President Barack Obama wants to forgive another batch of debt, this time owed by America’s youth. This is another of those tidbits buried in his latest pseudo-budget proposal.
Obama wants to
increase the number of borrowers eligible for a program known casually as income-based repayment, which aims to help low-income workers stay current on federal student debt.
Borrowers in the program make monthly payments equivalent to 10% of their income after taxes and basic living expenses, regardless of how much they owe. After 20 years of on-time payments—10 years for those who work in public or nonprofit jobs—the balance is forgiven.
In a speech by Federal Reserve Chairman Ben Bernanke to the Japan Society of Monetary Economics, a few short years ago, he said
In economics textbooks, the idea that people will save rather than spend tax cuts because of the implied increase in future tax obligations is known as the principle of Ricardian equivalence. In general, the evidence for Ricardian equivalence in real economies is mixed, but it seems most likely to apply in a situation like that prevailing today in Japan, in which people have been made highly aware of the potential burden of the national debt.
A number of misconceptions are shown in their article carried by Fox News. They begin with this:
China is responsible for just a shade over 7% of [US'] total debt. And while it remains the single largest foreign lender (just ahead of Japan), China’s been slowly trimming its holdings, down from nearly 10% a few years ago. Overall, all foreign investors—including national central banks—account for roughly one third of the total outstanding federal government debt.
Never mind that there’s a reason the SEC requires those who acquire 5% of the shares of a company to file public documents identifying that acquisition. That’s enough to start exerting significant influence over the company’s behavior.
Kevin Williamson, writing in the National Review Online, is not optimistic about our 2023 national debt, projecting our interest costs on the assumption that interest rates won’t rise over the next 10 years (OK, he’s pessimistic; he holds rates at their current near-zero levels only to make a point).
Williamson projected the interest payments on the $26 trillion debt projected for 2023 to be $763 billion at today’s rates. That works out to an interest rate of 2.9%. Those $763 billion would be more than what the Federal government spent on Social Security, national defense, or all nondefense discretionary spending in 2011, Williamson noted.
Spiegel Online International is describing it, albeit with some misconceptions.
Not even savings accounts are safe, as was recently seen in Cyprus. Such deposits are actually guaranteed to up to €100,000, but the euro rescuers cared little about this as they desperately searched for funds. Cypriot small savers may have escaped this time around, but the realization remains, even beyond Cyprus, that a state teetering on the edge of bankruptcy will resort to all available means to raise money—and a guarantee is only worth something as long as the entity that stands behind it remains solvent.
After having offered his church’s assets to a solidarity fund proposed by Cyprus’ government pursuant to Cyprus’ efforts to find a way out of their current economic debacle, Archbishop Chrysostomos II, Archbishop of Nova Justiniana and All Cyprus (the Greek Orthodox Church in Cyprus), has one. The Guardianquotes him:
The euro cannot last. I’m not saying that it will crumble tomorrow, but with the brains that they have in Brussels, it is certain that it will not last in the long term, and the best is to think about how to escape it. It’s not easy, but we should devote as much time to this as was spent on entering the eurozone.
The Heritage Foundation has looked at it. As has already been pointed out, Senate Budget Committee Chairwoman Patty Murray’s (D, WA) budget has little good in it; although it does preserve the sequester cuts in their magnitude and general allocation. However.
Cynically, it raises taxes on Americans—and amazingly, on our businesses, which already are subject to the highest rates in the world—by a shade over $1.5 trillion. This isn’t new, but their budget is worse than originally thought. The Democrats’ guess (and I use that term advisedly) of getting $155 billion per year over the next 10 years is based on their erroneous static analysis. A dynamic analysis, which includes the actual and ongoing effects of taking this much money out of the economy, indicates that this “budget” would only get $88 billion per year. Heritage’s graph below illustrates the year-by-year revenue flow.
In the aftermath of the Cyprus Parliament’s rejection (wholly correct IMNSHO) of the troika’s “bailout” offer—a “one time” “tax” on bank deposits held by Cyprus banks—talks are failing (breaking down?) within the government, between the government and the troika, and between the government and Russia on a Plan B to avert Cypriot bankruptcy.
Amid this crisis, and exacerbated by the rejection and potential failure of the subsequent talks, panic is growing in the EU, and especially in the euro zone, that a Cypriot bankruptcy will force Cyprus out of the euro zone, and that will lead to the doom of the euro.
Spiegel International Onlinenotes that the Cypriot government may be figuring out some of the foolishness of the troika’s (ECB, EC, and IMF) demand concerning the latter’s “offered” bailout as well as some of the variants under discussion. Some of those variants include reallocating the confiscationtax according to more deposit account sizes than just two, and hitting the highest—still those over €100,000 with a 15.6% claim.
[C]oncerns have emerged that a large number of foreign investors and depositors will withdraw their money from the country en masse. Critics warn this would devastate Cyprus as a financial center and also threaten the country’s entire economy.
Recall that Cyprus is as bankrupt as Greece. In order to bail out Cyprus (we’ve been over the legitimacy of bailouts elsewhere), the European Central Bank, European Commission, and the IMF have demanded a one-time tax on deposits: 9.9% on deposits over €100,000 ($131,000) and 6.75% on smaller deposits.
Nothing underhanded about any of this, either. Uh, uh. Because depositors, including many of the 3,500 British soldiers stationed in Cyprus, are complicit in the incompetence of the banks’ management. Yeah. That’s it. We’ll go with that.