Is this finally the economic collapse?

Fortune ^ | august 11, 2010 | Keith R. McCullough

[mark_interrupted]

Is this finally the economic collapse? By Keith R. McCullough, contributorAugust 11, 2010: 2:07 PM ET

FORTUNE -- The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm -- debt as a percentage of GDP. Now that the US can't cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing -- buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return.

[mark_interrupted]

Food for thought. Just thought i'd bring this to everybody's attention.

[Russ]

I believe, in spite of the government and this administration’s ineptness, we underestimate the resiliency of the American people. Now if we can just muddle through ‘til November...

[kabar]

Alexis De Tocqueville, author of Democracy in America, which was published that year, seemed to warn of this day when he wrote: “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

[rj45mis]

“Now if we can just muddle through ‘til November.”

I hope your optimism is well founded but I’ve seen rats steal election after election and I expect this one will be no different. Republicans are too sissified to beat down the bastard dems.

[Yo-Yo]

[RayChuang88]

That's why I'm flummoxed why the Federal Reserve hasn't considered this idea: fix the income tax system.

When the current income tax system costs around US$304 BILLION per year in compliance costs and drove almost US$16 TRILLION in American-owned liquid assets into the illegal underground economy or to offshore financial centers to keep these assets out of the hands of the IRS, no wonder why we have such a bad economy.

If we can clean up our national taxation system, we could cut that US$304 billion in compliance cost substantially, and bring back most of that US$16 trillion in liquid assets back to the US financial system--the world's largest "private bailout." That much liquidity returning to the US financial system would easily kick off the next American economic boom.

[2 Kool 2 Be 4-Gotten]

I’d have unlimited hope for the future if we had some decent leaders and a public that cared about something other than victimology and gimme. Unfortunately we have neither.

[Psycho_Bunny]

Someone brought it to our attention yesterday.

:p

[Leftism is Mentally Deranged]

Don’t know if it is, but the imposter in the White House sure hopes it is.

[danielmryan]

Here's a "fun fact" for you: The first income tax, although rudimentary because income data-gathering was too, saw its day arrive in Bourbon France; it was called the capitation tax. It was sold as a tax-reform measure to eliminate the overhead of the taxes it was supposed to replace. (!)

Sadly but predictably, the capitation tax didn't replace anything. It ended up being imposed on top of the taxes it was supposed to replace.

[RexBeach]

“Could this be the end of ‘Little Rico’?”

Hold on...things are going to get better.

Make sure you vote on November 2nd!

The most money is made in dangerous times...the most money is lost in certain times.

Viva America!

[JPG]

DC is overrun with RATS who, if they remain unchecked, will kill us all with the plague. Are there any true conservative exterminators available? Time grows short.

[Bean Counter]

The problem is that we need to “muddle through” until January, when we can seat a new Congress. Until then there is plenty more damage this crew can do before they are tossed out by the voters.

[andy58-in-nh]

Fixing the income tax system in any meaningful way would entail reforms that almost no one in Congress, as presently constituted, will abide. Why? Because the Federal income tax code is not designed to raise taxes. It is designed to control behavior by alternatively rewarding and punishing billions of minute decisions made by taxpayers every day.

All of the rules, regulations, requirements, exemptions, deductions, and schedules that go into those 65,000+ pages of the IRS Code are the result of lobbying efforts on behalf of business, agricultural, labor and legal interests. Once again: it's not about income: it's about influence and power. And Congress today craves those things more than anything, even at the expense of our nation's economic health and productivity.

[Marie]

I’ve been watching the DOW trends over the last two years and I’ve been astounded at how the market does NOT reflect reality. From what I’ve seen, the market is an eternal optimist. It takes a LOT for it to start dropping. I believe that the only reason that it’s stayed this high for this long is that most trades are controlled by computers and not people.

I predict that it’ll eventually make a correction soon. If it’s overvalued by 20%, it’ll correct by twice that much, then rebound to a more realistic number. It’s overvalued and people can only be fooled for so long. There will be no “winners and losers” over the next two years - only losers. At some point, the computer programmers will make that realization.

[AngieGal]

ping

[Old Teufel Hunden]

"That's why I'm flummoxed why the Federal Reserve hasn't considered this idea: fix the income tax system."

You sir are under the false impression that the politicians think the income taxation system is to be used for the purpose of raising revenues to run the government. Au contraire my good friend. They look at the income system as a way to re-distribute wealth for the benefit of consolidating their own power. The Federal Reserve can't do anything about the income tax system. Look at article 1 section 8 of the constitution. This is the purview of the Congress.

[verity]

"I’ve been watching the DOW trends over the last two years and I’ve been astounded at how the market does NOT reflect reality."

You are quite correct. Some folks have said there is very little relationship between Wall street and Main street.

[Hacklehead]

“I’ve been watching the DOW trends over the last two years and I’ve been astounded at how the market does NOT reflect reality.”

I got a call from a representative of an online brokerage I use asking why there had been so little activity on my account. I told him that I thought the market was acting irrationally, and being driven by sentiment rather than reality. He didnt disagree, but I think he wouldnt have disagreed no matter what I said. I’m pretty much staying out of it until market behavior makes sense.

[Future Useless Eater]

>>...that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It’s a point from which it’s almost impossible to return.

And we are sitting at 94% [external] debt to GDP (not even counting off-the-books debt or unfunded entitlements)

http://www.usdebtclock.org/