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Thread: Ouch, home prices have fallen more than they did during the Great Depression!

  1. #1

    Ouch, home prices have fallen more than they did during the Great Depression!

    This is a quote from CMBC regarding the S&P/Case Shiller report released today:

    "The report finds home prices in Q1 of this year are now 2.9 percent below the previous quarterly bottom in Q1 of 2009, effectively giving up all the gains of the past few years, which were of course fueled by the home buyer tax credit.

    "Just about everybody agrees we're going to miss the seasonally strong period in 2011, which we should be at the very beginning of right now with May, but nobody thinks that will make any difference," says S&P's David Blitzer. "Everybody's now keeping their fingers crossed for 2012 and wondering whether people just don't want to own homes anymore."

    Keeping your fingers crossed for the housing market is just the tip of the iceberg. Prices have now fallen, on this index, more than they did during the Great Depression. "On that occasion, the peak in prices was not regained until 19 years after they first fell," notes Paul Dales at Capital Economics."

    I guess it's a great time to buy a home if you think that prices can't fall any further or head for the hills if you think the pain will continue.
    C.A. Cardenas (AKA Dan)
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  2. #2
    Yikes, these are crazy times indeed!
    Andrew Macpherson

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  3. #3
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    Unfortunately prices are going to continue to fall. If you can afford to stay in your home, someday prices will come back, but I am afraid that is a long way off. The housing index is still up 25% over 2000, but adjusted for inflation, your home has actually dropped in value since 2000! Houses are actually not good investments. Except for a few brief periods in time, homes have proven to be bad investments. They should be looked at as a consumption item, just like a car. You need somewhere to live and it is still better than renting IMHO, but if you buy as an investment, you are not going to end up a happy camper.
    Marty

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  4. #4
    Z8 Ate My Homework! Norcal's Avatar
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    Unless like other investments, you get in at the right time, and get out at the right time. I bought in mid 99, and think I am still up 30%... I think. Not selling any time soon, that I know of! For me, it was just dumb luck. Should have sold when it was up 100%... 20/20 hindsight.

  5. #5
    Z8Mania
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    And you are not always better than renting- just like a car- sometimes leasing actually makes sense- sometimes owning makes sense.

    FWIW- I think we are in for at least a decade more of a funk. I hope someone will come back to this post in a few years to prove me wrong, but the path we are on now will make the Carter years look like good times.

  6. #6
    Carters years were the good times if you'd struggled through the 30's. I think as many had predicted we are following Japan into a lost decade, demographics, and the total corruption in the Wall St Washington corridor have both sealed our fate.
    Andrew Macpherson

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  7. #7
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    Andrew, you are right on the money. We are in for a Japan style lost decade, except Japan is now completing its second lost decade. Ian, you may be up 30%, but factor in inflation, upkeep, property taxes, and loss of return on investment on your equity and you are behind. Again, houses should be treated as consumption items. If you end up making some money when you sell, great, but if you factor in all of the variables, they are not good investments. Case in point. My father bought the home I grew up in in 1959 for $59,500, quite a large sum in those days. Had he had bought Berkshire Hathaway stock with that money instead of the house, he probably would have had something like $75,000,000 in 2004 when the house was sold for $1,250,000. I'm just saying.
    Marty

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  8. #8
    Z8 Madness
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    Marty, for every example like the Hathaway you mentioned, there are many that would have lost the $59,500 and then some had they invested in the stock market. While a handful of people have the right combination of luck and smarts to invest wisely, the remaining majority are better off paying that mortgage and staying safe.

    The key is to have a balanced portfolio, but often times greed, self-confidence, and emotions tend to push people to dump everything in one basket.

    Right now, the housing situation is really sad, unless one really needs a house for his/her family and has a lot of cash and a good credit score.
    62050 - Z8

  9. #9
    Z8 Ate My Homework! Norcal's Avatar
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    And I bet Marty's dad was glad to have that 1.25 nest egg. But I do agree, that after factoring in Property taxes etc, that puts a big dent in any real gains. But, still better than anything I ever got out of the market. All I ever got was screwed... twice!

  10. #10
    Z8Mania
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    Quote Originally Posted by macfly View Post
    Carters years were the good times if you'd struggled through the 30's. I think as many had predicted we are following Japan into a lost decade, demographics, and the total corruption in the Wall St Washington corridor have both sealed our fate.
    Right- remember The Great Depression was extended by poorly conceived government policies. And right before TGD we were in a period of increased globalization. And what did it take to get us out of TGD? Only WWII.

