Both presidential candidates are running around arguing which of them is going to cut taxes the most as well as outlining all the wonderful new federal programs they intend to introduce.

Like John McCain's prediction and forewarning about Freddie Mac and Fannie Mae a couple of years ago, here's the Kahuna's prediction and forewarning.

Government spending will have to be cut dramatically and taxes will have to be raised.

This will happen during the first term of whichever candidate is elected to the presidency. The reason is simple. There is a limit to the appetite of the world's investors for debt issued by the U.S. Treasury. There are some indications that investors outside the U.S. were already having concerns about the amount of debt they own when the national debt approached $10 trillion. Now with the Wall Street bailout, that amount is escalated 10% or so to $11 trillion. And of course, any further deficit spending by our government would further add to the amount needing to be financed with debt.

The first signal of real trouble will be an escalation of the interest rates demanded by buyers of our debt instruments. That will be the signal to whomever is President as well as the Congress that the jig is up. The world has reached its limit for financing our continued deficit spending. The rest of the world will call a halt to our political shell game. The increased interest rate bids for federally-auctioned U.S. debt will just be a signal that if the amount of debt isn't reduced, the next step will be that buyers will simply not bid on the debt.

There are only three possible solutions to this problem.

We can eliminate one pretty quickly. I can't imagine anyone proposing that we're going to "grow our way out of these deficits" with economic growth that will dramatically increase tax revenues. Let's agree on that--at least for the next few years.

The other two ways to reduce the debt are simple to understand. One is to dramatically cut government spending. Somemone's ox will be gored in this process. If done correctly, we'll all suffer.

The last solution is to increase federal revenues. Said another way that means taxes must be increased. The only question on this alternative is "whose taxes"? Increasing taxes on just the rich probably won't get it done. We're all likely to have to pay more in order to resolve the problem of letting our expenditures get so far ahead of our income for so many years.

The only thing that's happening here is that we're all going to wind up paying for permitting our government to act like "pigs at the trough" as John McCain has described them. The only difference is that we're going to have to start paying off the debt instead of shifting it all to future generations of Americans.

Mark it on your calendar as the Village Kahuna's prediction and forewarning.

Now listen to the debate by any of those running for office and see if even one of them has the guts to mention this possibility. My guess is that their campaign advisors will tell them to stay far, far away from any admission that any of this might be even remotely possible if they want to be elected. Time enough to let the public know the bad news after you're in office.

I think you're too optimistic, Kahuna. Your solutions are the requirements for correcting the problem and I've never seen our government solve our problems quickly and efficiently, (current debate over rescuing the economy comes to mine). So with a slight of hand we will see the government's next trick....

Uh oh, I think I'm turning into a pessimist.

Peachie, I think you meant realist.

Villages Kahuna,
I totally agree with you. Our debt is in the trillions of dollars – do we all think it is going to magically disappear? My post dated Sept 9 below:

There isn’t a single soul in this forum (myself included) or in the country for that matter who wants to pay higher taxes. But I believe there are a few fundamental problems with our thoughts concerning this issue and our attempts to limit our damage.

If we don’t have enough money to run our household there is only 2 things we can do – make more money or cut back expenses. It doesn’t take someone with an economics degree to figure that out. If we ran our households like Washington handles our finances we would be broke in short order. I feel the problem is we ALL have our special interests that we want federally funded and could care less about the special interests of others. I am particularly fond of Veterans issues and labor concerns. I don’t care if we disband NASA or NSF for example, to fund my interests. I’m sure your priorities may be different as well as areas you would cut back, but you get the point.

Secondly, we all claim (again, I include myself) that we want a balanced budget and don’t want to pass on debts to future generations. While a balanced budget is desirable I suggest to you that we really couldn’t care less about future generations and their struggles. I have to admit there isn’t anything about a nameless, faceless person of the future and their problems that keeps me up at night. Our thoughts are in the present and what comes out of OUR pockets.

