Is America Truly Broke?

SPaul note: America is not broke. Broke defines a state where one can no longer pay for itms and sevices...America keeps doing that in grand fashion. Truth is, America is in serious debt and our "leaders" are driving us all over the side of the proverbial cliff toward economic collapse. When that happens, if that happens, then we will be broken.

Is America Broke?
by Robert de Neufville


“We’re broke,” Speaker of the House John Boehner (R-OH) said in a recent speech. “Broke, going on bankrupt.” Federal and state governments certainly face serious fiscal problems, and can’t continue to spend more than they take in indefinitely. But are they really broke?

If by “broke” you mean “can’t afford to spend any more,” then, as E.J. Dionne says, the answer is no. The federal debt is a nominal record high $14.2 trillion. That’s a large percentage of the U.S. G.D.P.—approaching 100%—but not historically high one. In fact, as this chart shows, the debt-to-G.D.P. ratio reached more than 120% after the end of WWII—fiscal conservatives should note that the federal deficit more than doubled under President Reagan. While WWII was obviously required us to dig especially deep, it’s worth noting that we could dig deeper if extraordinary circumstances demanded it.

There’s certainly little evidence that the U.S. is close to default. Dionne quotes Bloomberg’s David J. Lynch, who points out that Standard & Poor’s still gives U.S. debt a AAA rating. As Lynch says,

The U.S. today is able to borrow at historically low interest rates, paying 0.68 on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning that if the government needs to raise cash and can summon the political will, it could do so.

Lynch’s last point is the key to understanding our fiscal problems. It’s not that we can’t afford to fund the government, but that we have made a political choice not to do so. As Lynch explains, federal tax revenue is at its lowest level as a percentage of the economy since 1950. In 2009, taxes of all kinds accounted for just 24% of the U.S. G.D.P., compared with 34% for the U.K., 37% for Germany, and 48% for Denmark. If federal tax revenue simply went back up to its 40-year average as a percentage of G.D.P., roughly a third of our annual budget deficit would go away.

Yet instead of raising taxes, we continue to lower them. That’s what makes Boehner’s claim so dishonest. In December he voted for the bipartisan deal to extend the Bush tax cuts and add new tax breaks. So the Boehner doesn’t believe the deficit is more important than refunding money to taxpayers. He just believes it’s more important than many of programs the government is currently funding. As Dionne says, the same is can be said of Wisconsin Governor Scott Walker, who has used the claim that his state is bankrupt to justify slashing the salaries of public employees—after approving new tax cuts. This is no different the same as a company issuing new dividends to shareholders and then telling employees that it can’t continue to pay them. The truth is not that Wisconsin can’t afford to pay public employees, but that Walker simply thinks they’re getting too much.

Whatever the merits of Boehner and Walker’s idea that we should cut spending and continue to lower taxes, the claim that we’re broke is pure propaganda. And while we may not be in the middle of WWII, with 9% of the population out of work more than two years after the financial crisis, these are extraordinary circumstances. The fact is that many Americans really are broke—and maybe it would be worth it to spend some money to help them get back on their feet.

America is Broke
USAWatchdog.com
By Greg Hunter


Saturday, the House of Representatives passed legislation with more than $60 billion of budget cuts. It is the proverbial “drop in the bucket” when compared to the $14.1 trillion (and counting) outstanding federal debt. Soon, this ever increasing national debt will eclipse the Gross Domestic Product (GDP.) That means America will owe more than all the goods and services it produces in one year. When you owe more than you make, isn’t that a sign you need to change course? The new Speaker of the House, John Boehner, said this just after the budget cut vote, “We will not stop here in our efforts to cut spending, not when we’re broke and Washington’s spending binge is making it harder to create jobs.” I think it is ironic Congress wants to cut $60 billion today and then turn around and consider raising the debt ceiling $1 trillion tomorrow. This is crazy, but that is exactly what’s going to happen because if we don’t, Treasury Secretary Tim Geithner says it could cause, “catastrophic damage to the economy.”

