I liked this and thought it was important enough to just copy and paste it in my blog. Found this article from Yahoo!Finance, written by Brett Arends:
The Great Atlantic & Pacific Tea Company — the A&P, to supermarket shoppers everywhere — has filed for bankruptcy, owing several billion dollars to creditors.
But it’s not the biggest bankruptcy of the past week. It’s not even in the top three. Here they are, in reverse order.
The Obama administration
Put this down as a political bankruptcy. At a time of skyrocketing deficits, the president who calls himself a Democrat capitulated to the Republicans in reaching a “compromise.” And then he lashed out at his dwindling band of supporters.
Note, please, that under the president’s original proposal, the rich already would have gotten a tax cut. Obama proposed extending the Bush-era tax cuts for incomes up to $200,000 to $250,000. This is not the same as tax cuts “for those earning up to $200,000 to $250,000,” even though that was how it was generally reported. The cuts would have applied to everyone, even those earning, say, a billion dollars a year. But they would only have applied to the first $200,000 to $250,000 of their income.
To the exciting new Republican Party, though, this wasn’t enough. They said they’d only agree to this tax cut if the president also agreed to pass further, gigantic tax cuts targeted at the richest earners, and which specifically excluded the middle class. Charles Krauthammer may call this a win by the president. But that’s surreal. Read Krauthammer’s column in The Washington Post.
Peggy Noonan nailed it: Obama has lost the center and the left. Read Noonan’s column in The Wall Street Journal.
Some in the administration will claim they had no choice. Bah. Imagine if a fighting liberal like Franklin Roosevelt, Harry Truman or Lyndon Johnson had been in the White House. He would have iced the deal and said something like this: “My fellow citizens. Thanks to laws passed a decade ago, your taxes were scheduled to rise at the end of this year. I have proposed broad tax relief for everyone, from the millworker to the millionaire. But conservatives in Congress wouldn’t allow that, unless we also pass a second, even bigger tax cut just for the super-rich. That’s unjust. It’s bad economics. And at a time of skyrocketing budget deficits, irresponsible. It would mortgage our children and grandchildren’s future. No president concerned about our country’s long-term financial well-being could possibly agree to it. So now no one will get a tax cut. All of our taxes will rise at the end of this year. I can only hope this does not damage the economic recovery. I suggest you write to your local Republican congressman and thank him.”
He’d have gotten a better deal within three days.
The Republican party
File this under moral bankruptcy. This party just won control of Congress by pounding the table for months about skyrocketing budget deficits. Yet here they are pushing a deal that will send those deficits soaring. Taxes will fall, spending will rise. As Jon Stewart of the “Daily Show” put it, this is like saying you’re going to get in shape “through laziness and bacon.”
Responsible figures within the GOP now know that they are in the unenviable position of literature’s Dr. Faustus. They are prisoners of a terrible deal they struck in pursuit of power. After years of propaganda they have absolutely convinced themselves, and their supporters, that all tax increases are evil. They have also convinced themselves that increases are counter-productive as well. After all, if cutting taxes raises government revenue — which they claim — then raising taxes must reduce government revenue.
Net result: It is next to impossible to see Republicans agreeing to any tax increases unless they have to. Now that Obama has caved, they won’t have to.
Meanwhile, Republicans aren’t going to cut spending. They have no intention of doing so. That’s why they have revealed absolutely no specifics of any note.
They aren’t going to cut Social Security or Medicare spending in the foreseeable future. They know that would be political suicide. Tens of millions of baby boomers are starting to retire, and they haven’t saved anywhere near enough to survive without today’s entitlements. According to the Employee Benefits Research Institute, just one-third of workers have even saved $50,000. Good luck living on that for 30 years.
Republicans aren’t going to cut defense spending: It is the only federal spending their base loves. Indeed, they play demagogues against Obama’s “reckless defense cuts,” even though he has actually increased the Pentagon budget. Total “security” spending is well over $800 billion this year.
And they aren’t going to default on the national debt by refusing to pay interest. What’s left? Social Security, Medicare, defense and debt interest account for 62% of the budget. Everything else comes to $1.5 trillion. Air traffic control. The Food & Drug Administration. Interstate highways. The whole shebang. You’d have to cut it all by more than four-fifths to balance the budget. Four-fifths. You want to fly without air traffic control? You want to wing it on a new medicine that hasn’t been cleared by the FDA?
