Juggling Dynamite

Warning of a “death spiral” without drastic changes, a group of experts on the U.S. federal budget deficit on Wednesday called for a 2011 Social Security tax holiday, a soft drink tax and government spending freezes.
In an ambitious plan to slash the deficit and the fast-mounting national debt, the group also called for a new 6.5 percent national sales tax, as well as lower and simpler individual income and corporate tax rates. It comes as a presidential commission targeting the same problem reconvenes on Wednesday for another closed-door session with just over two weeks before its final report is due.
The bi-partisan panel called the deficit “a quiet killer” undermining the economy and compared the effort required to vanquish it to the sacrifices made by Americans during World War II.
My thought: this is the right line of thinking. If we can get citizens to buy into collective effort and sacrifice in the present in order to reign in spending and reduce debt for the future we will finally get the recovery back to long-term health underway. Now if we can convince policy makers to support the effort to increase savings and down-size consumption and spending rather than trying to goose it back up on more credit…

Over the past few years Perma-bulls have focused primarily upon the expectation of insatiable demand in China. I believe that in the not too distant future, we will look back on these arguments the way we now look back on the tech-bull arguments of the late 90's, or the Japan-bull arguments of the late '80's.
Jim Chanos the influential short-seller/hedge fund manager is betting that China's economy is about to implode in a spectacular real estate bust. A lot of people are hoping that Chanos – who called Enron right – is wrong this time. See an excellent discussion of both sides of the China case in this article Chanos vs. China, and the following video segment.

(Hat tip: thanks Dazzo)
It is interesting to note that Chanos gets threats of physical harm from China bulls today the way that Robert Shiller received threats from stock investors in the late '90's when he wrote his book “Irrational Exuberance” pointing out that valuations were overblown.…hhhhhmmmm.

More fiasco is building in the system as mortgage deficiencies threaten the ability of institutions to complete foreclosures.