Oh yes I would! I am a true independent. I don't blindly follow anyone. My first election when I was of age I voted for Reagan twice, Bush 1 on first term Clinton Twice, Gore and voting Kerry and if Kerry screws up and the republicans can come up with a good candidate in 2008 I will vote for him/her. Barron’s had an interesting if not depressing article this morning speaking of the deficit. I have already followed Buffet’s lead and started investing in foreign currencies.
excerpt from today’s Barron's
.....It's well and good, then, that armies of lawyers should be swarming over the polling places. For we are told that this is the most crucial election of our lifetimes. Indeed, we are faced with a fateful choice, and not just in war and peace. Domestically, we must choose between a typical Massachusetts tax-and-spend liberal and a borrow-and-spend Texas conservative.
The fact is, we're going broke, and neither President Bush nor Sen. Kerry has a plan to fix it. After patting himself in bringing the just-ended fiscal year's budget deficit in closer to $400 billion than the feared $500 billion, the incumbent promises to cut that shortfall in half. David Stockman two decades ago warned of $200 billion deficits as far as the eye can see; now that's the rosy scenario. The challenger talks of returning to budget surpluses that prevailed during the Bubba era -- products of a bubble of historic proportions that's gone and never coming back.
In truth, the proposals put forth by both Bush and Kerry would increase the aggregate federal deficit by $1.3 trillion -- that's with a "T" -- over the next 10 years, according to the Concord Coalition. W would rack up that red ink mainly by making permanent the tax cuts already enacted, which are due to expire down the road. It also assumes spending restraint from an administration that has not vetoed a single spending bill, unprecedented in American history.
This doesn't include Bush's plan to privatize Social Security, which the Concord Coalition says would add another $1.2 trillion to the deficit. In economic terms, however, that's a wash. Instead of the Social Security Trust Fund getting IOU's from the Treasury for its surplus, the Treasury would sell bonds to the public, which would have that much more to invest.
As for Kerry's plan, most of the increased deficit comes from the extension of the middle-class tax cuts, plus his health-care plan, which the Concord Coalition reckons would cost $476 billion -- after expected savings of $300 billion. The budget watchdog group didn't buy the Kerry camp's claims for $131 billion of various offsets.
The easy target for the deficit mess is the Bush tax cuts, but the fall in revenues had more to do with the recession resulting from the bursting of the tech bubble, which devastated profits. Bush also reversed the two-decade downtrend in federal spending as a share of gross domestic product, from almost 24% in the early 'Eighties to about 18% by 2000. That percentage, now back to 20%, was headed higher even before 9/11, led by ballooning nondefense expenditures.
Even though the problem is spending, the pols will probably see the solution as more taxes. Even Reagan was forced to hike taxes when confronted with unforeseen deficits, notes the perspicacious Amity Shlaes of the Financial Times. While Kerry has promised to repeal the Bush tax cuts for the top bracket, W insists he won't. But the affluent could be hit with higher taxes in other ways, she adds. The estate tax, due to expire in 2010, returns the following year if nothing is done. Social Security taxes, paid on the first $87,000 of earnings in 2003, could be extended, like the Medicare tax, to all earnings; that could be a bargaining chip for reform. And the tax on dividends, now 15%, could be nudged higher, say to 20%, and still preserve a sizable spread against ordinary income.
All these measures might slow the flow of red ink, but surely won't stanch it. (And they would scarcely touch the likes of Teresa Heinz Kerry, whose income is sheltered well from taxation.) But there is little reason to expect the budget to come under control, since we can borrow so easily.
At this point, everybody knows the U.S. finances its deficits by selling bonds that are snapped up by foreign central banks. Once confined to a footnote on Federal Reserve data sheets, these foreign purchases of Treasuries, especially by Asian central banks, have caught the attention of the media and mainstream economists. They recycle the dollars they receive from exports into the U.S. bond market, which keeps their economies going.
Far from being a cause for so much hand-wringing, some economists see this as a new Bretton Woods system, writes Barry Eichengreen, a professor at the University of California at Berkeley. Under that system in place after World War II until 1971, currencies' values were fixed in relation to the dollar, which in turn was pegged to gold at $35 an ounce. Now, of course, there's no gold peg, but the dollar is at the center of the system with currencies at the periphery, in Asia and Latin America, informally committed to keeping their exchange rates. They accumulate dollars to keep their currencies stable to spur exports, which funds the U.S. budget and trade deficits.
Eichengreen disputes this revisionist history, noting that the Bretton Woods system fell apart when the rest of the world decided it no longer wanted to keep piling up depreciating dollars. For now, foreign central banks are willing to do so, keeping the U.S. afloat, but cannot be counted on to do so in the future. So the "new Bretton Woods" could unravel just as the old one did.
Martin Jansen of ING Investment sees this situation more starkly. The present system amounts to a Faustian bargain on global scale, he writes. Just as telecom-equipment manufacturers provided vendor financing to the dot-coms, foreign central banks are funding our spending. Jansen hopes the imbalances are corrected before this bubble bursts.
What's that got to do with Tuesday's elections? A breakdown in that Faustian bargain will force the unpleasant choices on the overleveraged U.S. government and American consumer. That will happen regardless of who wins.
So as you enter the voting booth this week, remember what Woody Allen said: "More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly." |