So, what will they cut? Oh, “waste.” We’ve been hearing this for 30 years. If they meant it, Reagan, Bush I and Bush II would have done it already. John Boehner, on “60 Minutes,” unveiled his plan to save $25 millionÃÂ
from Congressional pay. That’s not even a rounding error within a rounding error of federal spending. It’s nothing. Don’t think of this as the “latte factor,” where you can save big by cutting lots of small things. Even if Boehner finds a thousand such $25 million savings — a thousand! — in total they’ll add up to less than three quarters of one percent of the $3.5 trillion budget.
Meanwhile, get ready for plenty more political pork. Tax loopholes for favored interests. Extra spending for pals. That’s why special interests support parties, and the parties know it. Both parties do it, and if the Republicans want to stay in power, they will too.
The leaders of the Republican party signed off on this tax deal nonetheless. A moral bankruptcy.
Yet even this was only the No. 2 bankruptcy of the week.
The No. 1 bankruptcy?
The United States of America
Yep, that’s us. Thanks to this deal, we’re broke.
Calculations from the Congressional Budget Office say last week’s tax deal will cost the Treasury $858 billion over the next decade in lost revenues and extra spending.
But the CBO was already forecasting $6.3 trillion in deficits over that period. The latest deal will take that to $7.1 billion. And it will take the national debt to about $17 trillion — not even counting the money owed to government trust funds, such as Social Security.
Furthermore, the CBO is only counting two years of tax relief. What will happen in 2013? Do you really think the Republicans will then agree to let all the Bush tax cuts expire? Hardly. And if those cuts persist beyond 2012, the CBO warns they could add another $4 trillion or so to the debt by 2020. It’s possible the national debt would hit 100% of GDP.
We think we have more leeway than other countries, because, after all, we’re America. But at some point the reverse will be true. We will have less leeway, because our economy is so big, and the numbers involved are so gigantic.
All this extra money will have to be borrowed. Who’s going to lend it to us?
China? They’ve been our subprime lenders — our loan sharks — for a decade, while they asset-stripped our manufacturing base. But that’s done. And China has an inflation problem. Beijing needs to let the yuan rise. That means fewer dollar purchases, not more. It’s notable that, according to the U.S. Treasury, China’s direct holdings of Treasurys has actually declined in the past year (although its indirect holdings through London may have increased: No one knows).
It’s hard to see oil exporters, who already hold about $230 billion in Treasurys, buying another $858 billion, or anything like it. Booming Brazil has $176 billion, Hong Kong $136 billion, Taiwan and Russia about $130 billion each. There are only so many Treasury bonds these countries can eat. Like Monty Python’s Mr. Creosote, they are looking stuffed to the gills. Even a “wafer-thin mint” could be enough to make them explode. And nearly $900 billion is not wafer thin.
We have all lived for so long in the era of the Almighty Dollar and Pax Americana that we can’t imagine anything else. But great powers, even the greatest powers, fade and fall.
Rome, Spain, Britain. In the 19th century, people the world over trusted the British navy and the British pound. Yet in the end, it collapsed. The Spanish Empire enjoyed the mother of all windfalls when it struck gold and silver in Latin America. Yet that easy access to free money proved its undoing: It was always easier to put off hard choices and pay the difference with stolen Inca bullion.
The free ride for Treasurys may have done something similar for us.
Too many commentators continue to tell you that the U.S. economy will remain the biggest in the world for the next 20 years. It’s not true. It’s merely an illusion caused by China’s clever policy of underselling their currency. When you adjust for real exchange rates, using purchasing power parity, data from the International Monetary Fund show that China’s economy will overtake ours around 2017. It’s coming sooner than you think.
Bankruptcy happens quite quickly. Lenders suddenly start shaking their heads, and confidence vanishes. A&P’s equity was still valued at hundreds of millions of dollars as recently as a few weeks ago. Bear Stearns collapsed in a matter of days. Even countries can find that a run happens fast. Think of the Asian Tigers in the late 1990s, or Ireland just a few weeks ago.
How will the dollar fall — rapidly or slowly? Time will tell. But unless I am very much mistaken, last week’s tax deal means we know how this movie will end.