Subscribe to John Mauldin's
FREE Publication:

Thoughts From the Frontline

Sign up for John’s free weekly letter and join 1 million of his closest friends.

We will never share your email with third parties

  • Editorials
  • In The News
  • -->

    Thoughts from the Frontline

    The Cancer of Debt and Deficits

    February 18, 2012

    Choose your language

    We are coming to the point in the United States when even the US government will no longer be able to borrow at very low long-term rates. That point is a few years off, and we have time to change paths; but as I have shown in previous letters, the longer we wait to get the deficit under control, the fewer choices we have and the more painful they are. NO country can run deficits the size we are currently running, along with unfunded deficits over four times the size of the economy and a growing overall debt burden, without consequences. At some point, investors in bonds will start wondering exactly what the process is by which they will be repaid. And what will the value of those future payments be?

    One by one, the countries of Europe are losing their ability to sell their bonds at an interest rate that is sustainable for their economies and revenue bases without severe and socially disruptive restructuring, even if a central bank that will accommodate their spending by printing money or other countries will tax their citizens to pay for someone else's debts.

    The US will soon be faced with that same problem if we…

    Discuss This

    33 comments

    We welcome your comments. Please comply with our Community Rules.

    Comments

    Page 3 of 4  < 1 2 3 4 > 

    Mathew Andresen

    Feb. 18, 2012, 7:34 p.m.

    The biggest problem with the VAT plus income tax, is it leaves the income tax.  Far better to go with the Fair Tax, and get the government out of every detail of your financial life.  If you leave the income tax there will still be the benefits of offshore tax shelters, and eventually it will be full of special deductions for special interests again.

    David Oldham

    Feb. 18, 2012, 7:26 p.m.

    John, great news on Melissa !

    I think a VAT with exports exemption a good idea. The point made in comments here about VAT hitting retired folk already hit by low savings returns is valid (I am in that category myself), but one has to ask the question what do we older generations deserve for being instrumental or oblivious to creating such a mess for our kids and grand kids. We will all have to suffer the ultimate consequences.

    Mark Fennick

    Feb. 18, 2012, 6 p.m.

    It is always the same _ There are only two ways to do anything . . either the complicated way or the simple way _ This is simply perceiving this as two sides of a coin # 1 is Govt. spending . . @ 2 is Taxing _ I see this problem as that simple _ Taxes are for Govt. spending _ So the less Govt. does the less taxing _ That is it _ The simple way is for the private sector to do everything . . meaning no more Govt. bureaucracies _ Everything would be public sector / business / foundations / etc.  _ Example how much social security costs multiple billions a year to run , but if the banks were safe people could put their money in the bank, and shut down that bureaucracy _ The simply tax system would be only one tax _ Only one activity could be taxed _ Example would be sells tax _ Only businesses would pay / send tax to Govt. _ Thus with no income tax, no paperwork to keep / No paperwork to send to Govt. / no audits ? no I R S which cost about 10 billion a year to run _ While sells tax would go up to a large amount ( 30 , 50 , or more % ) you would still be paying much lower taxes overall _ If you look at what Govt. did 50 . 75 , or 100 years ago, you will see how simply Govt. could be . .and how things got done without multi billion dollar Govt. bureaucracies

    Peter LePort

    Feb. 18, 2012, 4:31 p.m.

    John, why isnâ??t anyone writing about deregulation as the solution to this problem. One always hears about how increased taxes will decrease the deficit but then it will decrease productivity and so increase the deficit. Or how cutting spending will decrease the deficit but then that will cause decreased productivity and so an increased deficit.

    One needs increased productivity so why not: Decrease regulation, which will increase productivity even at the same tax and spending levels? Decrease regulation, which will mean increased individual freedom to pursue economic activity, which will increase productivity? Decrease regulation, which will mean less legal costs, which will increase productivity? Decrease regulation, which will decrease the fear of doing something that will bankrupt you or worse, which will increase productivity? You get the idea.

    Could it be that decreased regulation leads to decreased power of congress and the president? Could it be that decreased regulation means that some inefficient protected businesses will have to go out of business? Could it be that people are so afraid of being independent, self-reliant, self-sustaining individuals that they are willing to give up freedom to be secure? Someone needs to remind them what one of our founding fathers said, I think Benjamin Franklyn:

    â??People willing to trade their freedom for temporary security deserve neither and will lose both. Or it was: â??Any society that would give up a little liberty to gain a little security will deserve neither and lose bothâ?.

    Maybe you could devote a couple of columns on how decreased regulation will increase productivity and decrease the deficit (and more importantly will increase our freedom or to put it negatively decrease the violation of rights that seems to be getting worse and worse).

    Peter LePort, MD

    Ken Wyman

    Feb. 18, 2012, 3:49 p.m.

    John, I wish you would have given the FairTax a better airing than you did with this post. Of all of the proposals for tax reform with real benefit, it’s the only one I’ve examined so far that has promise. A VAT, as far as I can see, is a terrible alternative.

    Richard Iaconelli

    Feb. 18, 2012, 2:21 p.m.

    John, the real problem here is that seniors and boomers must eventually pay for more of their retirement and health care—at the same time the FED is destroying their ability to save or preserve savings. The FED is destroying the very thing we need—financially independent seniors!

    Will we have an entire older generation living in poverty thanks to Comrade Bernanke?

    Alan Morris

    Feb. 18, 2012, 2:17 p.m.

    I welcome your suggestions for a value added tax combined with a flat tax over a certain amount. Hopefully, this will take the politics out of the tax system (at least for while).  I heard Milton Friedman talk about the 1986 Tax Act which eliminated a lot of tax shelters.  He said that in a matter of years a lot of politically influenced tax breaks would come roaring back.

    Alan Harris

    Feb. 18, 2012, 1:42 p.m.

    While I have GREAT respect for you…..I only needed to read the first para of your article to know you are on the wrong track John. This is how it will play out. Europe will go into chaos, not directly because of money, but because of the social unrest that will sooner or later follow. I recently met a lady from Dublin who had moved to London because life was so grim in Ireland due to austerity. Greece will be worse and life in the remainder of the PIIGS wont be much better. As people migrate to earn a living, depriving and undercutting the locals, there will something close to revolution. Between now and then money will flood into USA as the safe haven. US will offer bonds at close to or maybe below zero interest and close out their old 2+% bonds early. People will still buy in because the Bonds will be secure and the $ currency value will rise. With reduced interest to pay, US will have the spare cash to pay off their debts very comfortably.
    That’s my End Game. Anyone wanna bet?

    STANLEY HARRISON

    Feb. 18, 2012, 1:16 p.m.

    John, How can we accept your currrent plan or any similar (Simpson/Boles) plan that requires compromise to implement when large numbers of Republican congresssmen have pledged to vote ‘no’ to any tax increase? They will not comprovise, yet the founders of this republic had to compromise. Are you going to campaign against them?

    Rod Steel

    Feb. 18, 2012, 12:56 p.m.

    John,

    I would have thought you of all people should realize, businesses that sell a product or service NEVER pay taxes - the customer ALWAYS pays the tax (through increased price or fees).

    Otherwise, I like the VAT proposal (with one minor change - the VAT on salaries should be graduated from 5% to 20% based on size of payroll - i.e., give the little guy a break ;o)).

    Rod

    Page 3 of 4  < 1 2 3 4 >