Sunday, March 10

America's saving madness

By Anthony Mirhaydari, MSN Money

Sequester the budget and recent tax hikes are Americans, a pinch of start feeling that will only get worse. But unfortunately, what done so far has been the country's finances will not fix.

It is still real.

After years of special interests kicked doses of false alarms, and a general shift of responsibility, Washington is increasingly becoming the task of our out-of-control budget deficit to close.

With the higher payroll taxes, higher investments higher, Obamacare taxes, surcharges, and now the furloughs and docked aircraft carrier of the budget sequester slow Americans to feel the sting. (Stock exchange, seems for the time being forgotten, what comes.)

It will hurt. It will hurt, because the economy still for most people, with stagnant wages, higher living costs and the percentage of the population actually work on the early 1980s stinks levels. And it will hurt to keep, because despite the budget is progress, much more needs to be done to make the Ministry of Finance on a sustainable fiscal foundation.

Given the current state of our political leadership, this nightmare is worse before it gets better. Here is why, along with a few thoughts on how we can wake up from this bad dream and what do investors in the meantime.

As I discussed column last week ("why is there no way that Obama can win"), we are only about halfway toward the stabilization of public finances in the near future in the face of the 2011 deal, the fiscal Cliff deal with his tax increases, and now spending sequester debt ceiling of cuts. Opinion of the Committee for a responsible federal budget, we at least 2.4 billion need $ or so in reducing the budget deficit over the next 10 years to keep debt stable.

In addition takes the fact that during this period no recession, natural disasters, wars or other outflows of the Treasury be finance. If there are, we must be more on track to tighten.

Anthony Mirhaydari

Already, are tax increases and spending cuts that were made at least 1.5% to chop GDP growth this year. It could be is more than 2%, because investigations from the International Monetary Fund, in situations such as the one we have now, deficit worsening growth harder than normal results. The entire draw could easily 3% top as expected if fresh taxes and new cuts, the upcoming battles over a new budget and the debt ceiling.

Fall with the U.S. economy in the essential flat-lining, and with Japan and much of Europe into a new recession would not much of a shock to self-perpetuating downswing start takes. (Again, the stock market is to their own beat now due to the stimulation of central banks March.) But, as in "gas under $4?" or Dow 14,000 are mentioned, that this strategy risks rise, while decreasing the benefits for consumers. And a new recession is still clearly not prices in the market.)

If our tax hunting a bit is how a dog well to catch his cock feels tempted, because it is.

You see this downward spiral in real time across the Atlantic to play. Europe began its efforts austerity 2010 after the Greek debt crisis focused everyone's attention on the unsustainable borrowing of many developed economy Governments. The results are plain to see: public deficits show a slight decline, Yes, but at a price of lingering unemployment, lingering economic stall, restless population, political unrest and negligence in the austerity commitments.

In other words, has austerity measures as a failure. Deeper cut, the worse gets your economy, lowers tax revenues, increased expenditure use and your deficit is widening, while irritating ingredients. It is a toxic downward spiral.

Fringe, political parties are anti-austerity resurgence in Athens and Rome. Hundreds of thousands of demonstrators hit, to announce the roads in Portugal, with banners "Austerity of kills", demanded the resignation of the current Conservative Government and an end to the tax hikes and use cuts. And Spain and France demand eurozone leaders for more time to the 3% deficit to the GDP targets to achieve those Germany has pushed so hard.

Granted, I think European policy as exciting as the average American. This not very mean.

But only a cursory look at what is happening there prophesied the United States Whither. It's not nice. And it risks, a repeating of the mistakes of 1937 double-dip recession-fuelled by the misguided belief in President Franklin D. Roosevelt and his conservative Treasury Secretary Henry Morgenthau, the austerity measures needed to stimulate the economy. The result was an extension of the great depression, which does not support the fight against the Empire of Japan and Nazi Germany at the end of America's factories ramped.

In 1937 and 1938 the budget deficit was closed by a total of 5.4% of GDP. No tightening of this magnitude has happened outside the drawdown after World War II. So far: in the next two years on the basis of President Barack Obama 2013 we are budget, on track for a tightening of the 4.6%, mainly through tax hikes.

Nothing to do or not do, risks of a Japan's decline into extreme debt load enough to stabilize the debt. And that, the academics, risks a period of stagnation, a fragile vulnerability to financial crises and a dangerous temptation to simply the debt $ humiliation by the Federal Reserve to earn money.

Washington's debt is currently $16.7 trillion, now almost 1 trillion $ more than the total economic output in one year. The debt-to GDP ratio of around 105% work. In Japan, where the debt with aplomb has accumulated, the debt-to GDP ratio is expected hit 230% next year-create a reality where economists do not know how the land of the rising sun can reverse its long decline.

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