Liberals Beginning To Face 'Financial Armageddon'

American Sentinel ^ | December 17, 2008 | Michael Eden

[Michael Eden]

You remember the Bible story in Genesis 41 about the fat cows and the lean cows, representing years of plenty and years of famine? And how Joseph wisely proposed to Pharaoh that he store up the extra during the time of plenty to get the nation through the time of famine? Liberals sure don't. Too bad they don't bother with the Bible; it's wisdom would have helped out a lot right about now.

The media would never dream of telling you this, but 3/4ths of the Bush presidency - in spite of being handed an economy already stumbling into recession, the 9/11 attack and the resulting hit to the economy, the two wars that followed, Hurricane Katrina, and myriad other phenomenon - saw strong economic growth. Amazingly, nearly 60% of Obama voters didn't even know that Democrats have been in control of both the House and the Senate during the last two years as the wheels finally came off the economy. While Fannie and Freddie stock were plunging 90%, sending our housing market plunging into a crisis, the man who oversaw their regulation, Barney Frank - who represented Democratic efforts to block President Bush's move to regulate the housing finance industry back when it actually would have prevented the current meltdown - was assuring the country that everything was fine as late as July 14 of this year:

I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.

They’re in a housing market. I do think their prospects going forward are very solid. And in fact, we’re going to do some things that are going to improve them.

But I digress. Enough sour grapes. We voted for the foxes to guard the national chicken coop, and that's that. My main point is that when times were good, no one seemed to be pitching the "Joseph solution." And surprise, surprise, what goes up must come down, and yet no one was ready for it. Especially liberal-voting states that live by more and ever more and more social spending.

We leveraged our housing market by as much as a hundred fold in complex derivatives and bundled subprime mortage securities. And all it took to break the whole system was for housing prices - again what goes up must come down - to go down, and the whole economy was sent spiralling down the drain.

Things are tough all over, of course, but liberal states like California are literally facing "financial armageddon." Ballooning budget deficits due to years of out-of-control government spending are eating state after state alive. And so much of the crisis was based on the ABSOLUTELY STUPID reasoning that projected that the good times gravy train would keep chugging along forever:

SACRAMENTO — A frustrated Gov. Arnold Schwarzenegger warned Wednesday that California is headed toward "financial Armageddon" if legislators continue their standoff over how to solve the state's ballooning budget deficit.

With the recession sending state tax receipts plummeting, Schwarzenegger announced that the state faces a budget shortfall of $14.8 billion in the current fiscal year, up from an earlier estimate of $11.2 billion. Looking ahead to mid-2010, the gap could grow to as much as $40 billion if nothing is done to cut spending or generate new revenue, administration officials said Wednesday.

And we're about to see what happened to housing prices happen to the dollar as we embark on TRILLIONS of dollars of government socialist spending: you can only bid up the dollar - just like we could only bid up housing prices - for so long before the balloon pops. We're spending trillions of dollars, and the obvious result of such madness is a dollar that loses much of its former value. And our whole economy will come crashing down because we refused to face reality. And we're going to be no different than any of the other third world banana republics when that day comes.

California, Michigan, and New York are among the states that are facing insolvency (yes, that DOES mean bankruptcy!) as they reach the point of being unable to pay unemployment benefits. And what are they going to do? Suck on the federal government teat. What they won't do is make the necessary adjustments to save themselves.

It's remarkable, but it turns out that the states with the highest tax rates (as we will shortly see) turn out to be the states with the worst budget deficits.

When times were good, California gave all kinds of pension benefits to its unionized government (city, county, and state) employees. And now - surprise, surprise - we're watching a pension tsunami. One article in particular should leave you stunned: "Land a State Job and Become an Instant Millionaire." And now we face massive underfunded liabilities that are the economic equivalents of the iceberg the Titanic crew saw too late to change course. I saw a choice phrase that sums it up: "One has only to behold the vise grip with which the teachers' and prison guards' unions squeeze the testicles of the California Legislature to realize fully just how screwed we poor taxpayers are."

So what is California seeking to do? They're taking their cues from Barack Obama and planning to raise taxes on the wealthiest residents:

California has long had a reputation for soaking the rich, claiming a particularly large slice of their earnings to feed its growing government. Now, legislative Democrats want to push it further.

Their plan to balance the state budget would raise the wealthiest Californians’ income taxes – already the highest in the nation – to a level not seen anywhere in the country in years. After years of income taxes steadily dropping elsewhere, California would raise the effective rate on those earning at least $1 million to 12%, more than twice the rate in most other states that have income taxes.

But even if it happens one thousand out of one thousand times, liberals fail to understand that it is basic human nature to avoid paying high taxes:

Economists and money managers, though, are wondering whether California would be returning to this well one time too many. There is, they say, a point at which the cash infusion is outweighed by damage done to the economy: Entrepreneurs get driven away. Profits get stowed in tax shelters. Companies shelve plans for expansion.

