    http://michaelfury.wordpress.com/2008/08/20/the-ghost-in-the...

  • Report this Comment On July 15, 2011, at 12:07 PM, kgcarin wrote:

    Quit saying half the people don't pay taxes. Don't forget that if you have a job, you pay 6.2% for FICA and 1.45% for Medicare --- a total of 7.65% -- plus income taxes (federal and state). Illinois is now 5% flat, not progressive.

    The middle class average guy pays 25% federal income tax plus the 7.65% for FICA and Medicare on pretty much their entire income for a total of 32.65%. Besides that, the 7.65% is actually paying for the government's general expenses because there is no lock box saving all that money for social security and medicare. All those IOU's are now about to come due and there is no money to pay the IOU's so the government has to borrow from China to pay social security and Medicare.

    The super rich pay only 35% (the other 7.65% is a drop in their bucket). It shouldn't be too much to ask the super rich to pay more than 2.35% on their humungus earnings.

  • Report this Comment On July 15, 2011, at 12:50 PM, wshaffe1 wrote:

    When are we going to learn that life is about compromise? Our society needs balance. We the people have the ability to really mess things up when we get greedy and selfish, yet also have the ability to do incredible acts of kindness.

    Our forefathers established our beginning stating that all men are created equal… sounds good, however I find it ironic the same group of men voted that owning a person (considered property at that time) of a different race and treating them differently was somehow ok. Gee, that only took us a century, a civil war, and few assonated leaders to figure out that “all men” didn’t mean a certain group.

    Flash forward to the idea of “working hard” and you too could become “middle-class” or even better - have the “American dream” and beyond. But at what point in history did it make sense - “hey, you make so much money, that you should get rewarded and not have to pay as much tax?” I’m all for earning as much as you can, but we should all play by the same rules.

    It's about time that the burden is shared across the board. Yes the rich shouldn’t have to give up their 3 multi-million dollar homes, 2 boats, fleet of vehicles, and designer suits for working hard to the person who decided to dropped out of school, live with their parents or friends, with no job, be lucky to own a $500 vehicle with little rust because it was “just to darn hard” and have “just one more” child to get additional welfare.

    America... we didn't get here overnight, nor was it one man's fault for the mess we have gotten ourselves into. It has been built over time - America's history and the choices the men and women that have come before us have made. Some have been a blessing, but for who? We fight over riches, land, and beliefs. . If history has taught us anything, it is that we the people can't see into the thick fog of what lies ahead. Have we really learned from our history, to not make the same mistakes? It’s time we compromise.

  • Report this Comment On July 15, 2011, at 2:57 PM, Bert31 wrote:

    I would have no problem forking over more money in taxes if I was earning more. All you FOOLS that say we should pay a higher rate, go ahead and pay more yourself. The only way I would be willing to pay more if I was earning more. Otherwise enough already, we all know tax rate hikes DO NOT lead to higher revenue, look at the facts FOOLS. History has shown that since the 1960s only tax cuts led to higher revenues! Fool on. Cut spending, Obama did not compromise on the his trillion $$$ in stimulus, he forced it down our throats and those "shovel ready" projects were a joke.

  • Report this Comment On July 15, 2011, at 5:32 PM, dbtheonly wrote:

    TBWDan,

    That's odd, I distinctly remember the US had a balanced budget, & in fact was running a surplus, about 10 years ago.

  • Report this Comment On July 15, 2011, at 5:45 PM, deanroc wrote:

    I don't think people really understand the situation we are facing,at 14 trillion $$ and counting we are ALREADY PAST THE POINT OF NO RETURN, in other words...cutting a few billion or trillion from our budget won't fix the problem.It's like if you earn $50,000.00 a year and you are a million dollars in debt,your income is roughly 4100.00 per month,your expenses EXCLUDING your million dollars in debts is 5500.00 ,so you decide to cut 750.00 a month from your expenses,now you are only overspending by 650.00 a month??? but what about your million dollar debt and the 600.00 amonth you are adding to it???? wake up people. we NEED a balanced budget amendment RIGHT NOW at the very least. THEN we can start to look at how to start paying down this absurd debt.... Do you know how much a trillion is??? if you counted to a trillion it would take 33,000 years to reach 1 trillion. this is no joke it has been scientifically calculated and proven... we are DONE FOR as an economic power. No matter how much sand you try to bury your head in the sand...... what a joke some of the solutions i've been hearing about are. some of these ideas from mainstream media make me think these people overdosed on hallucinigenic mushrooms or something...unbelievable.!!!!

  • Report this Comment On July 15, 2011, at 6:13 PM, prginww wrote:

    - Raise income taxes 5 to 10 percent on everyone.

    - Get rid of subsidies to Oil Companies, etc.

    - Raise the retirement age for those 50 and below.

    - Cut spending on welfare.

    - Bring troops home from Germany and Japan.

  • Report this Comment On July 15, 2011, at 6:59 PM, Bert31 wrote:

    dbtheonly

    You remember wrong, it was a projected budget surplus. But that has nothing to do with my statement so I am not sure what your point is.

  • Report this Comment On July 15, 2011, at 7:43 PM, Bert31 wrote:

    Why do you quote ABC news on how the deal would work instead of the White House? Oh, becaue the White House never put forth any such ideas for a deal. The White House's idea? well in February Obama presented a budget that increased the deficit by $10 trillion dollars over the next decade. HAHAHA good one...Obama is REALLY serious about cutting the deficit...

