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Friday, June 26, 2009

How is Barack Obama like Willie Sutton?

When bank robber Willie Sutton was asked why he robbed banks, legend has it that he replied, "because that's where the money is."
Fortune says that over the next 10 years federal deficits will add $90,000 in debt to the average tax-paying household’s burdens, bringing the total to about $155,000 per household. Fortune is underestimating.

Obama may talk about taxing the rich. In fact, there aren’t enough rich people to pay the tab for US spending; the middle class will have to put on the yoke.

“The revenues needed are far too big to raise from high earners,” says Alan Auerbach, an economist at the University of California at Berkeley. “The government will have to go where the money is, to the middle class.” The most likely levy, says Fortune: “a European-style value-added tax (VAT) that would substantially raise the price of everything from autos to restaurant meals.”

But wait, there’s more…

The American middle class can’t really pay these debts.

They were living hand to mouth even in the Bubble Epoch. Now, jobs are disappearing and incomes are going down. How would they possibly keep up with the interest, let alone pay down the principal, on an additional $90,000?

We quoted estimates that taxes would have to go up by 60% to balance the budget by 2019. As we said then; that ain’t gonna happen.

Instead, the US is headed for bankruptcy. And that begins with higher interest rates, as lenders try to protect themselves from the risks of default and/or inflation.
-- from "The Curious Case of the 'Normal Recession'" by Bill Bonner (6/12/2009)

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