    The Japan example is interesting and appropriate but consider- they haven't been fighting 3 wars and funding the rest of the world while we are.

    Its very possible we will have a decade or two or it could even be three of - pardon me for borrowing the phrase- a "long hard slog".

    Take your pick for the bad guys- I don't think finger pointing will help. The truth is we're all on the hook here.

    I see us getting the worst policies and results for a long time. Sorry for the depression.

  11. #11
    Sadly I rather agree with you, I just hope it doesn't get as dark as I fear it might.
    Andrew Macpherson

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  12. #12
    Z8Mania
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    Heres something interesting to read:

    http://www.newsweek.com/2011/05/29/austerity-works.html

    Austerity Works
    In bemoaning the pain of fiscal responsibility, the Democrats show they still haven?t learned the lessons of Europe.
    by Niall Ferguson
    May 29, 2011

    To judge by media coverage, President Obama?s whistle-stop European tour was largely recreational. In Dublin he reenacted the time-honored tradition of discovering his Irish roots. In London he took part in what felt like Royal Wedding: The Sequel.
    Meanwhile, in Washington, business went on as usual. The government continued borrowing money despite having breached its legal debt ceiling. Senate Democrats voted down Paul Ryan?s plan to reduce the cost of Medicare, despite having no credible plan of their own to stabilize the debt.
    Yet Obama?s travels could have been a timely opportunity to learn from Europe?s fiscal mistakes.
    To American commentators, notably New York Times columnist Paul Krugman, the lesson is clear. ?In Europe,? he wrote last week, ?the pain caucus has been in control for more than a year, insisting that sound money and balanced budgets are the answer ? [But] Europe?s troubled debtor nations are ? suffering further economic decline thanks to those austerity programs.? Elsewhere, Krugman has repeatedly badmouthed the British government for trying to cut its deficit.
    It?s certainly true that the economies of Greece, Ireland, and Portugal?the three countries committed to austerity programs as conditions for European and International Monetary Fund bailouts?have shrunk over the past year. The unemployment rate is above 10 percent in all three. Meanwhile, the U.K. economy is growing sluggishly. But to infer from this that the United States can postpone serious attempts at fiscal stabilization would be completely wrong?and deeply dangerous.
    The point is that Greece & Co. are in trouble because of excessive borrowing. Between 1999 and 2010 the structural deficit of the Greek government rose from 2 percent of gross domestic product to nearly 18 percent. Ireland went from surplus to minus 11 percent. Portugal was little better. The result was a debt explosion. The net government debt of Greece, the worst offender, soared from 76 percent of GDP to 142 percent last year.
    As it became clear that there was no automatic mechanism to transfer funds from the relatively frugal European core to the profligate periphery, bond investors started to fear defaults. They dumped the debt, driving up the yield on Greek 10-year bonds?and hence the interest rate on new borrowing?to 17 percent. That simply made matters worse, necessitating ever more desperate spending cuts and tax hikes to avoid national bankruptcy.
    The British story is different. Starting in a very similar fiscal hole?the structural deficit was 8 percent of GDP in 2009 and the debt?GDP ratio had doubled in seven years?the new Tory-led government acted preemptively, announcing deep budget cuts before the financial markets freaked out. As a result, Britain?s borrowing costs have actually come down.
    Members of the Deficits Forever club are intellectually lazy when they assert that the U.K. economy is growing slowly because austerity doesn?t work, implying that things would be better had the spending binge continued. Maybe. But maybe not. A responsible politician wouldn?t take the gamble because the costs of being wrong are too high. Just ask the Greeks.
    The real lessons for the United States are clear. Those who run up debt in good times can borrow only so much more when a recession strikes. And heavily indebted governments postpone fiscal stabilization at their peril. If you wait to reform until the bond market calls time, you are?to use a technical term from economics?screwed.
    The best option is, of course, to be Switzerland, a country strangely ignored by Krugman. The Swiss have run a prudent fiscal policy throughout the economic crisis. They have had a structural surplus in each of the past five years. Their net debt is actually lower today than it was in 2005. And guess what? In 2009 their economy suffered the smallest contraction in Europe, with unemployment today below 4 percent. As for sound money, the Swiss franc is up 95 percent against the dollar since 2000.
    Too bad American presidents never visit Switzerland. But I guess they can?t afford to.