  • Report this Comment On July 15, 2011, at 10:05 PM, maiday2000 wrote:

    @dbtheonly

    That the U.S. was running a "surplus" under President Clinton is one of the biggest and most widely believed myths in American politics. If you look at the US Treasury website you can see that the debt went up every year since the 1957 - EVERY single year. We never had a surplus, we never paid down any debt. Period.

  • Report this Comment On July 16, 2011, at 12:13 AM, thisislabor wrote:

    I don't understand why we are taxing the wealthy to begin with, they are the ones that make all the jobs anyways.

    - sorry, just the way I look at it.

  • Report this Comment On July 16, 2011, at 12:38 AM, platinum321 wrote:

    We are screwed they are just kicking the can down the road till we default. The dollar? Forget it it is going by the wayside. Paper bugs beware your paper is gonna go up in smoke. "POOF"! The only safe heaven is the same place China, India, Russia, the list goes on are is putting it. Gold and silver. They know a shite storm is coming and that the dollar is in the ICU. The prognosis is worse than Greece for the U.S. But the sheep can't see it cause they are to busy being programmed by the main stream news telling them about the recovery. Bernanke is still allowed to pull his crap when he should be in prison or better yet swinging from a tree along with all the other banksters stealing your wealth. Good bye Rome. The sooner we default the sooner we rebuild on top of the robber barrens graves. You sheep have a good sleep now.

  • Report this Comment On July 16, 2011, at 12:57 PM, mec841 wrote:

    Repealing the Bush Tax cuts is key. They, coupled with the wars constitute over half of our debt growth. Taxes have to be a part of the plan and anyone who argues otherwise is being irresponsible.

    The president has already offered more spending cuts than needed- provided we recognize thatvwe can no longer afford the wars. Any one who says cut spending but supports continued presence in Iraq and Afghanistan is whistling past the graveyard. End the wars- and I will believe you are serious.

  • Report this Comment On July 16, 2011, at 1:43 PM, thisislabor wrote:

    @db it's hard to run a surplus and still take out loans. wt*?

  • Report this Comment On July 16, 2011, at 3:33 PM, ikihi wrote:

    Cut the military spending. There is no way we need to spend as much as we do just for defense.

  • Report this Comment On July 16, 2011, at 9:03 PM, DDHv wrote:

    Us, we've enlarged the backyard garden to as much as we can handle. Just today, we ran the first test on a water circulation loop that collects summer attic heat using it to warm the dirt under the basement. Got to add more heat exchange in the attic! But we are not at all relying on a sensible government, or on oil being cheap any more. As part of the attic project, the south roof is getting braces - for possible solar, either PV (still expensive) or domestic hot water (affordable, just barely).

    By the way, these investments are both inflation and depression proof.

  • Report this Comment On July 18, 2011, at 5:01 PM, johna32 wrote:

    At least three generations over the past 50 years have elected idiots without holding them accountable, and often without knowing anything about them or their capabilities.

    Now the chickens are home to roost and everything is down to the wire with political gridlock based on idealogies.

    Hey, anyone with any general experience knows that the basics of negotiation are to each allow the other to win something. I happen to be a conservative and have long identified with the GOP but I am appalled at the stonewalling that they are putting up. Pick your spots - live to fight another day - fix the problem - get something done! But for god's sakes don't play chicken with the country. Being idealogical without being pragmatic is self defeating.

  • Report this Comment On July 18, 2011, at 5:37 PM, donbcms wrote:

    The Tea Party People must realize the FACT, not enough REVENUE cominig in! Try "3-R's". 1) Rescind Bush Tax cuts. 2) Remove all S/S tax "caps". Revamp ehtire Tax Code. ($1.1 Trillion in assorted tax "breaks") Debt ceiling raised SEVEN times under Bush? ?

  • Report this Comment On July 20, 2011, at 11:08 AM, jdbdavid wrote:

    I'm amazed how little thought most folks put into dealing with financial issues. Use of financial resources at home or in business isn't very different. When we are in the habit of spending without regard to our ability to pay for it, we get hooked on borrowing to finance the habit. Now, do we go to our customers and beg them to pay more for our habit or do we find ways to curb our habit. That is the delimma.

    What happens to the customer when he/she realizes that value from the purchase is gone? Hopefully, we aren't so far gone by then that bankruptcy is our only alternative.

    Hang in there tea party, if the repubs cave in to tax increases of any kind, lets vote em out next time.

  • Report this Comment On July 22, 2011, at 3:57 PM, madeleinebscm wrote:

    To Jim Fregia:

    I fervently wish "our wonderful nation could sink to European status," as you say.

    I'm familiar with Scandinavia; Sweden has no starving children and no homeless people. Seniors don't have to chose between eating or buying medications. Anybody who qualifies can afford higher education. And Sweden does have a modern, robust defense.

    Yes, taxes are high. So is gas. But infrastructure and one-payer medical care are first rate and the Swedish stock market is doing just fine.

    There are problems, but people are not afraid for their children's future or a miserable old age.

  • Report this Comment On July 23, 2011, at 9:06 PM, noflu wrote:

    IT'S ALITTLE LATE BOYS, AUG. 2 IS TOO NEAR?

    THEY CAN'T DOO ANYTHING NOW.

    NEVER THOUGHT I'D SAY IT, OR SEE IT.

    START THINKING DOOMSDAY.

  • Report this Comment On July 23, 2011, at 9:10 PM, noflu wrote:

    WE'RE DONE.

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