President Obama intends to recycle the TARP profits to convert the savings into “tax-cuts” for small businesses and other infrastructure projects. The tax cuts would be a disastrous mistake and it would be something that would be just adding to the debt that we have.

Let me make this clear, these kind tax cuts would not mean anything to the middle class or the small businesses. I am not saying that I would not appreciate a tax cut, but the fact is, we got so many things to pay for that we do not feel the tax cuts effect at all. It is not like the millions that we would save if we were rich.

To prove my controversial statements above, I would like to point you guys to one example. As part of the Economic Recovery Act, the stimulus package, more than $250 billion dollars was set aside for tax cuts for the lower and upper middle class. How many of the recipients do you think would experience a reprieve or appreciated tax cut? Even today, many years after President Clinton cut taxes for the lower income bracket, people are still asking : Where was my tax cut, President Clinton?

The tax cut does not seem real at all. But what would be real is the debt it brings along with it. Should President Obama carry out his plan to convert the TARP funds to tax cuts, we would see the President cut half a trillion dollars worth of taxes. This half a trillion dollars spent, I am sorry to say, is just a waste of money.

The $200 billion could have been used to pay off the debt; we need to do that. That could have brought the deficit for this year down from $1.4 trillion to $1.2 trillion. It could have meant billions of dollars worth of interest being saved.

Many would bring us back to President’s Reagan presidency to claim that tax cuts would work, less would associate themselves with President Bush’s policies. Yes it worked, at a cost of a trillion 1980 US$! That is when the problem of debt really started in America.

If there is a further need to stimulate the economy, the many can be used in better ways. The money can be invested in infrastructure. This can be used to ensure that all our buildings and bridges are save. Lets build levies all around flood prone areas.

We can invest the money in education. Our kids are falling behind the rest of the world. While there would be people out there that blame the government, I disagree. The countries that have excellent results as of late are China, Hong Kong, Japan,Singapore and South Korea. The governments of these countries are very involved with their systems, so should we. We should meritocratize our system.

We can use the money to develop green energy. It can be seed money to help new green businesses start up. I am sure many would be interested in starting up a green business today especially with the ridiculously rebates that the government is offering in the ACES bill. This would make us very much less dependent on foreign oil.

Use it for these stuff, but please do not use it on tax cuts. It is not beneficial at all. It would just increase the debt! My preference is to use it to lower the debt that we owe China…

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$60 billion. That is a drop in the bucket as compared to the $10 trillion we have. Yet the doom of Dubai, seemed to have echoed around that world and got the markets panicking. What we can tell you is that we have not learned our lessons yet and this demonstrates the power house economy that US really is.

$60 billion. That is more than you and I would ever make in our lifetimes. But as a corporation, it really is not that much. Microsoft is worth more than $200 billion, Apple are Google, each, are worth more than $150 billion; so how is it that a city state that owes the world $60 billion could shake the world like it did?

The answer : silly risk taking. What caused creditors to be so afraid was that lots of the debts that we see today would be increased many times over due to the manipulation of risk. Let me give you a very much simplified example.

Lets say Company A had some formula to turn water to Gold. Company A goes to Bank A to get a loan, and Bank A approved a loan of $10 million. Bank B does not believe that Company A’s plan. So it does something called a Credit Default Swap. They would give Bank A the money for the loan. Should Company A default on her payments to Bank A, Bank A would pay Bank B $100 million.

The example that I gave above is what I call a 10:1 (100 million to 10 million) bet scenario. There are other examples in real life with methods ranging from short selling to derivatives which have a 30 : 1 bet ratio. Now that is what the EU terms as casino banking.

The same thing happened with Dubai. Should Dubai not be able to pay her debts off, the amount lost by her creditors would not be $60 billion, but in the trillions. That is what the entire pandemonium and panic is all about.

When are we going to learn our lessons? Why can’t we go back to the tried and tested system of a bank putting in capital should they believe in the business plan that they receive. Why must there be what I call sucker capitalism? When are we going to end such practices? Would the next attack be too late to save America? America and the world must wake up to this problem or we would face lots of problems in the future.

Dubai goes $60 billion in the red, and the world panics. Does anybody realize that the world is not that bothered with the trillions of dollars worth of debt when it came to the debt of countries like US, Japan and the UK? This is because the world, as of today, is still very confident in these economies.

I really hope that Dubai bring back the attention of bad banking, as what the economic crash did. It is essential that we get this back in order…

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I have criticized the President in my articled : Why President Obama would fail ultimately. The Republicans have released their budget details a few days ago. I am very sorry, but America has a very pathetic opposition to the President at the moment.

First of all, their budget still does not tackle the problem of debt! Like President Obama`s budget which would be passed very soon, the interest on the debt would catch up with their budget by 2013 and deficits after that would rise after that at almost the same pace as President Obama’s budget proposal.

The spending also does not decrease with the Republican’s budget. This is again another problem the Republican’s proposal shares with President Obama’s budget. If their option is to be taken, spending would increase by 46% over a time period of 10 years while their income would increase by 48%. How do they think they would cut the debt down that way?

The difference between the President’s plan and the Republicans is basically this: The President set about this hyper ambitious agenda and increases a lot of other taxes like on those who earn more than $250 000 a year. That is the reason why the President’s forecast of receipts is much higher than the Republicans and the Republicans have a outlay that is about 1 trillion less than the President’s.

I like the fact that the Republicans have a projected deficit much lower than the President’s projection. Yes, that was the major problem with the President’s version of the budget. The debt was just too high. With the Republicans proposal, the % of GDP which would be debt is much lower. It is slightly less than 15% less than the President’s proposal.

