As worldwide economic meltdown continues, and the cost of the U.S. bailout/”rescue” soars, the question looms: how will government pay even the short-term costs? Political candidates are not addressing this issue.
The make-somebody-else’s-children-pay-later strategy may soon reach the ultimate limit. Somebody has to load money into the Treasury now. Investors have been fleeing to the supposed safety of U.S. Treasuries, but how much debt can even a superpower accumulate before would-be creditors begin to worry about repayment?
The take from income taxes depends, of course, on the amount of income people have. If that isn’t enough, what next?
France and a number of other welfare states have a net wealth or “solidarity tax.” In 1999, Donald Trump once proposed a one-time net worth tax of 14.25% on individuals and trusts worth $10 million or more, claiming it would generate $5.7 trillion, which could be used to pay the national debt—before it got swollen by the bailout/”rescue.” This is not likely to be indexed to inflation.
No political candidates, of course, are publicly announcing a plan to confiscate assets. However, in a 2001 Chicago Public Radio interview, Barack Obama signaled his approval of wealth redistribution—and said it was a tragedy that the civil rights movement did not accomplish that. A tape including Obama’s discussion of using legislative or legal means to force redistribution is posted on the Drudge Report.
Of particular note was Obama’s answer to an audience member, probably a small businessman, who said, “Your plan’s gonna tax me more, isn’t it?”
“It’s not that I want to punish your success,” Obama said. “I just want to make sure that everybody who is behind you, that they’ve got a chance at success too. I think than when you spread the wealth around, it’s good for everybody.”
This doesn’t sound like the redistribution of wealth from the foolish to the prudent that occurs in a free market when a bubble bursts, but rather government redistribution, bailing somebody out of trouble by putting somebody into trouble, with a hefty “toll for the troll,” as Arthur Laffer describes recent government panic reactions (“The Age of Prosperity Is Over,” Wall St J 10/27/08).
“Whenever people make decisions when they are panicked, they are rarely pretty,” writes Laffer.
The election is occurring in a time when panic may be just beginning:
- A front-page article in the overseas edition of the People’s Daily said Asian and European nations should banish the U.S. dollar. “The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar’s hegemony to plunder the world’s wealth,” said Shi Jianxun of Shanghai’s Tongji University (Reuters 10/24/08).
- The dollar rally, in the face of deteriorating fundamentals, has been called a “death dance.” The gap between the paper gold market and physical gold market is widening. In Toronto, a multimillion-dollar off-market transaction in physical gold involved paying $1,075 per ounce—settled in euros. Foreigners may force changes causing the U.S. dollar to lose its global currency status. A freeze in short-term credit could interfere with distribution channels of railways and truckers in the U.S. (Jim Willie, Hat Trick Letter 10/23/08).
- The Federal Reserve is inflating at 341% per annum. Banks are buying Treasury debt; the Treasury spends the money. Businesses must compete with the Treasury to get money. Without productivity, it is not possible to emerge from a recession (Gary North 10/24/08). See charts from Federal Reserve Bank of St. Louis and other sources.
- A £516-trillion derivatives “time bomb” is ticking away. Warren Buffet called derivatives “financial weapons of mass destruction” (Independent 10/12/08).
Apparently, both parties hope that the day of reckoning can be postponed until after November 4.