Read My Lips

Just to be clear, the debt ceiling agreement, spun as reducing the deficit, includes no spending reductions. Spending increases every year, the figures being bandied around are all reductions in planned increases. As Ron Paul says:

No plan under serious consideration cuts spending in the way you and I think about it. Instead, the “cuts” being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases. This is akin to a family “saving” $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda. But this is the type of math Washington uses to mask the incriminating truth about their unrepentant plundering of the American people.

And they won’t bind any future Congress or administration, so it is just spin.

The agreement, contrary to public assertions, does, however, include a substantial tax increase.. The agreement assumes, as its baseline, the expiry of the the tax reductions enacted in the Bush administration. From Reggie Middleton:

As requested by the House and Senate leadership, CBO also calculated the net budgetary impact of the plans if the discretionary savings are measured relative to CBOs January baseline projections.

The CBO’s January baseline included expiration of both the FICA credit and the Bush Tax Cuts, as the CBO as a general rule, unless instructed otherwise, uses the state of the current law to produce it’s baseline scenarios – not “what if” possible changes.

For those who say there are “no revenues” in this plan, and that there is no plan to “raise taxes”, you’re lying. There are monstrous revenues (tax increases) starting in January of 2013 – depending on who’s numbers you use they amount to somewhere around $400 billion annually. Despite this we’re still going to add close to $10 trillion in new debt to the system over the next ten years under the “Boehner/Reid” plan because there are also no actual spending decreases!

So not to worry, the trashing of the U.S. economy will continue unabated as government decisions and the associated rent-seeking continue to replace market decisions, and debt and consumption crowd out savings and investment. The problem is that the big government model, the debt-based economy, has run out of runway and is about to crash. From Charles Hugh Smith:

The consumer-debt-based economy is toast, but everyone’s too terrified by its demise to acknowledge this reality, never mind consider a new model. The entire creaking economy is based on a few ideas which no longer work:

1) Create “aggregate demand” (i.e. consumer demand, which then creates business demand) and the economy “grows,” people are hired and get paid, and that’s good.

2) When consumer demand slumps because people are over-indebted and can’t afford to buy more of anything, then “stimulate” demand with massive Central State spending to replace the vanished private demand.

3) Demand is endless. You can never have enough stuff, food, vacations, education, healthcare and toys. Give people free money, or the ability to borrow nearly-free money, and they will spend, spend, spend. This creates “growth” which is always good….

…..By degrading ourselves from producers to consumers, we have not only lost our identity and our meaning, we have lost the ability to create surpluses and invest those surpluses wisely.

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