Peering Over the Fiscal Cliff

December 10, 2012 § Leave a comment

fiscal cliffIn August 2011, President Obama and Congress did something really unusual; They  built a fiscal cliff and they put the US economy on course to go over this cliff by the end of the year unless they come up with an alternative way to reduce the deficit by $1.2 trillion over the next decade. Its getting closer to the end of the year and there’s no apparent progress towards diverting from the cliff. Here’s what that would mean; taxes would go up, a lot for almost everybody. A broad swathe of domestic and defense spending would be cut. That would be a huge blow to an already fragile economy.

Here are a few things about the federal budget:

  • 63% of the federal budget went to pay for 5 things; Social Security benefits, farm subsidies, Medicare for the elderly, Medicaid for the poor and federal debt interest.63% was committed even before congress showed up and they spent the whole year arguing about the other 37%.
  • $1 of every $4 spent today goes towards healthcare which is 25% and its on the road to hit 33% over the next decade unless something big changes.
  • The US government employs over four million people but the fact is if you fired every single one of them from the secret service agents standing next to the president to the lady who collects toll at yellow stone, you would have saved the government $435 Billion in wages and benefits last year. That would not have reduced the deficit by even a third. Closing down government agencies can save some money but it is not enough to solve the problem.
  • The US spends a lot of money on defense, $700 Billion to be precise. That is $1 of every $5 the government spent. The US defense spending is bigger than the next 17 countries combined. The US spends more in defense than China, Russia, India, Great Britain, Japan, Germany, Italy, Israel, France, Saudi Arabia, Brazil, South Korea, Australia, Canada, Turkey, UAE and Spain put together.
  • The share of income most families have been paying as taxes has been falling for over 30years. According to congressional budget office in 1981, the middle class paid 19.2% of their income in federal taxes. In 2007, that percentage was 14.3%. The US therefore has had to borrow as they spent more than they were making. The US borrows 36cents for every $1 they spend much of it from abroad.

So, if you decide on how much to spend on benefits, how to slow the growth in healthcare spending, how many employees the government needs, what to do about defense and how much to tax people, you’ve pretty much have solved the deficit problem. Everything else is detail. Its easier said than done. How will all this play out? I don’t think anybody knows for sure. The impact of going down the fiscal cliff will stretch beyond the US thus striking a blow to the fragile world economy. Policymakers are rushing to stem a new slowdown in a global economy still recovering after the 2008-09 financial crisis. Japan, the worlds third largest economy is also facing it’s own version of the fiscal cliff, a potentially crippling funding shortfall just as it risks sliding into recession.The International Monetary Fund last month cut its forecast for global growth to 3.6% for 2013, citing “familiar” forces dragging on advanced economies: fiscal consolidation and a weak financial system. 

 Democrats don’t want spending cuts, Republicans don’t want tax rises and none of them is willing to compromise. Democrats and Republicans agreed last year to schedule the automatic cuts, though neither side wants them and both hope they won’t take place.

That roughly sums up the political problems throughout the world, greed and theft.  Refusal to live within their means usually ends up only in one place….

Who was it who said history repeats itself ?

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South Africa: White Man’s Opportunity

November 28, 2012 § Leave a comment

South Africa is the same old; White man’s opportunity with black faces on top. The economy of South Africa is the largest in Africa, accounts for 24% of its Gross Domestic Product and is ranked as an upper-middle income economy by the World Bank, which makes the country one of only four countries in Africa represented in this category.
While the White South Africans account for about 20% of the country’s population, they control 85% of the economy and earn up to than six times more than blacks according to South Africa data census. Many Black South Africans are tired of waiting for “better life” that was promised when ANC took over power in 1994. Disenchantment in ANC has been building up over the years and is near a boiling point. The initial excitement among blacks has fizzled out as the plight of Blacks in South Africa is much worse under ANC government. The number of people living on $1 a day doubled from two to four million. As of 2010, only 5,000 of the more than 35 million black South Africans earned more than $60,000. A quarter of the entire population live in shacks without running water or electricity. A quarter has no access to clean water. The HIV/AIDS/TB infection rate is 20%. Life expectancy has dropped by 13 years from 1994.
Julius MalemaThen comes one Julius Sello Malema. As a child, he did not fear carrying a pistol, setting fire to things for political expression. He does not fear the media, the Boers, or even the South African President, Jacob Zuma. During a local government election rally in Kimberley this year, Malema labeled whites criminals, reportedly saying: “We must take the land without paying. They took ours without paying. Once we agree they stole our land, we can agree they are criminals and must be treated as such.” He says Mandela gave them Political freedom and he has taken it upon himself and other Economic Freedom Fighters to now bring Economic Freedom to the black South Africans although in a more radical manner like that of comrade Robert Mugabe. While the elite South Africans have been quick to dismiss him as a Demagogue who has no place in the new South Africa, he has a huge following of many poor black South Africans who see him as their liberator. Time and time again, history always repeats itself.
We live in a society that is breathtaking in its hypocrisy. But that is the strategy, to pretend to be one thing while becoming its opposite. While nothing good came of apartheid… The picture postcard of post-apartheid South Africa, South African prosperity is little more than just a fairy tale. However, South Africa is still regarded by many as a better place by approximately 6million people from other countries.

That’s your food for Thought..

The Greek Tragedy

October 28, 2012 § Leave a comment

Ever since Greece joined the Eurozone, it enjoyed spectacular boom and then it all went horribly wrong. Austerity has brought about numerous budget cuts leading to job losses, cut pensions, salaries and benefits. Families go without food, schools don’t have books and hospitals without drugs. A fifth of all public sector workers are set to be laid off. Pensions have been cut by an average of 30%. Vast private wealth remains evident yet Greece is broke.Young people feel they have been robbed off their future. It is estimated that 40% of Greeks could soon be living below the poverty line. The unchecked spending by the government when they joined the Eurozone as come back to haunt them. When the Greece joined the Eurozone, they got into an era of cheap borrowing and they embraced it until the bills started rolling in. In 2004, they hosted the Summer Olympics and this put a large hole in the Greek coffers.

All this isn’t exclusively a Greek Tragedy but more of a Eurozone tragedy. Larger economies such as Portugal, Italy and Spain are all facing austerity measures. Germany, the European Central Bank and the IMF which has come to their rescue with bailout money but austerity preconditions. Many Greeks loathe the Germans with even the German Chancellor being referred to as a Neo-Nazi by the Greek press and some politicians. This was even evident during the recently concluded European Cup Competition when Germany played Greece during the quarter final match. The Greek fans were singing ‘screw your debt’ and ‘we’ll never pay you back’. Nonetheless, Germany beat the Greeks. The Greek economy accounts for only 1.8% that of the Eurozone yet quiting the Eurozone means a collapse half of Europe’s Banks which hold Greek debt. Greece being in the Eurozone means they cannot devalue their currency to make their exports cheaper.

The story of Greece is a modern morality tale to individuals, corporations and nations. Have we learnt anything or shall we have a repeat of this in the future? Seems no one paid attention when Argentina went burst ten years ago.What is the way out for Greece? To quit the Eurozone all together? To default? What are the implications of this?How do we remedy this? That’s your food for thot…