Are these very selfish attitudes? Absolutely. But isn’t that where we really stand? There is no doubt we ALL love our country. Shouldn’t we all carry the burden of her upkeep, sacrificing monetarily as well as the special interests we hold so dear?

Originally Posted by Villages Kahuna

Both presidential candidates are running around arguing which of them is going to cut taxes the most as well as outlining all the wonderful new federal programs they intend to introduce.

Like John McCain's prediction and forewarning about Freddie Mac and Fannie Mae a couple of years ago, here's the Kahuna's prediction and forewarning.

Government spending will have to be cut dramatically and taxes will have to be raised.

This will happen during the first term of whichever candidate is elected to the presidency. The reason is simple. There is a limit to the appetite of the world's investors for debt issued by the U.S. Treasury. There are some indications that investors outside the U.S. were already having concerns about the amount of debt they own when the national debt approached $10 trillion. Now with the Wall Street bailout, that amount is escalated 10% or so to $11 trillion. And of course, any further deficit spending by our government would further add to the amount needing to be financed with debt.

The first signal of real trouble will be an escalation of the interest rates demanded by buyers of our debt instruments. That will be the signal to whomever is President as well as the Congress that the jig is up. The world has reached its limit for financing our continued deficit spending. The rest of the world will call a halt to our political shell game. The increased interest rate bids for federally-auctioned U.S. debt will just be a signal that if the amount of debt isn't reduced, the next step will be that buyers will simply not bid on the debt.

There are only three possible solutions to this problem.

We can eliminate one pretty quickly. I can't imagine anyone proposing that we're going to "grow our way out of these deficits" with economic growth that will dramatically increase tax revenues. Let's agree on that--at least for the next few years.

The other two ways to reduce the debt are simple to understand. One is to dramatically cut government spending. Somemone's ox will be gored in this process. If done correctly, we'll all suffer.

The last solution is to increase federal revenues. Said another way that means taxes must be increased. The only question on this alternative is "whose taxes"? Increasing taxes on just the rich probably won't get it done. We're all likely to have to pay more in order to resolve the problem of letting our expenditures get so far ahead of our income for so many years.

The only thing that's happening here is that we're all going to wind up paying for permitting our government to act like "pigs at the trough" as John McCain has described them. The only difference is that we're going to have to start paying off the debt instead of shifting it all to future generations of Americans.

Mark it on your calendar as the Village Kahuna's prediction and forewarning.

Now listen to the debate by any of those running for office and see if even one of them has the guts to mention this possibility. My guess is that their campaign advisors will tell them to stay far, far away from any admission that any of this might be even remotely possible if they want to be elected. Time enough to let the public know the bad news after you're in office.

We can eliminate one pretty quickly. I can't imagine anyone proposing that we're going to "grow our way out of these deficits" with economic growth that will dramatically increase tax revenues. Let's agree on that--at least for the next few years.

depends on what we grow hahaha

Originally Posted by diskman

We can eliminate one pretty quickly. I can't imagine anyone proposing that we're going to "grow our way out of these deficits" with economic growth that will dramatically increase tax revenues. Let's agree on that--at least for the next few years.

depends on what we grow hahaha

One of the other reasons for the raise in debt is the weakness of the US Dollar against foreign currencies. This weakness has been a gradual thing, but it has reached the stage of almost worthlessness of our currency, making debt costs higher.

In 1970 the Dollar:Yen (Japan) exchange rate was 1:360. Today it's 1:106. in 1990 the Dollar:Franc (Swiss) was at 1:1.65, and today it is 1:1.06. We can all remember the Dollarollar (Canadian) rates as being quite favorable to the US, yet today its 1:1.03.

Our balance of payments ties into this conundrum, and without a means of leveling the scale, it too will thwart any recovery or debt relief. The short fix is the classical one - tariffs (another type of consumer tax in reality), which will also bring similar actions by the country whose goods are being so "taxed."

Bottom line - there is no free lunch.