The problem with their budget though is that nothing is being done to solve the other problems that America faces. Very little being done to go about solving the health care situation in America. The effort and money that they put in to be energy independent is not even an iota of attention as put in by the President.

Honestly, what is wrong with the American mindset? Why is it only this or that? Why is it that the taxpayer has to choose between being bankrupt due to the high cost of health care or have the entire country being bankrupt because simple accounting procedures are not being followed?

Where is the promise that President Obama gave in the campaign? Where is that hope? Why can’t the politicians just do their job? Isn’t that what they are supposed to do? If they are not qualified enough to do that, they should find another job (good luck to them trying to find a job in this kind of environment)!

I understand that while it is easy for a commentator like me to voice my rage, it is difficult to put this in practice though. I am not doing their job, but I feel that while issues like abortion and the death penalty can be debated with words, numbers is something that cannot be made a mockery of. Either way, either party, either plan, America would still face terrible budget deficits.

Though, I am not able to play Congressman or Senator here, I think that the situation is right before the American noses. I do not think that the solution is out of the box and not found yet, I think the solution is in the box, it is what is done within the box that matters.

For example, we need to take President Obama’s tax policy rather than the Republican’s version. The Republican’s version just does not create enough receipts for the budget. I think the President need to engage the Republican’s help in making the deficit a surplus.

Just for your knowledge as to how bad the problem is, should we take the President’s projection and match it with the projection of outlays done by the Republicans, you would only get a budget surplus at earliest by 2017. That is how bad the problem is.

I really hope that the American politicians solve this problem, for the sake of the world. It is sad that so far, nobody is able to work together to solve this, I hope that the American public twist their hand to solve this problem though…

Most sources would tell you that the Chinese are worried because they feel that the Americans are spending their money recklessly and not paying any attention to their debt and thus worried in whether the Americans would repay the debt that it owes to China.

They are also worried that the US dollar would devalue and would make its trillion dollar investment in American debt would not be worth it. There is also concern that the investment in US debt would not be good as the Federal Reserve in the United States have is keeping interest as low as possible. This would mean that the Chinese government would earn more money by investing it elsewhere rather than keeping its money in US Treasuries and notes.

This also leaves the Americans worried. Most of the money for the Iraq war and for the lack of the revenue caused by the Bush tax cuts came from the Chinese. The money for the current stimulus package comes from the Chinese. And where exactly would the US find the money to pay back this trillion dollars to China? Another country, perhaps.

As of the time this article was being written, there is little change in the Dow Jones Industrial Average. It was trading up 0.1%. However, one has to take into context of the news that Citibank announcing that it would not need any more tax payers money to survive. These two news seem to cancel out each other so far. In other words this news is to a certain extent dragging the Dow Jones Industrial Average down.

China seems to threaten that it would not invest in US treasuries thereby forcing the Americans to raise money on their own. This is because, should the US print money to pay back this debt, it would raise inflation all across the world and this would make the money that China lent is less worthy.

But what is the real reason really? The answer lies in the trade deficit between China and the US. China was manipulating her currency (the Yuan) and keeping it artificially low by buying US debt. This created a thirst for even more Chinese goods and made the deficit bigger, giving China a bigger incentive to buy American treasuries.

With the current economic crisis, American consumers has decided not to spend and buy a lot of Chinese goods. This makes the trade deficit lower and virtually nullified according to Chinese sources. Now the value of a weak yuan would not do much as Americans has a lesser consuming power than they used to. So now the Chinese are saying “Why should I lend the Americans? What would I get int return?” Before they benefited by Americans buying more of their goods, now they do not.

That being said though, I dare the Chinese to stop playing these games and manipulate her currency in the long run. I really dare them to do so. America is China’s biggest customer. China has long benefited by this lop-sided trade deficit.

A good example would be comparing it to neighboring Japan. Both these economies are export driven economies. Due to the current global crisis, both have exports that have been hit badly. China’s exports are now three quarters of what it was a year ago while Japan’s export are half of what they were a year ago. Yet we do not see the same level of destruction in the Chinese economy as compared to the ravaged Japanese one. This is all down to the money that China lent the US.

What I suggest is for the US to bite the bullet now than suffer worse consequences later. The economy is already bad. Deflation is a problem right now, not inflation. I would rather have the Americans pay off the Chinese with “worthless” money right now than let them be at the whim and fancies of the Chinese later.

This would not be an easy decision for the Americans to make. For one, this would easily cost the American public a lot thanks to the inflation and in a time where there are no jobs, that would also cost the Democrats the elections in 2010. The US too would find it more difficult for them to carry out all the ambitious agendas that President Obama has laid out.

Here is my reason why. Firstly, if there is ever a need for inflation in America, this would be it. Secondly, when goods overseas become more expensive, American and other investors would spend more money in America thereby creating jobs in the mid term ( 4-6 months). In the long term everything would even out as foreign countries that also depend on the US for a market on their goods would also see their currencies gradually decrease against the dollar thereby strengthening it.

The last reason is that China has been reacting very brashly with the United States in recent days. First was the incident in the South China see where the American vessel was surrounded by Chinese vessels in international waters. A few days later came this threat about not investing in US Treasuries. And as long as the US owes China something, China would always leverage that against the US.

I think the US should stop the buck now. She should not allow China to use the debt that she bought for her own use against America. I believe that this should be a once and for all thing that the US should do. Taking action that would hurt China would also send a strong statement to the other countries that US owe its money to, against using the Treasuries to blackmail America.

I really hope that Premier Wen starts to regret ever outbursting like that just because there is some sentiment in China to take back this money in hard times.

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