  13. #13
    Freedom Ouray's Avatar
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    The housing correction is not done yet. Today's WSJ has an excellent editorial on the topic. Supply out strips demand. Until the supply backlog is cleared prices will continue to fall in many areas. I agree that the government policies have not done a lot lately to allow the private sector to get in gear, but I disagree that we are on the road to Tokyo. Different demographics and a different culture lead us to a much better future then that. The U.S. banking system has been transformed over the last three years into one of the strongest in the developed world as they came to grips with their issues much faster then Europe. The Canadian banking system is stronger yet. Put them together and North America has the financing it will need to generate private sector growth once companies, corporations and individuals see a path clear of government meddling and dictates. My two cents says that path will occur over the next 24-36 months. We are not yet that shining city on a hill that Regan saw, but we will be on the path there once again.

  14. #14
    Z8Mania
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    Thank you for the perspective and information.

  15. #15
    Quote Originally Posted by Ouray View Post
    The housing correction is not done yet. Today's WSJ has an excellent editorial on the topic. Supply out strips demand. Until the supply backlog is cleared prices will continue to fall in many areas. I agree that the government policies have not done a lot lately to allow the private sector to get in gear, but I disagree that we are on the road to Tokyo. Different demographics and a different culture lead us to a much better future then that. The U.S. banking system has been transformed over the last three years into one of the strongest in the developed world as they came to grips with their issues much faster then Europe. The Canadian banking system is stronger yet. Put them together and North America has the financing it will need to generate private sector growth once companies, corporations and individuals see a path clear of government meddling and dictates. My two cents says that path will occur over the next 24-36 months. We are not yet that shining city on a hill that Regan saw, but we will be on the path there once again.
    I agree with most of what you said, except that because of "government meddling" I think the growth is more like three to five years away. We have accumulated too much government debt that will be crowding out the private sector for some time. I'm also afraid that the current anti-business administration will be win another election. Sadly, I don't see another Reagan in our near future.

    I think it was JP Morgan that said something along the lines of "I pity anyone that bets against the U.S."
    C.A. Cardenas (AKA Dan)
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  16. #16
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    Ian, I agree, all I have ever got out of the stock market was screwed too. That is why I paid off my house last year and retired a 4.5% mortgage instead of buying a CD or investing in the market. I'll take a guaranteed 4.5% return and smile all the way to the bank. Yes, I lose some tax deduction, but any gains in the market or interst earned is also taxable. Fortunately it took only 20% of my available cash to retire my mortgage and while home prices may continue to drop, I intend on staying here for at least another 10 to 15 years, or longer. Something very liberating about walking through the door and knowing that I don't owe anyone a dime.
    Marty

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  17. #17
    Z8Mania
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    I agree Marty- IMHO the tax deduction for the mortgage interest- for most people- is the tail wagging the dog- but it created a huge industry and put more money in the economy and that was the argument in favor. In the end I feel like its a bad for most people and I wonder if we will change our ways as a nation. I suspect it will appear that we have- but in the long run we will be back here. Sadly the risk of free and clear home ownership is the property taxes which can really spike.

  18. #18
    Z8Mania
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    Heres some more interesting reading and video at the link below

    http://www.cnbc.com/id/43264595

    Greenspan 'Scared' Over Deficit; Calls for Debt Ceiling Rise
    Published: Friday, 3 Jun 2011 | 7:51 AM ET Text Size
    By: Jeff Cox
    CNBC.com Staff Writer

    The debt and deficit problem in the US is so serious that former Federal Reserve Chairman Alan Greenspan finds himself in the position of recommending the highest tax rates in more than a decade.


    In an interview with CNBC, the former central bank chief described himself as a "small government, free-market economist" who nonetheless believes that in order to raise revenue and close the debt gap, 1990s-era taxes must be reinstituted.

    It's a measure, he said, of how serious the problem has become.

    "The fact that I am in favor of going back to the Clinton tax structure is merely an indicator of how scared I am of this debt problem that has emerged and its order of magnitude," he said.

    The marginal tax rates fell in the early 2000s under former President George W. Bush, who instituted sweeping cuts that last year were renewed in a deal between President Barack Obama and congressional Republicans.

    But the rates, particularly those on Americans earning more than $200,000 a year, have been the focus of intense debate and are considered in peril depending on how next year's elections go. Congressional Democrats see higher taxes as a key to raising revenue to close the budget gap.

    Greenspan expressed concern over the tenor of negotiations in Washington. He also endorsed the deficit cuts from Rep. Paul Ryan (R.-Wisc.) that have run into strong opposition due to targeting Medicare and Medicaid.

    "If I had my own way, I like the Ryan budget in all respects and I think that essentially that sort of thing is what I would vote for if in fact we're voting," he said. "But the problem essentially is that is not going to get a majority vote in Congress or be signed by the president of the United States. The question is, what's my fallback position?"