“The more a tax sticks out like a sore thumb, the more taxpayers will look for ways to avoid it,” said Robert Ward, deputy director of the Nelson A. Rockefeller Institute of Government in Albany, N.Y. California’s income tax on its highest earners “would be a significantly higher rate than in any other state.” Rhode Island’s is the next highest, at 9.9%.

Robert Brown is well aware of that. The 72-year-old small-business owner from Thousand Oaks isn’t a million-dollar earner, but his income is in the high six figures, and the state tax on it would jump from 9.3% to 11% under the Democratic plan. He’s considering bolting.

“These people have no concept that when you raise taxes, you drive people away,” he said. “Quite a number of my good friends have moved – to New Mexico, to Arizona, to North Carolina. We are thinking about doing the same.”

In 1991, liberals pushed through a tax increase that they projected would raise $1.2 billion. But much of the money they expected to generate didn't materialize, and collections fell hundreds of millions short as the rich either moved or else moved their money into shelters.

As for the small businesses Barack Obama assurred us would be unaffected by his plan?

Small businesses typically file their taxes under the personal income tax rules instead of paying the corporate tax. According to the California Taxpayers’ Assn., that means half the state’s businesses would be affected by the proposed hike.

The Small Business and Entrepreneurship Council, a national trade group, and the Tax Foundation, a nonpartisan think tank based in Washington, D.C., say the state’s tax system is among the least business-friendly in the country. Both groups ranked California in the bottom four. Only New Jersey fared worse in both studies.

THAT'S the answer for dealing with the prospect of insolvency over unemployment benefits: tax businesses right out of the state, and discourage other businesses from locating here. Thank God we have such geniuses running our government.

A Wall Street Journal article title pegged it: "Meathead Economics: Hollywood liberals drive productive Californians to leave the state." It begins:

It takes hard work to drive anyone away from California's sunshine and scenic vistas, but politicians in Sacramento have been up to the task.

The latest Census Bureau data indicate that, in 2005, 239,416 more native-born Americans left the state than moved in. California is also on pace to lose domestic population (not counting immigrants) this year. The outmigration is such that the cost to rent a U-Haul trailer to move from Los Angeles to Boise, Idaho, is $2,090--or some eight times more than the cost of moving in the opposite direction.

What's gone wrong? A big part of the story is a tax and regulatory culture that treats the most productive businesses and workers as if they were ATMs. The cost to businesses of complying with California's rules, regulations and paperwork is more than twice as high as in other Western states.

But the worst growth killer may well be California's tax system. The business tax rate of 8.8% is the highest in the West, and its steeply "progressive" personal income tax has an effective top marginal rate of 10.3%, or second highest in the nation. CalTax, the state's taxpayer advocacy group, reports that the richest 10% of earners pay almost 75% of the entire income-tax revenue in the state, and most of these are small-business owners, i.e., the people who create jobs.

And things may soon get worse, thanks to Rob Reiner, who played the liberal "Meathead" on the "All in the Family" sitcom in the 1970s and now plays the same part in real life. He and his rich Hollywood friends have put an initiative on the state's June ballot that would add a 1.7-percentage-point income-tax surcharge on "millionaires" with income over $400,000, with the proceeds earmarked for universal pre-school.

The article documents that43% of millionaires had left California during a 3-year period, with the decline costing the state $9 billion a year in uncollected tax revenues.

At least now we Californians are in good company: now the whole country is being run by Hollywood liberals.

We're about to bail out Detroit automakers because the UAW makes them totally uncompetitive. They get $73 in wages and benefits an hour versus $48 an hour in wages and benefits for workers in US-based Japanese carmakers in right-to-work states. As a result, it cost the big three nearly $2000 more to build every car than their Japanese rivals. If President Bush gives up another "bridge to nowhere" loan, you can bet that President Obama and the Democrats won't allow any harm to come to their beloved union base. And one way or another, we will socialize our auto industry rather than allow them to become self-sufficient.

But that's just a drop in the bucket: Barack Obama is going to spend at least a trillion dollars that will largely go to heavily unionized industries in a move to spend us out of our economic woes. Sadly, the spending will do absolutely nothing to address the actual underlying problems that got us into this gigantic mess in the first place, and in fact amount to merely more of the same toxic Kool-Aid that we've already been drinking.

[Republicus2001]

I understand Barney Frank’s mom was on the board of Fannie Mae during this time. And now he’s angling for her to be the “Car Czar” or at least on the GM board. Heaven help us. Please. Since 9-11 haven’t ordinary Americans suffered enough?

[CharlieOK1]

read later

[raybbr]

They get $73 in wages and benefits an hour versus $48 an hour in wages and benefits for workers in US-based Japanese carmakers in right-to-work states.

They do not! Part of the money goes to retired workers. I wish these guys would stop making it sound like the current workers are soaking the U.S. consumer.

[ROCKLOBSTER]

Part of the money goes to retired workers.

And that is a horrible arrangement...virtual theft. The now retired workers could have been putting part of their overinflated wages into a 401K and living like kings.

I wish these guys would stop making it sound like the current workers are soaking the U.S. consumer.

