budget deficit

U.S. at Crucial Crossroads; Are We Becoming European?

By Sasha Cekerevac for Investment Contrarians | Jan 29, 2013

290113_IC_cekerevac In America, politicians mistakenly believe they can have it all. To stimulate economic growth, politicians have continually made big promises, without any way to pay for them. This type of imbalance has led to a government debt level that now exceeds $16.0 trillion—an absolutely insane amount.

With the government debt limit about to be hit yet again, we must ask ourselves: do Americans want to be European?

With the current level of tax and spending imbalance, government debt is set to grow higher and higher, even with a slight increase in economic growth.

This point was best explained by the Swedish Prime Minister, Fredrik Reinfeldt, when he stated on Bloomberg TV, “It’s not sustainable for a country to try to have European levels of expenditure with taxation levels like the United States has.” (Source: Carlstrom, J., “Sweden Warns U.S. Against Targeting Welfare With Tax Deficit,” Bloomberg Businessweek, January 25, 2013.)

This point is essential for all Americans to consider. Economic growth is flat in the U.S.; and while politicians talk a big game, we must consider how we’re going to pay for all of these promises. The more government debt increases, the more constraint it puts on the future for all Americans, lowering potential economic growth levels.

To put the difference into context, the European commission estimated that the budget deficit for Sweden will be 0.3% of gross domestic product (GDP) in 2013, as compared to a budget deficit for the U.S. of 7.3% of GDP. Even the European Union (EU) as a whole will only have a budget deficit of 3.2% of GDP. (Source: Ibid.)

The advantage of having … Read More

Should Taxes Really Go Up and for Whom?

By Sasha Cekerevac for Investment Contrarians | Dec 19, 2012

IC_cekerevac_191212 We are coming into an interesting time; America’s budget deficit has gotten too large and needs to be reined in. The problem is that this can be a delicate matter, because too much restraint in combating the budget deficit could slow economic growth.

The larger the budget deficit grows, the bigger the nation’s total outstanding debt. This can lead to massive financial problems over the long term, ultimately stifling economic growth under the weight of the budget deficit.

This is not news to anyone, and we are all aware of the dangers of a massive budget deficit. The problem is that during periods of strong economic growth, politicians continue spending during the good times, when they should be paying down the budget deficit and debt accumulated during bad times. With the economy still weak, many are worried that economic growth can be hurt due to overly aggressive tactics in attempting to reduce the budget deficit.

One of the themes from the latest presidential election was tax policy. President Obama has repeatedly stated that the top income earners don’t pay enough in taxes, and this is the main reason why America’s budget deficit is so large.

To start with, I want to emphasize that I personally believe people and corporations should pay taxes, according to the law. We don’t want to become a society like Greece in which many, if not most, people evade their taxes, which leads to a shortfall in revenue and a large budget deficit.

Let’s take a look at two areas of taxes: personal and corporate. The National Taxpayers Union looked at data from the Internal Revenue … Read More

Budget Deficit Soars in October; Do You Trust the Politicians to Solve This Looming Crisis?

By Sasha Cekerevac for Investment Contrarians | Nov 15, 2012

Budget Deficit Soars The U.S. Treasury Department recently released the budget deficit numbers for October, reporting a massive $120 billion deficit. This compares to a budget deficit in October 2011 of “only” $98.0 billion. While the U.S. economy is not growing at a rapid rate, it’s certainly not shrinking. So in the span of one year, with some growth in the U.S. economy, albeit slow growth, we’ve seen an approximate $20.0-billion monthly year-over-year increase in the budget deficit. I think this shows the true ineptitude of our political leaders.

One sign that the U.S. economy has shown some improvement is that receipts increased to $184 billion, compared to $163 billion this time last year. However, expenditures increased at a much faster rate. The monthly expenditures for October 2012 were $304 billion, a huge jump from approximately $262 billion in October 2011, which caused the rise in the budget deficit. Does anyone know where this money went?

While President Obama can talk about increasing taxes to generate more revenue, the truth is that receipts to the government are increasing. The government is taking in higher levels of revenue, as the U.S. economy has slightly improved. However, the spending side is growing at a far greater rate. I don’t believe Obama’s tax hikes can pay for the massive increases in expenditures. More likely, raising taxes to try and reduce the budget deficit will kill what little growth the U.S. economy is experiencing.

October is the first month of the fiscal 2013 year. The fiscal 2012 year has ended with another budget deficit in excess of $1.0 trillion. One trillion dollars is larger than the entire … Read More

How a Paul Ryan and Mitt Romney Win Will Impact Your Investments

By Sasha Cekerevac for Investment Contrarians | Aug 16, 2012

How a Paul Ryan and Mitt Romney Win Will Impact Your Investments With the recent move by Mitt Romney to choose Paul Ryan as his running mate for the upcoming election, I believe this sends a strong message to the American people and the rest of the world that the U.S. is finally going back to its roots by getting on the path to reducing the budget deficit and preventing a financial crisis.

A financial crisis usually stems from a lack of confidence. If the lenders feel that a borrower can’t pay, they sell their securities and refuse to lend unless the rates are extremely high. This is how the financial crisis in Europe is unfolding, as the budget deficit for many nations remains high. They are continuing to spend more money than they earn. Running a budget deficit for a short period of time might be okay, if a surplus is eventually generated to reduce the overall debt. This has not occurred for many years in dozens of nations, including the U.S.

Ryan understands that the real victims are the American people if a budget deficit is continually generated. This puts the country at greater risk of a financial crisis, as investors begin to lose credibility in the nation as a whole. The U.S. is fortunate that so many other nations are also poorly managed, running up a huge budget deficit and cresting on the edge of a financial crisis.

One of Ryan’s ideas is reducing government spending by 2015 to 20% of gross domestic product (GDP) and a long-term target of 15% of GDP. Reducing government expenditures is a needed step in reducing the budget deficit. Such a move will … Read More

New Austerity Record: 75% Tax on the Rich!

By Danny Esposito for Investment Contrarians | Jul 23, 2012

New Austerity Record 75 Tax on the Rich When France’s socialist government was elected, it proposed a different avenue to solving the country’s budget deficit. It targeted government spending on lowering the retirement age and hiring more government workers, with the money to offset this government spending coming from higher taxes on the rich, so that the budget deficit would not worsen.

That is great in theory, but in practice, it doesn’t work. The proposed higher tax for those earning more than one million euros in France is 75%.

Sotheby’s Realty is reporting that in the last few months, it sold more than 100 homes that were valued in excess of 1.7 million euros in France. Wealthy French families have been selling their homes to foreigners, who are, of course, not subject to the 75% tax rate.

The two countries that have some of the lowest tax rates in Europe—Switzerland and Britain—are where these French families have decided to immigrate, taking with them any hope of closing France’s budget deficit.

One agency in Switzerland said the calls received from rich French families over the last few months have just been crazy. In the meantime, another British real estate agency reported that high-end home demand soared by at least 30% over the last few months.

So this attempt by the socialist government to close the budget deficit will backfire. The wealthy have greater mobility than other classes within society, and instead of paying a tax rate of 75%, they are simply going to move, which will ensure that the government’s projections on the tax revenue they were going to receive to close the budget deficit will not materialize. In … Read More