Sunday, November 16, 2008

2009 Deficit, will it be a record?

With the new president elect taking office in 2009, will we see the history making deficits? Who will get credit for the bailout deficit? Will it be Bush or Obama? Our economy is in the toilet and bailouts our be given out like lollipops at Halloween.

Best Buy has lowered expectations. Circuit City has filed for Chapter 11. Intel reduced forecasts by 20%. Mortgages are hard to come by. I learned for the first time that credit card companies sold financial instruments similar to commercial paper to operate. So as these commercial paper contracts come due, they are finding it more difficult to borrow money so that they can cover credit card purchases. Elective surgeries are being postponed. With the stock market falling everyone is tightening their belts.

Consumers are paying down credit, paying cash for goods and services. This is a good thing. However, the government does not like this because for the consumer to pay down debt, they must reduce spending. Their reduce spending reduces sales tax revenues, reduces economic growth, causes companies to layoff workers because of reduced sales. Unemployment funds are being depleted.

Keep in mind it is the last dollar of income above a particular threshold that get taxed. In simple terms those who get laid off in September or later will owe a lot less if any Federal or state income taxes.

When will it end?


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