Well the current unions are. I vote for more robots, or right to work.

[anniegetyourgun]

You see there’s the ruling class....and then, there’s the American people.

[dandiegirl]

Why isn’t Barney Frank being investigated. Where are the people that are supposed to look into this stuff??

[DonaldC]

“They do not! Part of the money goes to retired workers. I wish these guys would stop making it sound like the current workers are soaking the U.S. consumer. “

One thing I have not heard anyone talk about is, most companies that do pensions have stopped extending them to new employees and often, like in my case stopped allowing them to build for current employees. Are the automakers doing anything like the two situations above yet?

[nonessential-personel]

there was NO ECONOMIC GROWTH during the Bush tenure. The deficits and borrowing more than offset the “growing” gdp figures which means REAL gdp actually has been shrinking for 10 years.

[raybbr]

One thing I have not heard anyone talk about is, most companies that do pensions have stopped extending them to new employees and often, like in my case stopped allowing them to build for current employees. Are the automakers doing anything like the two situations above yet?

There was a poster on FR who's husband worked for the UAW. She said that her husband was only making about $25/hr and was not in the pension plan. The seventy-three dollar figure is what it breaks down to when you include the cost of money going into pensions they don't belong to.

[Republicus2001]

Why isn’t Barney Frank being investigated.

If there was an (R) after his name he would have been hounded from office and jailed years ago for hosting the congressional gay child prostitution ring in his DC apartment.

[RichInOC]

Liberals Beginning To Face ‘Financial Armageddon’

“In retrospect, lighting the match was a mistake. But I was only trying to retrieve Barney Frank’s bankroll.”

(“ARMAGEDDON!”)

[PapaBear3625]

They do not! Part of the money goes to retired workers.

And current workers will not be owed pension benefits? Good accounting requires future costs to be accounted for.

[Freedom4US]

Yes, undoubtedly. New hires don’t get near the wage or benefits package. Health care has got to be a big portion of expense. So, either way the taxpayer at some point is on the hook going into the future?

[Mr. Jeeves]

The media would never dream of telling you this, but 3/4ths of the Bush presidency - in spite of being handed an economy already stumbling into recession, the 9/11 attack and the resulting hit to the economy, the two wars that followed, Hurricane Katrina, and myriad other phenomenon - saw strong economic growth.

It was fake growth, and now we've got about 13 trillion worth of fake GDP value posted over the last fifteen years that needs to reset and find its proper level. The Great Deflation is upon us, and Bernanke and Paulson resemble nothing so much as a couple of circus clowns frantically trying to reinflate a blimp with their own lips. ;)

[raybbr]

It was fake growth, and now we've got about 13 trillion worth of fake GDP value posted over the last fifteen years that needs to reset and find its proper level.

I agree. There are still people on this forum that insist that equity equals wealth.

The Great Deflation is upon us, and Bernanke and Paulson resemble nothing so much as a couple of circus clowns frantically trying to reinflate a blimp with their own lips. ;)

LOL I like that. With GW squeezing their bellies to get more air.

[MarkL]

Where are the people that are supposed to look into this stuff??

Barney Frank and Chris Dodd ARE the people who were supposed to look into this... So the people who caused this problem are the ones who are going to fix them! Yeah, that's a good idea... Fox - Chickencoop.

Mark

[groanup]

there was NO ECONOMIC GROWTH during the Bush tenure. The deficits and borrowing more than offset the “growing” gdp figures which means REAL gdp actually has been shrinking for 10 years.

As a percentage of GDP the deficit was not out of line. Where do you get your figures. Prove it!

[Michael Eden]

You said:
It was fake growth, and now we’ve got about 13 trillion worth of fake GDP value posted over the last fifteen years that needs to reset and find its proper level. The Great Deflation is upon us, and Bernanke and Paulson resemble nothing so much as a couple of circus clowns frantically trying to reinflate a blimp with their own lips. ;)

I was going to agree with you - that it WAS fake growth - and then point out that it was the SAME sort of fake growth that we saw under Clinton. And then I noticed that you’d already said that.

The thing that bothers me - “frightens” is a better word - so much is the massive debt spending that we’re doing. There’s no possible way we can avoid a massive depreciation of the value of our currency as the repercussions of our actions take their toll. Think about the interest payments on these trillions of dollars!!!

California is in crisis because it is $14.8 billion in the hole. They are facing insolvency. Realize that it represents about 15% of the entire US economy. Now realize that the United States is talking about going several trillion more dollars into the hole. California can’t print money; the federal government can. But you can’t just print more money and fix your problems. We are devaluing our monetary supply.

[Michael Eden]

The UAW just flatly rejected an effort that would have made the wages and benefits of Detroit workers in line with the workers of the US-based Japanese automakers by 2009.

Quote:
“Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit’s beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.”
http://apnews.myway.com/article/20081212/D95106M80.html

That pretty much blows up the bubble that there is any kind of parity between the wages of US and Japanese carmakers.

In other words, wherever your getting your info aint giving you good info.