    Telling America's aging population that its entitlement programs such as Social Security and Medicare will survive without significant changes is dishonest, Greenspan added.

    "It's not an issue of saying we're going to have a choice for what we're going to do. We don't have the physical resources," he said. The government is telling people "they're guaranteed their medical services, and I think that's not accurate. We cannot do that granted our lack of resources."

    Yet Greenspan said Congress has no choice but to approve raising the debt ceiling as the US would risk catastrophe if it does not meet its obligations.

    "The problem is we're all going and maneuvering around and as the days pass we're getting closer and closer to the debt ceiling," said Greenspan, who called Washington brinkmanship on the issue an "extraordinarily dangerous problem for this country."

    "What's happening now is that there's a realization of how serious this problem is and everyone is coming together to talk," he said. "But compromise...?"

  19. #19
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    As I stated in an earlier post, all of the spending cuts thus far have mostly all come from discretionary spending, which accounts for less that 15% of the budget. Entitlement programs make up over 60%! The math is very simple, but painful. If you want to balance the budget and try and reduce the deficit, you HAVE to increase taxes and cut entitlement programs. End of story.
    Marty

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  20. #20
    Z8Mania
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    Agreed. Its amazing to me though how many Americans don't want to do either. Especially the programs- they in effect make it impossible for elected officials to make the changes that are needed. Listen to Greenspan above he said he'd do the Ryan plan- WHAT?!?! The media told me the Ryan Plan was the source of all evil in the world and that if we enacted it, we would have to eat babies for lunch and unicorns for dinner... doh...

  21. #21
    I'm not sure those figures are right, the spending on military misadventures, which simply puts money in the Haliburton, Carlyle Groups coffers is far greater than any of the social or educational programs.
    Andrew Macpherson

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  22. #22
    Z8Mania
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    I dont know Andrew- especially if you go over the life of the program.

  23. #23
    Z8Mania
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    Here you go- some light reading. I saw these two editorials over the past few days. Now, the WSJ is a like a broken record sometimes- but it doesn't mean they are wrong. Have a read. Sorry its not good news. Btw- I submit to you that I dont know where the proper tax rate would be - BUT- it most certainly should never be over 50% all in (fed, state, local). The problem is the split between ordinary income and cap gains rates. We need a flatter tax setup.

    http://online.wsj.com/article/SB1000...p_mostpop_read

    A 62% Top Tax Rate?
    Democrats have said they only intend to restore the tax rates that existed during the Clinton years. In reality they're proposing rates like those under President Carter.
    By STEPHEN MOORE

    Media reports in recent weeks say that Senate Democrats are considering a 3% surtax on income over $1 million to raise federal revenues. This would come on top of the higher income tax rates that President Obama has already proposed through the cancellation of the Bush era tax-rate reductions.

    If the Democrats' millionaire surtax were to happen?and were added to other tax increases already enacted last year and other leading tax hike ideas on the table this year?this could leave the U.S. with a combined federal and state top tax rate on earnings of 62%. That's more than double the highest federal marginal rate of 28% when President Reagan left office in 1989. Welcome back to the 1970s.

    Here's the math behind that depressing calculation. Today's top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%. The 3% millionaire surtax raises that rate to 44.5%.


    But payroll taxes, which are income taxes on wages and salaries, must also be included in the equation. So we have to add about 2.5 percentage points for the payroll tax for Medicare (employee and employer share after business deductions), which was applied to all income without a ceiling in 1993 as part of the Clinton tax hike. I am including in this analysis the employer share of all payroll taxes because it is a direct tax on a worker's salary and most economists agree that though employers are responsible for collecting this tax, it is ultimately borne by the employee. That brings the tax rate to 47%.

    Then last year, as part of the down payment for ObamaCare, Congress snuck in an extra 0.9% Medicare surtax on "high-income earners," meaning any individual earning more than $200,000 or couples earning more than $250,000. This brings the total tax rate to 47.9%.

    But that's not all. Several weeks ago, Mr. Obama raised the possibility of eliminating the income ceiling on the Social Security tax, now capped at $106,800 of earnings a year. (Never mind that the program was designed to operate as an insurance system, with each individual's payment tied to the benefits paid out at retirement.) Subjecting all wage and salary income to Social Security taxes would add roughly 10.1 percentage points to the top tax rate. This takes the grand total tax rate on each additional dollar earned in America to about 58%.

    Then we have to factor in state income taxes, which on average add after the deductions from the federal income tax roughly another four percentage points to the tax burden. So now on average we are at a tax rate of close to 62%.

