Tax cuts? ...Now?

What if any is the connection between the fiscal policies of both John McCain and Barack Obama and the continued growth of our national debt?

As of 5:00 pm Wed. Oct 28 2008, the national debt of United States of America is $10,470,986,318,222.51, and increases at a rate of $3.75 billion per day. According the United States Treasury Department at some point between 2030 and 2040 the interest payments on the national debt, along with other mandatory spending will exceed the revenue of the United States Government. At some point the people and nations who buy American debt, and thus finance our current spending are going to realize that American debt may not be the safest investment in the world (which they are currently considered). Loosing this designation does not mean that the United States Government will no longer be able to borrow money, it just means that the government will have to pay a higher interest rate. If the latest financial is any indication of what happens when large organizations have to pay more than expected to borrow money, the day treasuries loose their aura of invincibility the world of credit will once again change forever, but at this scale a bailout would be impossible.

Now that we have established that the growth of the national debt is on the path to have some rather disastrous consequences lets take a look at where the candidates stand on the three issues which affect the national debt the most: What programs they have announced they would be willing to cut and what they would do with tax policy. On the issue of spending cuts both McCain and Obama have said that they would cut pork barrel spending, which is very nice and symbolic but pork only accounts for $17.6 billion out of a budget of $2.66 trillion according to the 2008 Pig Book. Unfortunately aside form the willingness to cut pork the candidates had no other identifiable areas in which they were willing to cut. Both John McCain and Barack Obama have suggested new tax cuts. McCain has suggested a tax plan which cuts taxes across the board with decreases essentially in proportion to the amount of taxes you pay. Obama also has a tax plan which will cut taxes for 95% of Americans. With both proposals, neither one including defined spending cuts to pay for the proposal, I am left wondering; what are we doing taxes when the government is in so much debt?

A Self Made Crisis

What if any is the connection between the government's requirement of mark to market accounting and our current financial crisis?


In the world of our current credit crisis there is an uncertainty among traders and other officials as to the value of the Mortgage Backed Securities(MBS), which are the financial tool behind the credit crisis and are essentially the right to a percentage of the returns from a group of mortgages. Thus as house prices fall more people fall into the category of owing more on the mortgage than the house is worth, which increases the risk of someone choosing to default on their mortgage. This risk of people choosing to walk away from their mortgage, decreases the value of the pool of mortgages, and consequently the value of your share represented in the MBS. As a consequence of the uncertainty of how many foreclosures will occur in a group given pool of mortgages, buyers will only purchase new MBS if they are certain they are not overpaying even in the worst case scenario. Consequently the owners of MBS are not very inclined to sell since they believe that things are better than the worst case scenario. This difference in perceived valuation between the buyers and sellers creates a market stagnation where nothing happens until someone is forced to buy or sell at whatever price they can get. Since buying is almost always optional but selling is not, then the market price, being the price at which the last transaction occurred is buyer determined price. As a result of this organizations such as banks or investment banks, which are required to use mark to market accounting, such as banks and all public companies, must show their MBS investments at this fire sale value. Consequently it is possible that a bank may be declared insolvent under SEC rules and forced into bankruptcy based upon the fire sale market price. As such it is possible that part of the crisis is being fueled not by too little regulation but rather the regulation which prohibits accounting methods designed to be accurate in predicting the value of a bond when there is little to no trading volume in its sector. As a result I am skeptical of the claims made largely by the Obama camp that the credit crisis is completely a result of greed and too little regulation.

Political Exploration

Hello, name is Spencer and with the election nearing ever closer I have decided it is time for me to embark on some political exploration. You see I have remained am one of those few undecided voters who has yet to make up their mind. From now until election night I will be discussing various aspects of the campaigns, and posing some questions. Since I am yet to make up my mind I will not be examining who is right and who is wrong but rather will focus on the implications of their policy while allowing you to make your own decisions. I invite you to come along with me of this exploration of issues and their implications, and I ask that you please challenge me when you see fit. I will primarily be examining the differing economic policies of the candidates and the implications of these policies as well as other issues I may find relevant and or interesting.