by Karl Denninger
“The scams never end, do they? Get ready for another deficit reduction plan. And this one, like the others on the table, will tick off a lot of people, its authors say. “Two members of the so-called "gang of six" - a bipartisan group of senators working to craft a long-term spending plan - said Sunday they're making progress on their proposal, despite concerns expressed last week that the talks could be in trouble.”
Yeah yeah. More lies. And the media is complicit here. Deficit "reduction" can be claimed (truthfully) if a $1,700 billion deficit turns into a $1,500 billion one. Of course neither has a thing to do with sustainable budgets and neither will do anything material about the trajectory of the debt and interest payments. It's the end-point that matters, and the end-point has to be negative deficits - that is, primary surplus. Only a primary surplus allows the debt burden to begin to lift.
But there's no realistic way for that to happen through lifting taxes - the problem didn't come from tax receipts, in the main. It came from overspending as an intentionally-fraudulent device to hide the rot in our economy. This action was intentionally-designed to bail out the big Wall Street players and other institutions that had levered into a debt-spiral that culminated with more than one out of three dollars spent in the economy in 2007 being newly borrowed.
This strategy could have never worked and attempting to "fix it" without admitting to what happened and reversing course can't work either. The original strategy of these firms on Wall Street was bogus and mathematically impossible and yet it was carried out over two decades - believing that we can tweak this or that - or avoid the accumulated damage - is both fundamentally dishonest and dangerous. Coburn said Americans need to know that lawmakers in Washington are "willing to lose elections to do what is best for the country."
Utter and complete bilge. What's best for the country is to force the clowncar brigade to take their losses. If this sinks them (and it will for many) that's good, not bad. Debt default is a clearing mechanism and is not to be feared; it is how the market fixes itself when there is too much debt. The Government in Washington DC needs to return to its Constitutional roots and the insane ramp job in spending over the last decade must be reversed - not just halted.
Can we go back to Clinton's tax rates? Probably. But we need to go back to Clinton's spending numbers too. And not over 10 years, which is a fraud on its face, as that simply never happens - it needs to be now. Yes, this will prompt and force a contraction in GDP. I recognize that, unlike all the Congresscritters who bleat endlessly about how we can't "harm" the economy. The truth is that the harm was done over the last two decades through profligate spending and intentional regulatory malfeasance and misfeasance, permitting these firms to chalk up alleged "earnings" and "profits" that never really happened.
Now that the scam is imploding upon itself religion has suddenly been found among a few of the clowncar brigade who see the wall ahead of them and the bus they're in is headed straight for it with the accelerator mashed to the floor. But in truth none of them are addressing what actually happened nor what has to happen to stop it, because in doing so the ponzi schemes they have enabled and promoted would come collapsing down on their heads.
Instead they're talking about various means of trying to extend the Ponzi, with the hope that foreign creditors (in particular) will not call the final curtain yet. Mr. Coburn, Mr. Warner, Mr. Durbin, Mr. Chambliss, Mr. Conrad and Mr. Crapo: Cut the crap. The budget has to be cut and/or taxes raised by more than $1,700 billion, and it has to happen now. Not over 10 years, not over 20, because we will not make it another ten years with deficits compounding debt upon debt before interest rates spike to the moon just as occurred in Greece. If The Fed attempts to prevent this with monetary shenanigans (and they probably can) then the result will be the dollar index going into freefall and oil going to the moon instead. Either way the economy collapses in a disorderly heap.
In order to get the markets to believe that you're serious the games have to stop right now. This means that we have to, right now, in a form and fashion that cannot be gamed, stop the deficit spending. While returning taxes - right now - to the Clinton rates is something that can be done it won't be anywhere near enough. The rest has to come in the form of massive spending reductions, and there is no way to get where you need to go without hitting all of the major entitlement programs and defense.
Again, I recognize that cutting out the deficit spending will cause an immediate hit to GDP. I recognize that this is very difficult politically and will cost politicians their jobs, as the people will likely say "you're fired!" to those who enact these changes into law. Nonetheless it has to happen - right now - or we will go over the fiscal cliff, and once we do our ability to address these issues through the legislative process will end.
This process begins with a clear statement that there will be no debt-ceiling increase without simultaneous (not promised in the future) enactment of hard budgetary spending caps and tax changes that today, here and now, result in zeroing the deficit. Yes, I know this will give Turbo Timmy an apoplexy on national TV. He deserves one as he's an architect of the grand scam that has been run on the American people in lying to them about the fact that we can continually spend more than we make and put off reform until "tomorrow" (which, of course, will never come.)
The Wimpy syndrome must end - right here, right now, today. It's Tuesday for the Budget, and the credit card has to be cut up - right here, right now. This is a serious time for serious people. Let's see if the so-called "Gang of Six" are in fact serious, or if they're just another joke.”