    Democrats have repeatedly stated they only intend to restore the tax rates that existed during the Clinton years. But after all these taxes on the "rich," we're headed back to the taxes that prevailed under Jimmy Carter, when the highest tax rate was 70%.


    Taxes on investment income are also headed way up. Suspending the Bush tax cuts, which is favored by nearly every congressional Democrat, plus a 3.8% investment tax in the ObamaCare bill (which starts in 2014) brings the capital gains tax rate to 23.8% from 15%. The dividend tax would potentially climb to 45% from the current rate of 15%.

    Now let's consider how our tax system today compares with the system that was in place in the late 1980s?when the deficit was only about one-quarter as large as a share of GDP as it is now. After the landmark Tax Reform Act of 1986, which closed special-interest loopholes in exchange for top marginal rates of 28%, the highest combined federal-state marginal tax rate was about 33%. Now we may be headed to 62%. You don't have to be Jack Kemp or Arthur Laffer to understand that a 29 percentage point rise in top marginal rates would make America a highly uncompetitive place.

    What is particularly worrisome about this trend is the deterioration of the U.S. tax position relative to the rest of our economic rivals. In 1990, the highest individual income tax rate of our major economic trading partners was 51%, while the U.S. was much lower at 33%. It's no wonder that during the 1980s and '90s the U.S. created more than twice as many new jobs as Japan and Western Europe combined.

    It's true that the economy was able to absorb the Bush 41 and Clinton tax hikes and still grow at a very rapid pace. But what the soak-the-rich lobby ignores is how different the world is today versus the early 1990s. According to the Organization for Economic Cooperation and Development, over the past two decades the average highest tax rate among the 20 major industrial nations has fallen to about 45%. Yet the highest U.S. tax rate would rise to more than 48% under the Obama/Democratic tax hikes. To make matters worse, if we include the average personal income tax rates of developing countries like India and China, the average tax rate around the world is closer to 30%, according to a new study by KPMG.

    What all this means is that in the late 1980s, the U.S. was nearly the lowest taxed nation in the world, and a quarter century later we're nearly the highest.

    Despite all of this, the refrain from Treasury Secretary Tim Geithner and most of the Democrats in Congress is our fiscal mess is a result of "tax cuts for the rich." When? Where? Who? The Tax Foundation recently noted that in 2009 the U.S. collected a higher share of income and payroll taxes (45%) from the richest 10% of tax filers than any other nation, including such socialist welfare states as Sweden (27%), France (28%) and Germany (31%). And this was before the rate hikes that Democrats are now endorsing.

    Perhaps there can still be a happy ending to this sad tale of U.S. decline. If there were ever a right time to trade in the junk heap of our federal tax code for a pro-growth Steve Forbes-style flat tax, now's the time.

    Mr. Moore is a member of the The Journal's editorial board.


    -----------------------------------

    How about this one. I didn't know the above was that far above 50% but I was really surprised to see we are spending less as a % of GDP on defense than ever before. Put the two together and I think it spells real problems.

    http://online.wsj.com/article/SB1000...pinion_LEADTop

    The Gates Farewell Warning
    America can be a superpower or a welfare state, but not both.
    Robert Gates, who steps down next month after four-plus years at the Pentagon, is making his retirement lap a tutorial on America's defense spending and security needs. His message is welcome, especially on Memorial Day, and even if he couldn't always heed it in his time as Secretary of Defense.

    In a series of farewell speeches, Mr. Gates has warned against cuts to weapon programs and troop levels that would make America vulnerable in "a complex and unpredictable security environment," as he said Sunday at Notre Dame. On Tuesday at the American Enterprise Institute, Mr. Gates noted that the U.S. went on "a procurement holiday" in the 1990s, when the Clinton Administration decided to cash in the Cold War peace dividend. The past decade showed that history (and war) didn't end in 1989.

    "It is vitally important to protect the military modernization accounts," he said, and push ahead with new capabilities, from an air refueling tanker fleet to ballistic missile submarines.

    ***
    America's role as a global leader depends on its ability to project power. In historical terms, the U.S. spends relatively little on defense today, even after the post-9/11 buildup. This year's $530 billion budget accounts for 3.5% of GDP, 4.5% when the costs of the Afghan and Iraq wars are included. The U.S. spent, on average, 7.5% of GDP on defense throughout the Cold War, and 6.2% at the height of the Reagan buildup in 1986.

    But on coming into office, the Obama Administration put the Pentagon on a fiscal diet?even as it foisted new European-sized entitlements on America, starting with $2.6 trillion for ObamaCare. The White House proposed a $553 billion defense budget for 2012, $13 billion below what it projected last year. Through 2016, the Pentagon will see virtually zero growth in spending and will have to whittle down the Army and Marine Corps by 47,000 troops. The White House originally wanted deeper savings of up to $150 billion.

