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Investment Analysis Clubs / The BMW Method


Subject:  Re: Bargain hunting Date:  11/13/2012  10:12 AM
Author:  Jim2B Number:  40775 of 42233

the only way to deal with the deficit is to reduce spending and raise additional revenue.

This statement is false.

There are three ways to deal with a deficit:

1) reduce spending
2) increase revenues
3) both

Increasing revenues has the added downside of suppressing economic growth - meaning any attempt to increase rates or increase the number of people paying will return less than the expected revenue increases.

Putting it another way, increasing tax revenues might be a terrible long-term decision (or it might not).

Through simple math it is easy to see that increasing revenues can't do more than scratch the surface. Just servicing the debt and paying entitlements will consume 100% of federal revenues in a very short period of time (off the top of my head it's like 7 - 10 years).

Clearly the problem is on the spending side - specifically entitlement spending (DoD budget consumes less than 17% of federal outlays). Entitlement spending is not only the largest slice of that pie, it is also the fastest growing slice of federal outlays.

Entitlement spending MUST BE CUT. Only the electorate just voted themselves a president who promised to deliver 4 more years of free food, clothing, shelter, cell phones, gas, cigarette money, and other goodies.

Add to this the "quantitative easing" and we are left with a country that is in a bad way. If at anytime people start losing faith in the government, inflation is going to skyrocket. I give us a 50% chance of this happening within 4 years (depending upon how foreign economies go). If some part of the world economy starts to strengthen, the US will suffer some pretty bad inflation.
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