Retro look: US Financial Crisis: Reality is in the Market: Question: what if anything has really changed?

Waking up this morning to the bankruptcy of Lehman Brothers, the firm that took over Bear Stearns, its brought to mind the fact that underneath the Conservative policies of President Bush, was a neglect of the "economy."

In my own thinking, when Fannie Mae and Freddie Mac were taken over by the U.S. Federal Government last week, the U.S. citizenry took over $7 trillion in debt, bringing the debt level to $16 trillion for those citizens, or $45,714 each.

Canada went through financial trouble at the Federal level starting with Trudeau and Mulroney deficit spending built up substantial national debt but nothing near the levels the U.S. has quickly run up (about 70% less).

Arguably, the U.S. is fighting a war in Iraq and in Afganistan, and as a result, you do have impacts domestically but most American's have not been prepared for the cost of those wars, other than in the blood of their youth.

But war fighting takes a toll financially, are the Americans expecting this to be costless?

The US defense budget was $626 Billion, 3.7% of GDP in 2007, but that excludes the amounts for Iraq and Afganistan that are earmarked, one can see a country spending a trillion dollars per annum for war related activity.

And even arguably another half trillion on top of that: see "The Trillion Dollar Defense Budget."

But that is not the only woe for the U.S. "economy."

While it is Conservative to say that Federal spending is out of control, with President Bush' most recent budget proposing a $240 Billion deficit, it belies the flip side to a deficit is also on the revenue side: examining figures for Income tax collections v. Social Security collections, we find $1.25 Trillion v. $927 Billion, a difference of only $323 Billion.

In other words, with President Bush reducing the top marginal rate to 35% for 2003 to 2008 (from 39.6% in 2000), he has reduced the rate of income tax collections while the economy grew, that benefited only those earning over $357,000.

So why help the rich when your country has a debt of $9 trillion? Whoops, $16 trillion?

Its Conservative.

In Canada, so far, tax revenues as a percent of GDP are 33.4% v. 28.2% in the U.S. (provisional 2006). We do not yet have a fiscal deficit but are now on the borderline from the years of Liberal management to the Conservative give aways to the rich of this country.

Big Canadian Conservative give away's?

1) Cutting the GST benefits who the most? The rich. The poorer arguably have to spend their entire earnings and do get a break. But the rich can buy Mercedes and boats, and holidays and legal services. You can see who got the bigger break on GST.

2) New Tax Exempt Savings vehicles. How can the average family in Canada ever contribute $5,000 a year to such an account, so that the income from it will be tax free? The fact that it accumulates, it basically makes investment income tax free. Who can afford investments? The rich.

3) On Climate changing greenhouse gases, the regulation of the intensity of emissions while not controlling the absolute amount of emissions, will do nothing. The climate will change long before any intensity driven model has any effect on reducing absolutely any emissions.

Note: The Dion solution is not also an optimal way of doing the job if the job is to reduce air pollution and greenhouse gas emissions. Taxing and giving back to those who cannot afford those taxes, seems laudable, but optimal, no. There will be a dead weight loss to the new taxes and an administrative cost to redistribute the tax collections.

Can we Canadian expect more Conservative promises to cut taxes over the election period? Perhaps.

Certainly on Copyright issues they showed in Bill C-61, that they were beholden to U.S. private actors who hold copyrights and not the Canadian public nor Canadian artists and copyright holders.

It all portends a great deal of difficulty for world financial markets, and a hunkering down time for all.

(Ed. Note: All in all, a first post in a long time to break my writing cobwebs.)