    Mr. Gates deserves credit for fighting off the worst White House instincts, but his biggest defeat was not getting a share of the stimulus. Instead he has cut or killed some $350 billion worth of weapon programs. He told his four service chiefs last August to find $100 billion in savings. The White House pocketed that and asked for another $78 billion. Last year, Mr. Gates said that the Pentagon needs 2%-3% real budget growth merely to sustain what it's doing now, but it could make do with 1%. The White House gave him 0%.

    In the Gates term, resources were focused on the demands of today's wars over hypothetical conflicts of tomorrow. This approach made sense at the start of his tenure in 2007, when the U.S. was in a hard fight in Iraq. Yet this has distracted from budgeting to address the rise of China and perhaps of regional powers like a nuclear Iran that will shape the security future. The decision to stop producing the F-22 fighter and to kill several promising missile defense programs may come back to haunt the U.S.

    Mr. Gates knows well that America won't balance its budget by squeezing the Pentagon. "If you cut the defense budget by 10%, which would be catastrophic in terms of force structure, that's $55 billion out of a $1.4 trillion deficit," he told the Journal's CEO Council conference last November. "We are not the problem."



    So what is? Mr. Gates acknowledged it only in passing this week, but the reality is that the entitlement state is crowding out national defense. Over two decades ago, liberal historian Paul Kennedy claimed that "imperial overstretch" had brought first the Romans, then the British and now Americans down to size. He was wrong then, but what's really happening now is "entitlement overstretch," to quote military analyst Andrew Krepinevich.

    The American entitlement state was born with the New Deal, got fat with the Great Society of the 1960s and hit another growth spurt in the first two years of the Obama era. The big three entitlements?Social Security, Medicaid and Medicare, plus other retirement and disability expenses?accounted for 4.9% of GDP by 1970, eclipsed defense spending in 1976 and stood at 9.8% as of last year. Under current projections, entitlements will eat up 10.8% of GDP by 2020, while defense spending goes down to 2.7%. On current trends, those entitlements will consume all tax revenues by 2052, estimates Mackenzie Eaglen of the Heritage Foundation.

    Europe went down this yellow brick road decades ago and today spends just 1.7% of GDP on defense. The Europeans get a free security ride from America, but who will the U.S. turn to for protection?China?

    As Reagan knew, America's global power begins at home, with a strong economy able to generate wealth. The push for defense cuts reflects the reality of a weak recovery and a national debt that has doubled in the last two years. But the Obama Administration made a conscious decision to squeeze defense while pouring money on everything else.

    ***
    "More perhaps than any other Secretary of Defense, I have been a strong advocate of soft power?of the critical importance of diplomacy and development as fundamental components of our foreign policy and national security," Mr. Gates said at Notre Dame. "But make no mistake, the ultimate guarantee against the success of aggressors, dictators and terrorists in the 21st century, as in the 20th, is hard power?the size, strength and global reach of the United States military."

    That's a crucial message for Republican deficit hawks, and especially for a Commander in Chief who inherited the capability to capture Osama bin Laden half way around the world but is on track to leave America militarily weaker than he found it.

  24. #24
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    Andrew, military spending is the second biggest part of the budget at something like 20%, but is nowhere near all of the entitlement programs, which in addition to medicare and social security include unemployment, welfare, food stamps, etc. Military spending also needs to be cut, but for any solution to truly be effective, taxes must go up and entitlement programs accross the board must go down. Nothing else will work.
    Marty

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  25. #25
    Z8Mania
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    Its amazing when you think we spend so much on the military and then you see the size of the spending on the entitlements.

  26. #26
    Freedom Ouray's Avatar
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    Taxes on millionaires and billionaires, even at 100% will not make a dent. You can haul big oil in for show hearings on $4billion in tax subsidies and it will not make a difference. Bottom line is the tax base needs to be broadened. When 50% of the population does not pay income taxes how can you expect them to care about the tax burden or budget hole? Middle class tax changes are on the way. You cannot have your cake and eat it. Time to face the music and live within our means as a country.