I don’t think most people grasp just how serious America’s budget problem really is. When Mr. Boehner says, “we’re broke,” he’s not kidding. America is broke. The only reason this has gotten so out of control is the U.S. dollar is the world’s reserve currency, and the government can just print money whenever it needs funds. Right now, the Fed is creating $75 billion a month to help finance government operations. This is met with a shrug, like it is no big deal. But, it is a big deal, and it comes with a significant downside—inflation. Sure, there is deflation in housing, but everything else is going up in price.

It is not just the federal government that’s swimming in red ink, but more than 40 states in the union are also tens of billions of dollars underwater in deficits, pensions and health-care obligations. The union protests in Wisconsin are just the tip of the iceberg. Contrary to what left wing commentator Rachael Maddow says, the $137 million deficit problem in Wisconsin was not caused by Governor Walker’s tax-cut bills approved in January. Here’s how The Wisconsin Journal Sentinel summed up the false story, “There is fierce debate over the approach Walker took to address the short-term budget deficit. But there should be no debate on whether or not there is a shortfall. While not historically large, the shortfall in the current budget needed to be addressed in some fashion.” (Click here to read the entire Sentinel story.)

I was a guest on the nationwide radio show Coast to Coast AM last week. I was there to talk about the protests in Wisconsin and elsewhere. I said this was only the beginning because many states were billions of dollars in the hole. The states cannot print money, so unions will have to take cuts to pay and benefits. I got some very foul and angry emails from listeners. One wrote, “. . . F*** YOU! Unions are the only reason we had good wages and decent places to work in the USA. It’s greed by companies that have destroyed this country.” Another anonymous email said, “. . . You don’t have any idea of what is going on. Now you think the Gov’t workers should get screwed. You subservient dick.” I wrote back and said, “. . . What you are angry about is something we all face. The nation is broke, and we are headed for a crash. In the end, we are all screwed, government workers are just first.” But that really is not correct. I should have said, “It is now the government workers turn to feel the pain the rest of America has been feeling.” These emails are examples of how Americans will just not accept that we are out of money. The sovereign debt problem is here today staring us all in the face.

State and city budgets are so deep in red ink that former L.A Mayor Richard Riordan said recently, “Throughout the country, 90 percent of cities and states are going to go bankrupt within the next five years, many of them sooner.” (Click here to read and hear Mayor Riordan for yourself.) Things have gotten so bad that investors are starting to shun municipal bonds. (This is the state version of printing money.) Sales are way off, and one reason may be that Congress has been quietly talking about letting states go bankrupt. Here’s how the New York Times reported the story last month, “Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.” (Click here to read the complete NYT story.)

On one end of the spectrum, I see, at the very least, high inflation. On the other end of the spectrum of possibilities is the financial collapse of the United States. Economist John Williams of Shadowstats.com has been talking about this possibility since I first met him in 2008. He says hyper-inflation leading to collapse is a definite possibility. Williams is not the only one who thinks there is a potential breakdown coming.

Dmitry Orlov, author of the new book “Reinventing Collapse,”witnessed firsthand the Soviet meltdown in the early 1990’s. Orlov says, “Something similar is happening here where we have people in all branches of government, both political parties trying to prop up the financial industry, which has become completely irrelevant to most people in the United States, who don’t have savings and are not creditworthy. They’re basically trying to use up people’s savings and use up people’s retirement to prop up this set of institutions that only help the very rich people, and these very rich people are only rich on paper, they are “long paper,” all of them. What they own is pieces of paper with letters and numbers on them, which will turn out to be worthless. So this is all just basically musical chairs, and something very similar was happening in the Soviet Union, and something like that is happening here.”




The Top Ten Reasons America is Broke
PROGRESSIVETOO

1) Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.

2) Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.

3) Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.

4) Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.

5) Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.

6) Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.

7) Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.

Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury.

9) ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.

10) Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.

The problem isn’t that we can’t afford social services, or that we’re wasteful with our government spending, or that the nation is ‘broke’, the problem is that the wealthy have set up a system where they can avoid paying taxes. They have subverted the government into a tool for profit rather than a tool for societal stability.