  27. #27
    Quote Originally Posted by hayvenhurstkid View Post
    Andrew, military spending is the second biggest part of the budget at something like 20%, but is nowhere near all of the entitlement programs, which in addition to medicare and social security include unemployment, welfare, food stamps, etc. Military spending also needs to be cut, but for any solution to truly be effective, taxes must go up and entitlement programs accross the board must go down. Nothing else will work.
    Marty, I know all about lies, damn lies and statistics. I also know that for every study I can show you there is another supporting the exact opposite; however, I've yet to see a study about the U.S. economy that, on historical terms, shows that raising marginal rates, raises revenue. All the studies I've seen show that, as a percentage, the two biggest jumps in revenue came after Reagan lowered marginal tax rates and right after Bush II did the same thing. In the case of Reagan, he unfortunately had a Cold War to win (and win he did) and that required a massive defense buildup. In the case of Bush, he spent like a drunken sailor (or a liberal). No child left behind; give me a break!

    Clintonistas always point to the higher marginal tax rates during the Clinton years and the revenue that followed, but much of that revenue was created by the incredible entrepreneurship surrounding Dot.com bubble, which he had nothing to do with. Of course, the bubble burst right after he left the White House.

    All we need to do to balance the budget is put the government on a diet, reform entitlement programs (getting rid of them would be better, but that will never happen) and get pro-business leadership. Keep current marginal tax rates as they are and watch the revenue pour in.

    I don't buy the argument that increased marginal rates decreases revenue; of course, it doesn't increase revenue either, but there is plenty of data showing the opposite. It seems to me that when taxes increase (contrary to what Rush Limbaugh might say) entrepreneurs do not work less and go on vacation; they just keep on toiling. However, when marginal rates are cut, entrepreneurs rush out to make as much money as they can before rates go back up. There is of course a point when cutting marginal rates does reduce revenue (Laffer curve), but we are nowhere near that now.
    C.A. Cardenas (AKA Dan)
    2003 (last one?) Z8 - Hellrot / Sport Rot
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  28. #28
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    Well said Carlos. Don't get me wrong, I don't want to pay more in taxes than I already do, but I agree with Ouray that the base needs to be broadened. One idea that has been batted around for years is to do away completely with the tax code we have today, which is more complicated than building a nuclear bomb in your garage, and have a flat tax rate across the board of say 10% to 15% and no deductions. Accountants will fight it like crazy, but studies have shown that this would simplify returns and raise more income. I don't know at what level of income it should kick in, but as a guy who owns his own business with just one employee "me" I have to have an accountant run my books every month to keep track of everything. My tax return, with deductions and such, is like 20 pages long! Ridiculous. I would gladly pay a flat tax and have no deductions than be in the top income tax tier as far as gross income goes but drop two levels after write offs and SEP IRA contributions.
    Marty

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  29. #29
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    Guys, I follow this general topic quite carefully. Ouray, I would respectfully disagree with your assessment of the overall health of our banking system. They are still carrying trillions in toxic assets on their books and increasing weakness in the real estate sector is making the charade more difficult to conceal.
    I view our situation as worse than the EU zone's because we ultimately can't kick; Ca, Ill, NY, etc. out of the union and one day soon our cumulative state's debt will completely overwhelm the already hopeless federal situation. Until recently I believed tha the rest of the world put up with our greed and corruption because we were the world's policeman and they had no choice. I also fear we are much closer to loosing our hold on the global reserve currency status than most believe.
    I have recently spoken with several international investment strategists who firmly believe we are no more than 3 years away from a global fiat currency reshuffle that will have dire consequences for US denominated assets. All I have spoken with have suggested an orderly exit from dollar denominated assets and genuine consideration for getting assets safely offshore out of the reach of the US govt. I am convinced we are this close to catastrophe. We are in a steadily weakening position economically, politically, and militarily; and our adversaries know it.
    I hope I'm dead wrong but I see nothing from our leaders that would suggest otherwise to me.

  30. #30
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    Hate to say it but I feel Skicoach is onto something. It just feels like there is a light at the end of the tunnell, but it is an oncoming freight train!! I don't think we have even scratched the surface of what is yet to come. Enjoy life everyday, but batten down the hatches!
    Marty

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  31. #31
    Skicoach, I have had the great honor recently to sit and speak to a former US ambasador here in LA who has just returned from a world tour. His conclusions mirror yours comments exactly. He met with Jim Rogers in Singapore, and he said that made quite an impression on him, as Jim is convinced that we are going to see a terrible government clamp down here, with gold, pensions and many other forms of wealth being confiscated, and the exporting of ones personal wealth being completely restricted.

    Honestly I am really trying to figure out if I want to stay here and live through this. I've made my home here, I love America, and the American people, but the corruption that defines the Federal Reserve System, and the crony Wall St-Washington mafia really has me worried for this once great land. I don't see much hope for a change that will save us within the system, and the results of revoltuion have never been good, so it really feels like we're in a heads you loose, tails you loose situation.
    Andrew Macpherson

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  32. #32
    Team Z8
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    There was an article in The Atlantic recently called "Eat The Rich". It's contents were outlined on a you tube video
    By Bill Whittle. Get a drink or cup of coffee and watch for the chilling reality.

  33. #33
    Z8 Millennial Monster hayvenhurstkid's Avatar
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    Watched it. Wow!! Shows us just how bad off the US is financially. Really scary stuff.
    Marty

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  34. #34
    Z8 Novice W8MM's Avatar
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    Quote Originally Posted by hayvenhurstkid View Post
    Watched it. Wow!! Shows us just how bad off the US is financially. Really scary stuff.
    Anybody with an 8th grade math understanding should be able to see that confiscating the wealth of every high-earning individual in the country and completely eliminating the defense of our country STILL doesn't do the job the dogmatists from the left claim it will.

    Entitlement reform (reductions) is the only way out of the mess irrespective of tax rate adjustments. We already discourage work by paying for idleness, and now we want to discourage it further by taxing it more. Weird. One gets what one pays for. Conversely, one gets less of what one taxes.

    Productivity increases in a society are the only things that cause the standard of living to increase in the long run. Hoping for something else to make a magic increase in the general welfare is really a belief in sorcery.
    Mike
    Cincinnati, USA

  35. #35
    This rather chilling post came in this morning from one of my more favored commentators...



    Recently, there has been much todo about the budget reform packages offered by both President Obama and Representative Paul Ryan of Illinois.

    Obviously both proponents like to brag about all the money they propose cutting from the budget, but closer inspection demonstrates that both plans call for substantial increases to our current level of spending.

    President Obama suggests that we increase the Federal Debt by 84% over the next 10 years, while Representative Ryan's plan will only increase the Debt by 62%. The key thing to notice is that the word INCREASE applies in both proposals.

    What Washington fails to come to grips with is the need to CUT spending from its present levels. Instead, it proposes to increase spending, but by smaller amounts than previously proposed.

    There is NO attempt here to balance the budget and trillion dollar deficits are proposed for as long as the eye can see (or at least as long as the present incumbents are in office)

    If Washington lacks the intestinal fortitude to lead us out of this fiscal mess, then we had better be prepared to do it ourselves.

    Peter
     
    Andrew Macpherson

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  36. #36
    Here is that vid mentioned earlier too....

    Andrew Macpherson

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  37. #37
    Freedom Ouray's Avatar
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    EU banks have not come to grips with their own issues. The second round of stress test have been delayed exactly because the regulators believe the European banks own valuation estimates are too rosy. The only reason to bail out Greece is because the EU banks own so much of their debt. The massive threat to the U.S. banking system has passed, they are being bailed out by zero interest rates, so in essence savers are paying the bill to bail out the banks, and have been for 30 months. As for massive confiscation of wealth, I suppose it is possible, but not likely. State and local budgets have already started improving, but they still need to get their labor cost/benefits under control. It is the federal benefit system that is out of whack and will be addressed one way or the other over the next 36 months. Call me an optimist, but one that follows these markets closely. Dollar diversification is always a good concept, but do not count on the Euro to be the place to go....

  38. #38
    What about PM's?

    I know there has been a lot said about the shorts in Ag & Au, but if we're to get stuck in a deflationary cycle will they collapse the way shorts are expecting or not?

    Most of all will the dollar strengthen? It would seem that it is the clear contrarian bet at the moment.
    Andrew Macpherson

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  39. #39
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    Hi Andrew,
    From what I hear, tha US dollar's replacement as the global reserve currency will likely be a mixture of currencies that will undoubtedly include PM's. I currently maintain roughly 10 percent of my liquid assets in them. I am keeping a very close eye on the happenings in the middle-east and Africa as I think the outcomes there will likely determine the rapidity of this conversion. Just think; Yemen, Bahrain, Egypt, Lybia, all with a closer alliance with Iran? Watch Saudi Arabia because if they start to come under serious pressure the dollar will almost certainly take a dive as it's the oil trade that props the dollar.
    There are so many scary factors in play it's hard to develop a rational strategy to protect oneself. Back to the original question, I'm betting less on deflation and more on hyperflation. Rather than a contrarian bet at this time, which I think could have disastrous results, I'm beginning to focus on a strong position in agricultural commodities for obvious reasons. I think this play might still be a little ahead of the herd.

  40. #40
    Z8Mania
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    Remember when we thought celebrities were so smart to insist on being paid in Euros?